Wednesday, September 5, 2012

What Bush Inherited from Clinton

Having proclaimed the transcendent greatness of Michelle Obama the media is readying itself to shower Bill Clinton with encomia.

Those of us who have the misfortune to watch the Democratic National Convention through the lens of the mainstream media will be regaled about stories about the greatness of Clinton and the failure of Bush.

Not only is the media biased, but it has a very short memory.

While it is agonizing over the mess that George Bush left for Barack Obama, media flacks are conveniently forgetting the mess that Bill Clinton left George Bush.

Happily, Charles Gasparino takes a look back at the Clinton record today. His is the article that everyone should be reading today.

Gasparino reminds us, for example, that Bill Clinton lay the groundwork for the housing crisis by implementing a policy of increased homeownership. The Clinton administration began the practice of forcing banks to hand out subprime loans.

In his words:

Clinton charged his Housing secretaries, Henry Cisneros and Andrew Cuomo, with driving homeownership rates up to about 70 percent of households from around 64 percent in the early ’90s.

How did they do this? Through rigorous enforcement of housing mandates such as theCommunity Reinvestment Act, and by prodding mortgage giants Fannie Mae and Freddie Mac to make loans to people with lower credit scores (and to buy loans that had been made by banks and, later, “innovators” like Countrywide).

The Housing Department was Fannie and Freddie’s top regulator — and under Cuomo the mortgage giants were forced to start ramping up programs to issue more subprime loans to the riskiest of borrowers.

We know how that turned out: Fannie and Freddie help stoke a housing bubble that actually made homeownership less affordable unless borrowers took out ever-more-risky loans. Eventually, both agencies imploded (along with the housing market); bailing them out since 2008 has already cost taxpayers more than $100 billion.

(And, yes, Bush continued Clinton’s policies — but did try to rein in Fannie and Freddie in his later years, before the meltdown. But Democratic barons in Congress like Rep. Barney Frank balked at stopping the train before the wreck.)

Gasparino also reminds us that the Clinton administration led the charge for banking deregulation by pushing the repeal of Glass-Steagall.

Republicans were on board with removing the barriers between commercial and investment banking, but the brains behind deregulation belonged to Robert Rubin, who then profited from the new law as chairman of the executive committee at Citigroup.

When Citigroup teetered on the edge of insolvency, this same Robert Rubin, uber-banker, claimed that he did not know what was going on at the bank.

Gasparino does not mention it, but if we are now judging an administration by what happens in the months after it leaves office, how about giving some thought to the feckless Clinton counterterrorism policy, the one that might have contributed to what happened on September 11, 2001.


n.n said...

Iraq. To be fair, Bush Sr. should have concluded that affair. The no-fly zones were a mistake. Clinton could have ended it, but instead chose to poke and provoke Muslims in other lands, and start a war with Serbia.

There was a Republican legislative effort (H.R.3703) to audit the GSEs as early as 2000. It never left committee. The congressional dynamic is far from clear.

Also, though many people would like to ignore his complicity, Obama was a causal factor for the financial crisis. He, along with other lawyers, and activists, sued banks to force them to lend to high risk individuals.

The behaviors which followed from coercion are clear. I wonder what behaviors eventually developed as side-effects.

Anonymous said...

Fannie Mae wasn't just a tool of Clinton or Congress, either. More like a co-conspirator. If you read "Reckless Endangerment", you'll find that the whole housing market collapse started at Fannie Mae, during the 90's, while it was being run by James Johnson. Google "James Johnson Fannie Mae" to read more about him.

(If you just google James Johnson, you'll get articles about the NBA player mixed in there.)

Other lenders got in on the game soon enough, and it couldn't have gone as far as it did without the collusion of the Democrats in Congress and the White House. But Johnson got the ball rolling.

n.n said...

So, there were side-effects. The development of corruption is, unsurprisingly, a progressive process. The de-facto policy of political correctness was, ostensibly, exploited as both an offensive and defensive measure in the enactment of these policies. It was predictably a contributor to progressive corruption (i.e. cultural).

I wonder how many individuals, in both parties, have managed to preserve their integrity.