They have bought so heavily into that stock that they now hold a portfolio without sufficient diversity to withstand turmoil in the political market, persistently holding on to toxic securities (because everyone knows it is all Bill Clinton’s fault, a fundamental that will never change, like ever-appreciating home prices), rather than sell off that non-performing asset and capitalize on a risky but promising situation, getting the Democrats back in control of the government.
Or, to eschew the over taxed metaphor, if Democrats would simply stop mindlessly repeating rightwing lies and the opportunistic misrepresentations of intra-party opponents, we might be able to get more power.
The current meme running around Left Blogistan that the entire mortgage crisis and the resulting meltdown we are now enduring is because Clinton sided with the Republicans to destroy the FDR era Glass-Steagall Act. Here is an example of exactly the kind of shallow analysis I see all over the blogs. One of my commenters, Potato Head, submitted this comment:
The first link is to an article written in late 2007, and is simply a hit piece on Clinton. It has incorrect timelines, does not cite a single piece of objective factual reporting on Clinton’s role in the situation, and is heavily larded with innuendo and fundamental misunderstandings of what “subprime” means (more on that later). My favorite piece is a graph that shows the effect of Bill’s “repeal” of Glass-Steagall – two years before the Gramm-Leach-Bliley Act was signed. The second comment link is to a canned AP report repeated in the CNN politics section, where Ralph Nader is quoted as the Democratic voice on the matter. (Thanks, Ralph.) I read these articles (as I do all links embedded in comments) and thought they were woefully short on facts, and thus decided to not publish PH’s comment. I did post a reply saying why I wasn’t going to post the comment and pointing out an alternative view. I got this response:
“While I did and do support Hillary, let's not whitewash her husband's role in this disaster, by signing, with no complaint, the legislation repealing Glass-Steagall that helped make this possible.
Contemporaneous account here.
Maybe, I remember at the time thinking, this isn't going to end well. Maybe Hillary had her own ideas about it, too. But I haven't seen any sign that she differed from Bill about it.”
(Note – I post both of PH’s comments in full so readers can see all of his/her argument without edits. I don’t care what PH says about me personally.) As I told someone recently, I don’t usually bother with commenters who try to hold comment thread arguments with me, but given the prevalence of this particular fallacy in the blogosphere and considering that is going to come bite the party in the ass big time very soon, I’m going to discuss the facts in context and with some attention to how CDS is putting Democrats in a bad position on this issue.
As I said in my comment, I support Hillary, and in addition to the analysis (by a progressive, I might add), I added a link to a contemporary news account, one of many available I might add, through Google, that showed quite clearly that Bill Clinton did not oppose repeal of Glass-Steagal [sic], or sign it under duress. Nowhere did I say he was entirely at fault. I simply said that he contributed to the disaster. In the real world, things are complicated. I think that's a fair opinion to hold.
But let's say that one can voice an objection to this opinion. For some reason you seem to think that your readers should be spared having to confront evidence that complicates their worldview, and so have elected to frankly censor it.
I am not a troll, and came to your blog back in June because I shared the disgust with Obama's tactics and the liberal blogosphere that the rest of your readers feel. But I can't help but conclude that you really aren't interested in robust debate or diversity of views, any more than, say, DailyKos is. I find that sad. It will certainly make me think twice about bothering with this blog in the future. ”
Let’s start by establishing some legislative facts about the Gramm-Leach-Bliley Act (GLBA) of 1999 which is viewed as the repeal of the Glass-Steagall Act of 1933. For basic background, I started here at the Wikipedia entry and followed various links to research the issue. The key paragraph is this one, in the section titled “Congressional history of the Act”:
The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed by a 54-44 vote along party lines with Republican support in the Senate and by a 343-86 vote in the House of Representatives. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns. The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This veto proof legislation was signed into law by President Bill Clinton on November 12, 1999.  The banking industry had been seeking the repeal of Glass-Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.Here are the key takeaways from that report:
- The Republicans controlled the Congress.
- There was a significant difference between the original Senate and House versions
- The Senate was deeply divided on the original version on a 54-44 party line vote.
- The House was not so divided on its version, voting 343-86, so many Democrats voted for it.
- The bill went into Conference and it was the Conference Report version that was eventually approved, 90-8-1 in the Senate, basically erasing Democratic opposition, and 362-57-15 in the House, making some small gains in Democratic support.
- It was a veto proof vote.
- It was signed on November 1999. Bills of this complexity usually take several months to become effective and several years because the implementation needs to be worked out.
On the Left, I’ve seen several attempts to link McCain to Gramm in order to discredit McCain’s economic positions (a good move IMO), but one line of argument goes after GLBA, claiming that there were few differences between the original toxic Senate version and the Conference Report which produced the final legislation. The legislation was therefore fundamentally the same, Phil Gramm is the mastermind behind the subprime mortgage mess and that Bill Clinton is the enabler, not pushing back to keep this from passing. (I guess this is seen, as mentioned obliquely in PH’s first comment, as some sort of legitimate objection to Hillary, which would also come in as a pro-Obama stance.) This is wrong, as will be shown later in this post.
On the Right, they are more than happy to agree that the subprime mess is all Bill Clinton’s fault, but Phil Gramm is the thwarted hero, not the evil instigator. The problem is not with GLBA, but with Bill Clinton’s refusal to agree to roll back the Community Reinvestment Act (CRA) as demanded by Gramm. This meant that the good, upstanding banking industry was forced to make bad subprime loans to minorities, the poor and in bad neighborhoods, which is the cause of the financial sector meltdown. The mortgage bubble was caused by the subprime mess which was caused by Clinton’s insistence on preserving the CRA.
And what is the Community Reinvestment Act that Gramm so frantically wanted to terminate? Back to Wikipedia as a starting point. This 1977 act, intended to fight back against redlining and discriminatory practices by banks against poor and minority neighborhoods and businesses, was updated by Bill Clinton in 1993/94, and which took effect in 1995. He expanded the number and size of loans available to small businesses, and to poor and minority home buyers. It had additional reporting and oversight provisions to ensure banks were complying with lending laws. Finally, he allowed CRA loans, including “subprime”, to be securitized as a way to encourage lending. The financial industry was all for securitization. What they objected to was the regulation of their loan practices:
Critics claim that government policy encouraged the development of the subprime debacle through legislation like the CRA, which in effect forces banks to lend to the same otherwise uncreditworthy consumers they are now being criticized for accepting.   Defenders of CRA disagree, pointing out that half of all subprime loans were made by institutions that are not subject to CRA and another substantial share of subprime loans were made by subsidiaries of banks that do not fully come under CRA. They estimate that the substantial number of riskier loans banks were forced to accept by CRA were not enough to be a problem.There are two things to take away from this. First, the claim that the financial crisis is a result of subprime loans that banks were “forced” to make due to CDRA is a dubious one. No one forced any lender to throw all of their underwriting practices out the window. Second, as Tanta of Calculated Risk tirelessly reminds us the subprime crisis is nothing compared to the Alt-A and prime crisis entering the market now. If you have not had the delight of reading Tanta, here are four excellent posts about the fallacy of “subprime”:
- What is “Subprime”? (Long, fascinating uber-nerd post, a must read)
- We’re All Jumbo Subprime Now
- We’re All Subprime Now
- Subprime and Alt-A: The End of One Crisis and the Beginning of Another
Is that, one wonders, what Mr. Doyle thinks is the difference between those subprime people and "us"? That while the subprime people hopelessly bungled their finances for selfish reasons, the prime people hopelessly bungled their finances for unselfish reasons?Them and us; the bad people who should never have been given loans and us nice people who are just a little down on our luck. Yeah, I think you can see the theme.
I am tempted to say that the real difference between prime and subprime borrowers is that in the former case the denial lasts a lot longer.
To return to our argument, the debate about subprime loans is a red herring offered by Left and Right alike to try to pin blame for the current debacle on someone else. Unfortunately, the Left wants to pin it on a Democrat, moaning and groaning about how Bill didn’t even try to keep this horrible piece of legislation from getting through, and the Republicans are happy to agree. As Potato Head said, “While I did and do support Hillary, let's not whitewash her husband's role in this disaster, by signing, with no complaint, the legislation repealing Glass-Steagall that helped make this possible,” And “[linked to a] a contemporary news account, one of many available I might add, through Google, that showed quite clearly that Bill Clinton did not oppose repeal of Glass-Steagal [sic], or sign it under duress.”
Didn’t even try to oppose it? Didn’t complain? Didn’t sign under duress? Why don’t we go look at one of those contemporaneous reports and see what really happened? I turn not to a short AP-generated political piece, but to an in-depth write up by a New York Times financial reporter (the NYT being no particular friend of Bill Clinton), “ Agreement Reached on Overhaul of U.S. Financial System,” by Stephen Labaton. Here are key paragraphs, but I encourage everyone to click through ands read the whole thing, as it is very informative. My emphasis throughout:
So what do we see in this contemporaneous report? That the White House had been pushing back on this act for months. That certain Congressional Dems, Dodd and Schumer foremost, explicitly wanted to kill Glass-Steagall. That the White House fought them as well as Gramm on this issue. That the White House rallied Democrats to present a solid front to the measure, requiring that the CRA be protected, which some Congressional Dems were just as happy to toss out along with all other protections.
The deal was announced about 2 A.M. after a compromise was reached over the measure's effect on lending rules for the disadvantaged, the source of months of partisan bickering between the White House and Senator Phil Gramm, the Texas Republican who heads the banking committee.
It concludes decades of attempts to rewrite banking laws to catch up with a marketplace that has already experienced broad consolidations and the rise of financial conglomerates offering bank and brokerage accounts as well as insurance. …
While the measure is likely to enjoy broad bipartisan support, it has also been criticized. Some lawmakers and privacy groups say the legislation does not adequately protect consumers and will allow financial companies to share and sell private information about customer accounts. Other critics worry about the further consolidation of the financial services industry. …
The breakthrough in Friday's legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats -- led by Christopher Dodd of Connecticut and Charles E. Schumer of New York -- forced a compromise between Gramm and the White House over the legislation's effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit.
Dodd, whose state is home to the nation's largest insurance companies, and Schumer, with strong ties to Wall Street, have long sought legislation to repeal the Glass-Steagall Act. Both men said in interviews Friday that they moved to strike a compromise after it became apparent that the legislation might be killed, as it was last year by Gramm, over the debate about the Community Reinvestment Act. …
But the White House found that provision unacceptable and had its own ideas about community lending. It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities. …
When Gramm's measure was defeated by one vote, it quickly became clear that there would be no law unless Gramm could get some Democrats to break from the White House.
But Administration officials had spent all day making sure that the Democrats remained solidly against the measure until their concerns about the Community Reinvestment Act could be worked out. …
Think back to earlier in this article when I pointed out what the votes were for this Act. This bill was barely opposed by Congress except for the language in the Senate version to kill the CRA. When Gramm backed down on that, there was overwhelming support. The vote was veto-proof. If Clinton had vetoed it, with a Republican controlled Congress and a majority of Democrats behind it, he would have been very publically rebuked by his own party in the form of an over-ride. It would have given the Republicans another arrow for the “anti-business Democrats” quiver.
Now, remember back to the discussion about the CRA and how long it took after passage to make it effective. The GLBA, a far more complex act, was signed in November of 1999. In 2000, we were looking forward to Gore’s election. This Act would have been implemented under Gore’s supervision, the wonk to beat all wonks. Thus, when Bush took over in 2001, and an entirely new form of financial services industry was charging forward, there was no attempt or interest in providing substantive policies and regulations to prevent exploitation of its provisions. Nope, we were playing by Enron Rules. This Act is the Republicans’ baby, passed with the enthusiastic support of Congressional democrats who would not even have cared about the CRA provisions if Bill Clinton has not told them he would veto it without those protections.
Thus, GLBA was yet another episode in spineless Democrats capitulating to, oh, excuse me, acting in bipartisan accord with greed-head Republicans, and then blaming Clinton for signing what they strongly supported.
The point is not that it was a good or bad act for Clinton to sign. (After all, one of its authors is the enthusiastic Obama-supporting Republicans, Jim Leach. Repeat - GLBA was written by an Obama supporter.) The point is that the obsession with assigning all blame for Democratic failures, real or imagined, to Bill Clinton is a political failure that continues to pay dividends to the Right. Now is the time to be piling this stuff right on top of the Republicans, making it crystal clear that this shitpile is one of their making, crafted by them, overseen by them, encouraged by them, and now to be owned by them. You won’t do that by remaining invested in seeing Bill Clinton as the primary point of failure of Democratic policy and politics, and relegate the rest of the political actors, especially the opposition, into minor roles.
Do you really want to be arguing, this close to the election, that the mortgage meltdown is the Democrats’ fault?