Recession 2008: Clinton’s Contribution!
A widely held misconception is that George W. Bush caused the Great Recession of 2008. That is incorrect. The President most responsible for the recession is none other than William Jefferson Clinton.
Its true that this recession hit us like a ton of bricks in the last year of George W’s presidency, but Bill Clinton was far more responsible for it than ol’ GW.
If you wanna get the low-down on what really caused this recession then find and read the book Reckless Endangerment.
Its co-authored by Pulitzer Prize winning New York Times business reporter Gretchen Mortenson and financial analyst Joshua Rosner. Its a definitive investigation worthy of an economics textbook.
This book names names and points fingers. One finger is pointed squarely at President Clinton. President George W. Bush warrants no specialized attention.
Why President Bill Clinton?
Clinton gets marquee treatment in Reckless Endangerment for two fundamental reasons:
- Clinton established official government policy to increase home ownership to 70%
- Clinton pushed repeal of the Glass-Steagall Act
There was no malfeasance or malicious intent on the part of Clinton. Both moves were well intentioned.
The American Nightmare
When Bill Clinton became President in 1993 American home ownership was at around 60%. Many Americans still had not yet realized the American dream of home ownership.
Nobody can fault President Clinton for wanting to up that to 70%. Then more Americans could live that dream, especially lower income citizens.
He made that official government policy in the 1990s and Congress passed numerous laws to make it happen. George W. continued that policy during his administration and Congress supported the policy with more new legislation.
The Glass-Steagall Act
Glass-Steagall, officially called The Banking Act of 1933, was passed in the darkest hours of the Great Depression. Its centerpiece was making it illegal for banks to invest customer deposits in the stock market and in other speculative investments.
Questionable speculation by the nation’s banks was the direct cause of the Great Depression when the house of cards came tumbling down on Black Tuesday – October 29, 1929.
In exchange for banks agreeing to get out of speculative investments, Glass-Steagall established the FDIC to federally insure and protect customer deposits in case of bank failures. It worked flawlessly for nearly 70 years.
In hindsight, its easy now to say it was stupid to gut the soul of Glass-Steagall and allow the nation’s banks, once again, to become investment houses and take on speculative activities.
But in the 1990s it was a commonly held belief that federal regulations implemented since 1933 were more than sufficient to prevent another depression. It was thought that Glass-Steagall had become an anachronism holding back economic growth.
Bill Clinton became convinced this was true, so championed repeal of Glass-Steagall beginning in 1995.
President Clinton’s goal was realized when The Gramm–Leach–Bliley Act was passed. Believing it would unleash even more prosperity than experienced during his own presidency, President Clinton made a huge celebration out of signing the act into law on November 12, 1999.
It was widely hailed as Clinton’s last major accomplishment as President.
First, federal law backing Clinton’s 70% home ownership policy facilitated extending credit loans to more and more low-income Americans who ultimately could not afford to pay for them.
Second, government-backing allowed Fannie Mae and Freddie Mac, the home mortgage giants, a competitive advantage over rivals that they used to corner the market on home mortgage loans while servicing the Clinton policy. They literally certified the good credit of all loans made to low-income Americans that led to economic ruin.
Third, gutting Glass-Steagall allowed banks, once again, to make speculative investments. And guess where they speculated? Yup, that’s right!… mortgage backed securities!!
In the early 2000s, with 1990s help from President Bill Clinton, those three things converged to fuel a perfect storm that brought down the entire U.S. economy in 2008.