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Foreclosed: Blame Bill Clinton’s Repeal of Glass-Steagall
FDR Signs the Glass-Steagall Act (Carter Glass on left)
Many Democrats wish Bill Clinton still occupied the White House. However, before you put him in Mt. Rushmore, you might want to investigate his role in the mortgage foreclosure crisis.
The chief aim of what I have termed the Republican Counterrevolution has always been to roll back the New Deal. Anti-gov’ment rhetoric hides this as surely as states’ rights hid racist segregation. Of all the New Deal legislation the GOP has sought to overturn, one that has always been at or near the top of the list is the Glass-Steagall Act. Ironically, a Democratic president repealed this for them.
Glass-Steagall
An unreconstructed Southerner from Virginia, Carter Glass shepherded the creation of the Federal Reserve System through Congress, which has caused some to call him the “founding father of the Federal Reserve System.” Later Glass would serve as Wilson’s Treasury Secretary, recommending aid to Europe after World War I. Just before leaving Treasury to become senator, Glass warned about banks getting involved in stocks.
In his economic history of the Great Depression, John Kenneth Galbraith pointed out one of the causes was:
The large-scale corporate thimblerigging that was going on. This took a variety of forms, of which by far the most common was the organization of corporations to hold stock in yet other corporations, which in turn held stock in yet other corporations.
Galbraith would note:
During 1929 one investment house, Goldman, Sachs & Company, organized and sold nearly a billion dollars’ worth of securities in three interconnected investment trusts—Goldman Sachs Trading Corporation; Shenandoah Corporation; and Blue Ridge Corporation. All eventually depreciated virtually to nothing.
It is hard to imagine today what it felt like to walk through the door of a bank in those days and learn that the dollars you had earned had vanished. Every day spent working and saving had been for nothing. A great many farmers, brick layers, carpenters, factory workers believed the bankers had stolen their lives.
When Franklin Roosevelt took office, both the President and Congress knew the banking crisis demanded immediate action. The result was one of the crown jewels of the New Deal: the Glass-Steagall Act, officially known as the Banking Act of 1933. Glass made sure the bill forbid banks from getting into the investment business. In addition, the bill established the Federal Deposit Insurance Company, which protects our bank deposits.
In 1971, in Investment Company Institute v. Camp, no less than the United States Supreme Court would write what stands as the most cogent summary of the reasons for Glass-Steagall:
Congress was concerned that commercial banks in general and member banks of the Federal Reserve System in particular had both aggravated and been damaged by stock market decline partly because of their direct and indirect involvement in the trading and ownership of speculative securities.
The legislative history of the Glass-Steagall Act shows that Congress also had in mind and repeatedly focused on the more subtle hazards that arise when a commercial bank goes beyond the business of acting as fiduciary or managing agent and enters the investment banking business either directly or by establishing an affiliate to hold and sell particular investments.
Many arguments the Supreme Court advanced in support of Glass-Steagall, would prove prophetic three decades later.
Bill Clinton and the Wall of Me
Billionaire Sanford I. Weill, who according to Louis Uchitelle made “Citigroup into the most powerful financial institution since the House of Morgan a century ago,” has what I call the Wall of Me leading to his office, which he has decorated with tributes to him, including a dozen framed magazine covers. A major trophy is the pen Bill Clinton used to sign the repeal of the Glass-Steagall Act, a move which allowed Weill to create Citigroup. Fittingly, Citigroup is a major contributor to guess which current Democratic Presidential candidate?
A Frontline report on the repeal of Glass-Steagall shows how those with money end up with pens from the President of the United States on their walls.
Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.
Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill’s chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, “You’re buying the government?”
When Bill Clinton gave that pen to Sanford Weill, it symbolized the ending of the twentieth century Democratic Party that had created the New Deal. Although the 1999 law did not repeal all of the banking Act of 1933, retaining the FDIC, it did once again allow banks to enter the securities business, becoming what some term “whole banks.”
The repeal of one of the most important pieces of legislation in this nation’s history came about as a result of another Clinton “triangulation,” the wobbling attempt to find the middle of the road that has somehow managed to pass for a philosophy with many Democrats for over two decades. As former Clinton campaign advisor Richard Morris once described it, you move a little to the left, a little to the right. I’d love to hear Clinton give that explanation to a foreclosed home owner today.
With the stroke of a pen, Bill Clinton ended an era that stretched back to William Jennings Bryan and Woodrow Wilson and reached fruition with FDR and Harry Truman. As he signed his name, in the whorls and dots of his pen strokes William Jefferson Clinton was also symbolically signing the death warrant of Liberal America and its core belief in the level playing field that had guided the Democratic Party. But it was the gift of the pen to Sanford Weill and its assuming an honored place on the Wall of Me that rubbed salt in the wound.In his famous First Inaugural Roosevelt pointedly asserted:
Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.
Now Clinton had not only repealed the act Roosevelt had put in place to curb those practices, but presented one of the pens used to sign it to one of those “money changers.”
What Hath Clinton Wrought?
What can be said in Clinton’s favor is that no one in 1999 anticipated the huge growth of the hedge fund industry and the subprime mortgage market. The New York Times described the new financial world created by the repeal of Glass-Steagall in a June 2007 profile of Goldman Sachs:
While Wall Street still mints money advising companies on mergers and taking them public, real money — staggering money — is made trading and investing capital through a global array of mind-bending products and strategies unimaginable a decade ago.
Curiously, Goldman Sachs head Lloyd Blankfein paints the perfect big picture of what has happened:
We’ve come full circle, because this is exactly what the Rothschilds or J. P. Morgan, the banker were doing in their heyday. What caused an aberration was the Glass Steagall Act.
Blankfein testifies to the full impact of Bill Clinton’s actions, for like many members of the Counterrevolution he sees the New Deal as an aberration and longs for a return to the days J. P. Morgan and other tycoons gave the Gilded Age its nickname. His “aberration” was eliminated not because of the actions of some radical Republican, but because of Bill Clinton. No wonder Goldman Sachs is also a prime contributor to you-know-who.
As is often the case, the story of the repeal of Glass-Steagall and the growth of the subprime mortgage market that is now crumbling around us like a financial house of cards can be best be told by a graph:
If you think of this graph as the level playing field, notice how flat it was before Bill Clinton repealed Glass-Steagall, then notice how steep it has become. Those subprime loans amount to nothing more than an organized ripoff of millions of innocent Americans, with the steepness of the graph illustrating the how far the playing field has tilted.
The result is that all of a sudden people are thinking Glass-Steagall wasn’t such a bad idea after all. Robert Kuttner testified before Barney Frank’s Committee on Banking and Financial Services in October, evoking the dreaded specter of the Great Depression:
Since repeal of Glass Steagall in 1999, after more than a decade of de facto inroads, super-banks have been able to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s – lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way. And, much of this paper is even more opaque to bank examiners than its counterparts were in the 1920s. Much of it isn’t paper at all, and the whole process is supercharged by computers and automated formulas.
Then there is Dow Jones MarketWatch’s Thomas Kostigen :
I’m not saying that Glass-Steagall would have made a difference to the evolution of the collateralized debt obligations. But it might have helped identify and isolated the damage.
As Congress continues to investigate the mortgage crisis, more people are wondering whether the repeal of Glass-Steagall was a mistake.
The Future of Your Mortgage
In testimony before Congress on November 8, Federal Reserve Chair Ben Bernanke painted a grim picture of the current crisis and even grimmer picture of the future:
On average from now until the end of next year, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate reset. [My emphasis]
According to a December 2006 study by the Center for Responsible Lending, a nonpartisan research and policy organization:
More than 2 million people with subprime loans are facing foreclosure this year and nearly 20 percent of subprime mortgages issued between 2005 and 2006 are projected to fail.
But numbers and testimony and even history mean little to those who suddenly find themselves up against the wall. In every city and town across this country “For Sale” signs are popping up on lawns. Behind each of those signs lies a personal story, a family tragedy, which like the tragedies of the Great Depression, tells of innocent Americans felled by an affliction they never saw coming. Walk any street in this country today–even in affluent neighborhoods–and each time you see one of those signs the hairs on the back of your own neck stand up, because those signs instill the same fear people felt when they walked into a bank in 1932 and found their money gone.
Two million people have found themselves one step away from figuratively being tossed out onto the street, the way millions were in the 1930s. Meanwhile, there are young people starting new lives for whom home ownership is rapidly receding, middle-aged people who finally had scraped together enough for a down payment only to find they can’t get a mortgage and older people for whom their home was their retirement and now find its value dropping like George Bush’s poll numbers. Finally there are even millions more for whom the collateral damage from the crises promises to cast its shadow over their American Dream.
The International Monetary Fund recently drew the following lessons from various financial crisis:
It is difficult to tell at the time whether a financial crisis will have broader economic consequences. Regulators often cannot keep up with the pace of financial innovation that may trigger a crisis.
Both have characterized what happened after the repeal of Glass-Steagall. It’s too bad Bill Clinton did not have their wisdom when he made his decision, but then when you make decisions by triangulating, how much weight do you give such studies?
And the current crop of politicians? Look again at the donor lists detailed in this site’s “Follow the Money” series. Then wonder why no moderator or other candidate has asked Hillary Clinton if she supports her husband’s repeal of Glass-Steagall? Ask the other candidates if they support Bill Clinton’s move.
Meanwhile the signs keep sprouting and the playing field keeps tilting and soon the snow will start to fall, drifting against the signs. How many more people will have lost their homes when the snow melts?
Tags: American_dream, American_families, anguish, apprehension, bad_news, banking_regulation, Baron_Rothschild, Bill_Clinton, Bush_tax_cuts, campaign_contributors, Carter_Glass, Democratic_candidates, Democratic_Party, Democratic_Presidential_candidates, economic_crisis, equity, FDR, federal_reserve_system, foreclosures, Franklin_Roosevelt, Frontline, future_of_the_Democratic_Party, Glass_Steagall_Act, Goldman_Sachs, GOP_Counterrevolution, Great_Depression, hedge_funds, Hillary_Clinton, Hillary_Rodham_Clinton, Iowa_caucuses, mortgage_defaults, mortgage_foreclosure, New_Deal, No_Child_Left_Behind_Act, presidential_debates, Republican_Counterrevolution, Sanford_Weill, state_supreme_court, suburban_homeowner, tax_cuts, triangulation, welfare_reform, Woodrow_WilsonTagged with: American_dream • American_families • anguish • apprehension • bad_news • banking_regulation • Baron_Rothschild • Bill_Clinton • Bush_tax_cuts • campaign_contributors • Carter_Glass • Democratic_candidates • Democratic_Party • Democratic_Presidential_candidates • economic_crisis • equity • FDR • federal_reserve_system • foreclosures • Franklin_Roosevelt • Frontline • future_of_the_Democratic_Party • Glass_Steagall_Act • Goldman_Sachs • GOP_Counterrevolution • Great_Depression • hedge_funds • Hillary_Clinton • Hillary_Rodham_Clinton • Iowa_caucuses • mortgage_defaults • mortgage_foreclosure • New_Deal • No_Child_Left_Behind_Act • presidential_debates • Republican_Counterrevolution • Sanford_Weill • state_supreme_court • suburban_homeowner • tax_cuts • triangulation • welfare_reform • Woodrow_Wilson
Dearest liberalamerican . . .
Your research is exceptional. The assessment is brilliant. I submitted this essay to Buzz Flash. I hope many will read this exposé and think before they cast a ballot. Democrats are not always as they appear.
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Foreclosed: Blame Bill Clinton
http://www.buzzflash.net/story.php?id=32414
November 28th, 2007 | #
Correct me if I’m wrong, but didn’t a Republican Congress first vote on the bill that Clinton signed into law?
Didn’t the Republicans control all three branches of government for the past five years?
Republicans had plenty of warning signs and plenty of time to correct the problem of subprime lending to unqualified borrowers.
Besides that, the subprime fiasco is just a symptom of a much greater problem with the economy, which was not caused by Clinton signing the repeal of Glass-Steagall Act. The economic problems we now face were created by the Republicans, not by the Democrats and certainly not by Bill Clinton.
Put the blame squarely where it belongs, on the Republicans, again.
November 29th, 2007 | #
I’m wondering if congress passed the repeal with a veto-proof majority. If not, blame Clinton AND Congress.
Face it…50 years ago, Clinton (BOTH of ‘em) would have been a republican. I’ve always considered him the best republican president ever elected by the democrats.
He gave us NAFTA…’nuf said.
November 29th, 2007 | #
Mr. Schmidt,
You obviously need to read this blog more before you tar it with broad brush–or better yet, read the book. You will see I have no love lost for what I term the Republican Counterrevolution.
You also should read the article again. The point of the article is that Bill Clinton not only SIGNED the bill, he intervened in the process to get the bill passed. The original bill WAS sponsored by Republican Phil Gramm of Texas. Clinton aligned himself with Gramm.
Here’s some additional research for you to chew on. In November 1999, the National Community Reinvestment Coalition sent President Clinton a letter urging him to veto the bill and along with it issued the following press release:
Other groups against the bill included Lutheran Office for Governmental Affairs, the Fair Housing Alliance, the National Low-Income Housing Coalition, the Coalition of Community Development Financial Institutions, Consumers Union, and the Volunteers of America.
The point is that Bill Clinton signed the bill and intervened to get it passed.
If you want to keep reading this blog, I will have a post in the next few weeks that more fully outlines Bill Clinton’s acquiescence to the GOP Counterrevolution.
November 29th, 2007 | #
At the risk of reposting…unless Congress had a veto-proof vote, we still can blame Bill.
I’ve always thought Cilnton was the best republican president the democrats ever elected. Face it Mr. Schmidt, 50 years ago BOTH Clintons would have been republicans.
Bill gave us NAFTA. ‘Nuf said.
All my family are dyed-in-the-wool democrats and NONE will accept any dirt about Bubba. I unregistered as a dem after the last two elections proved the dems are really repugs in wimpy clothing. My family won’t stand for that either…which makes them all sound like repugs too, doncha think?
No one is out there representing us. We have no functional government, just an empty shell and a ton of propaganda.
November 29th, 2007 | #
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# liberalamerican says
Mr. Schmidt,
You also should read the article again. The point of the article is that Bill Clinton not only SIGNED the bill, he intervened in the process to get the bill passed.
The point is that Bill Clinton signed the bill and intervened to get it passed.
—————
WRONG!
The point of the article is to unfairly blame Clinton (for everything) for a bill passed by Republicans. Just because Clinton also favored and signed the bill does not make it entirely his fault that the law was passed, as the article incorrectly concludes.
It is Congress who writes the laws, remember? Therefore, they get the major share of the blame, not Clinton. Historical revisions will not be tolerated.
December 1st, 2007 | #
Mr Schmidt,
Now you are not only criticizing the article, you are writing it! Amazing!
To quote: “The point of the article is to unfairly blame Clinton (for everything).” Thank you for telling me the point of my own article. The next time I need to know what I am really thinking about something I will have to call you because apparently you know more about what I am thinking than I do.
You also perhaps need to learn how to read. Please show me where the article blames Clinton for “everything?” And just what is “everything?”
“Historical revisions will not be tolerated.” That is bizarre. If that were true George Washington would still be chopping down cherry trees. And who will not tolerate these revisions? and what do you propose to do with these revisionists?
Besides reading lessons you might recheck your high school civics text. I do believe the President has to sign a bill to make it law. Or have you conveniently forgotten that fact? Do you remember something called a “veto?”
Although he faced a far-more hostile Republican Congress than Bill Clinton, Harry Truman had the guts to veto Taft-Hartley (which repealed the Wagner Act). Bill Clinton did not show similar courage or commitment to the principles of the Democratic Party.
December 1st, 2007 | #
Personally, I don’t think even you know what you are thinking. Funny how you continue to live in denial about the facts. Perhaps you need a refresher course in civics, particularly on how laws are made.
Trying to blame Clinton alone for a bill that was created and voted on in Congress is intellectual dishonesty. A few hundred people in Congress voted for this bill. Therefore, the major portion of the blame rests on their shoulders, not on Clinton. If they never would have passed the bill, Clinton never would have signed it into law. The Glass-Steagall buck may stop on Clinton’s desk, but it was first created in Congress.
Also, after two weeks no one else in the MSM or on the internet has blamed Clinton because it just is not true.
December 15th, 2007 | #
Mr. Schmidt,
I truly marvel at your mind. Now it is asserting that if the mainstream media do not choose to cover a story it must not be true. God help our country if everyone had your sense of logic.
The rest of your comment repeats yet again charges that have already been dealt with. You keep accusing me of blaming Bill Clinton for everything, yet refuse to cite evidence of where I say that. You refuse to acknowledge Clinton could have vetoed the bill or at least provided strong opposition. You refuse to admit Clinton intervened to help get the bill passed at the request of someone who stood to benefit from the bill.
This is becoming repetitious.
How about we agree to disagree and use our energies and my bandwidth for something more constructive.
December 15th, 2007 | #
Maybe I missed something, but the graph you included does not support your claim. Since it shows a marked increase in 1998 a full year before the subject legislation was repealed. That would seem to suggest another reason for the increase.
January 21st, 2008 | #
The graph plots year to year and draws a line between them, the increase is in 1999. Unless I failed miserably at reading it.
January 22nd, 2008 | #
The point of the piece is not to blame Bill Clinton alone, for the repeal of Glass Stegall and the ensuing disasters. The peice simply points out that Clinton was supposed to be a Liberal Democrat, unlike those who crafted the bill and voted it through congress. As a Liberal Democrat, he was our last line of defense against this travesty. And instead of calling it what it was, a prelude to a disaster, and vetoing it, he actively campainged for its passage and gladly signed it into law. He is not completely at fault, but he certainly bears some responsiblity. The point of the article is to show that.
January 22nd, 2008 | #
Yes, you did in fact fail miserably at reading it. :smile: The dramatic increase is from 1997 to 1998.
February 8th, 2008 | #
So didn’t the dramatic increase happen before Glass-Stegall was repealed/reformed?
March 29th, 2008 | #
To argue that congress bears a larger responsibility than the clintons in the repeal of Glass-Steagall is absurd and is itself an example of Clintonian triangulation. Accuse someone else of doing what you did. With his pen, Clinton is the only one who could repeal the law regardless of what the congress did.
However, some cardinal points of the repeal story are that Mr. Clinton, since his inauguration, advocated for it over the objection of many experts (Paul Volker, former fed chairman, for example), he brought Robert Rubin in from Goldman Sachs in the capacity of Secretary of the U.S. Treasury with the specific assignment of undoing Glass-Steagall.
It took them from their first attempt in 1993 until 1999 to pull it off.
This adventure is very different from other lawmaking activities if only for this reason: The only immediate beneficiary of the repeal was Sandy Weill, and shortly after repeal, Robert Rubin resigned as treasury secretary and went to work for Sandy Weill. And, since leaving office, Clinton has earned millions of dollars in the service of those same money men who profit from the financial crisis.
April 7th, 2008 | #
Too bad this article come so close to getting it right, but misses the real culprit:
Glass himself! The real culprit is the Federal Reserve Banking System. Glass-Steagall only put leg-irons on the Frankensein monster they created.
Glass was not the “Father of the Federal Reserve Act”. That would have been JP Morgan or Paul Warburg. Carter Glass was only one of the legislative sponsors, along with Senator Owen. The Owen-Glass Bill (formerley defeated as the Aldrich Bill) enabled the private banking cartel to take economic control over the United States of America in 1913.
Everything that happened since then has been secondary in importance as far as tracing the blame, or root cause of our monetaqry and ecomomic problems.
All of the deregulations and diminishing congressional oversight of US banking has since contributed to the problem, raised the national and public debt, and allowed fraud and corruption to run rakmpant.
But the huge, unforgable, unredeemable mistake was in allowing private bankers to gain control over our nation’s power to create, issue and regulate money, or currency.
Our nation is doomed to repeat the fate of Rome if we do not correct that mistake, and take back the power to create money.
Tinkering with a broken system will not fix the problem. Only gov’t should have the power to create and control money. Think no more national debt. Think taxes reduced by half - immediately. Think rebuilding US roads, bridges, dams, schools, and other infrastructure.
Think.
July 21st, 2008 | #
Actually you bring up a point I have referred to elsewhere: the original arguments over federal reserve were between Bryan and Glass over control of the system. Bryan advocated a system much as you describe. He lost. He wanted “civilians” to control our banking not bankers, So your point is well taken.
As for Warburg, you are also right in acknowledging his role as the “architect” of the system in a way Carter Glass was not.
July 27th, 2008 | #