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.

Conclusions

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.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Mar 14, 2012, in Bill Clinton, economics, Economy, Fannie Mae, Freddie Mac, Great Recession, news, Opinion, Politics, U.S. Economy. Bookmark the permalink. 4 Comments.

  1. Trying to out smart a billion individual decisions in a free market is a fool’s errand.

    • Succinctly put… I just provided the ammunition that proves it. 😉

      Btw… I’m not done talking about the causes of the 2008 recession… there are still a lot of fingers to point!

  2. You are correct to point out Silly Billy’s role in this Wall Street collapse.

    But, you forgot one more act of silliness. In December 2000, Bill signed a new law taking away any derivatives regulation from the CFTC, in retaliation to the CFTC chair suggesting she had jurisdiction. Larry Summers, Robert Rubin, Tim Geithner too then an apprentice to either Summers or Rubin, Alan Greenspan, and Billy all ganged up on the woman at the CFTC who wanted to stop the chicanery when it was only $1trillion large. The good old boys club got her, and they were Democrats. Jefferson and Jackson would not recognize the modern Clinton-Obama Democrat party that is friendly with big banks.

    • That part got past me… is that in Mortenson’s book?

      You know your stuff…
      You mentioned prominent culprits and a couple “feckless regulators” who all had a hand in the demise of the country.

      You didn’t mention the biggest culprit of them all, though (its not Barney Frank. lol!!!). You know who that guy is?

      I’ll be writing an article about him. I call him, “The Man Who Ruined The Economy”

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