A short time ago, I finished reading Laurence Lewis’ recent FP story entitled Hillary Clinton wanted to regulate Wall Street before the crash, and has concrete plans to do it now. Now, Clinton apologists can write anything they want. I get it. If they want to defend Hillary for pocketing millions of dollars in so-called “speaking fees” from Wall Street while she was planning to run for president, go for it. If they want to defend her keeping what she actually told Wall Street secret from voters, go ahead. But L.L.’s false claim about how “Hillary wanted to regulate Wall Street before the Crash” and how she has concrete plans to do it now is just too much to take.
First, let’s have an honest discussion of one of major causes of the 2008 Crisis, Bill Clinton’s deregulation of the finance industry.
How convenient to ignore the Financial Services Modernization Act, which Clinton signed into law to summarily end the Glass-Steagall barrier against the commingling of investment and commercial banking. Do the Democrats not remember that Citigroup, the first too-big-to-fail bank made legal by the law Clinton signed, became the $15 million employer of Robert Rubin, the Clinton treasury secretary who led the fight for the law that legalized the creation of Citigroup? Or that Citigroup—led by Sanford Weill, to whom Clinton gave one of the souvenir pens he used to approve that onerous legislation—went on to be a major player in the subprime mortgage swindles and had to be bailed out with more than $50 billion of taxpayer funds?
Those scams were based on bundling suspect mortgages into collateralized debt obligations (CDOs), backed by the phony insurance of credit default swaps (CDSs), all of which were given “legal certainty,” to quote Lawrence Summers, who replaced Rubin as Clinton’s treasury secretary. It was Summers who encouraged Clinton to sign the Commodity Futures Modernization Act, which declared CDOs and CDSs immune to any existing regulatory law and the purview of any regulatory agency.
L.L. claims Hillary wanted to tighten up regulations on derivatives in Novermber of 2007, when it was her husband and his Treasury Secretary who wanted and got them deregulated in December of 2000. There is no evidence Hillary was against her husband deregulating derivatives the month before he left office.
Furthermore, there is zero evidence Hillary actually wanted to reregulate financial derivatives when she was a U.S. Senator from the State of New York. She never introduced legislation to reregulate derivatives. She didn’t sign on or co-sponsor any legislation to reregulate derivatives. She didn’t vote in favor of any reregulation of derivatives. She didn’t provide any detail at all about what derivative reregulation should look like or what type of reregulation she wanted to see. She did nothing. So while L.L. writes a lot of fluff about the Big Short and various other topics, that fluff serves only to distract from the fact Hillary did nothing to indicate she wanted to regulate Wall Street derivatives prior to the Crash.
L.L bases his specious claim Hillary “wanted to regulate Wall Street” from this bit of Goldilocks “not to hot, not too cold” pap from one of Hillary’s speeches from November, 2007:
I believe in our markets, but markets work best when there is information flow. And a lot of these new financial products are not transparent. The market doesn't have enough information about them, and certainly buyers don't. Today, we need a sensible middle ground between heavy-handed regulation and a hands-off approach to a risk that can hurt the innocent, as well as the sophisticated buyer
It’s weak sauce when a politician only pays lip service to a problem, instead of using the power of their elected office to actually fix the problem. Other than these weak words, Hillary actually did nothing. Zero. Nada. She made no effort whatsoever to reregulate the derivaitves her husband unleashed to create havoc on our economy. And because of her husband, derivatives couldn’t be regulated unless a law was passed. Weak sauce indeed.
Same with mortgage bonds. Hillary did nothing to regulate mortgage bonds, the financial product underlying the derivatives.
Let’s turn to the mortgage crisis itself. L.L. lists a number of people who were early to predict the Great Recession. He mentions Nouriel Roubini (predicted crisis in 2005), Dean Baker (saw housing bubble in 2002), Paul Krugman (in 8/2005 NYT editorial stated housing bubble beginning to deflate), George Soros (predicted recesion January, 2006) and Joseph Stieglitz. (See an extensive list of early predictors here). The implication here is L.L. wants people to believe Hillary saw the recession coming early.
She didn’t.
L.L. goes on to claim Ben Bernanke didn’t see problems with mortgages, but Hillary did. This claim is false. To make the false appear true, L.L. intentionally omits what Bernanke said in March of 2007 in order to give DKOS readers a false impression. Here is what Bernanke said about mortgage delenquincies.
Developments in subprime mortgage markets raise some additional questions about the housing sector. Delinquency rates on variable-interest-rate loans to subprime borrowers, which account for a bit less than 10 percent of all mortgages outstanding, have climbed sharply in recent months. The flattening in home prices has contributed to the increase in delinquencies by making refinancing more difficult for borrowers with little home equity. In addition, a large increase in early defaults on recently originated subprime variable-rate mortgages casts serious doubt on the adequacy of the underwriting standards for these products, especially those originated over the past year or so. As a result of this deterioration in loan performance, investors have increased their scrutiny of the credit quality of securitized mortgages, and lenders in turn are evidently tightening the terms and standards applied in the subprime mortgage market.
* * *
This forecast is subject to a number of risks. To the downside, the correction in the housing market could turn out to be more severe than we currently expect, perhaps exacerbated by problems in the subprime sector.
Let’s compare what Bernanke said with what Hillary said and see if they disagree as L.L. claims.
According to most recent statistics, delinquent payments now affect more than 13 percent of subprime loans in our country. That's the highest level in four years. Now, many would attribute this rise to unsophisticated homebuyers, even irresponsible buyers, or the subprime market itself. But the foreclosure rate for all mortgages increased by more than 17 percent in the last quarter of 2006. That's the highest foreclosure rate in four decades
Sorry, but Hillary in March 2007 isnt saying much different than what Bernanke said during the same time. Hillary didn’t see the financial crisis coming or the housing bubble deflating, even though Krugman blasted it on the NYT editorial pages in 2005. To see the crisis coming, one didn’t need a crystal ball. All anyone needed to do was read the NYT. But to see problems in subprime mortgages in March 2007, all one needed to do was look at default rates, just like Bernanke and Hillary did.
But let’s assume Hllary saw a crash coming. L.L.’s big claim is that “Hillary wanted to regulate Wall Street before the crash.” So, what evidence does he present show Hillary’s desire to regulate Wall Street? He doesn’t really say. As shown above, he pointed to her Goldilocks statement about deriviatives. But Hillary never did anything to regulate Wall Street concerning derivatives. Where is she regulating Wall Street?
While not making any specific claim, L.L. points to Hillary’s American Home Ownership Preservation Act of 2007. So, lets examine Hillary’s bill, and see if it attempts to regulate Wall Street. Hint--it doesn't.
American Home Ownership Preservation Act of 2007 - Amends the Truth in Lending Act to require certain mortgage originators or lenders with primary responsibility for underwriting an assessment on a home mortgage loan to include a borrower's ability to repay certain associated costs.
Requires a mortgage broker to clearly disclose its relationship to the borrower.
Directs the federal banking agencies to establish a nationwide registry and database system in which all mortgage brokers in the United States must register.
Eliminates prepayment penalties for home mortgages.
Instructs the Secretary of the Department of Housing and Urban Development (HUD) to make grants to state governments and tribal organizations to assist: (1) programs established for foreclosure mitigation; and (2) housing trust funds supporting low- and moderate-income housing.
Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to direct the HUD Secretary to establish an annual goal for each government-sponsored enterprise to identify and assist homeowners at risk of default or foreclosure on their mortgage, but who would be able to stabilize the situation with fixed rate 30- or 40-year mortgages.
Authorizes appropriations for mortgage fraud enforcement and prosecution.
Again, this legislation does nothing to regulate CDOs, mortgage bonds, or any of the options or derivatives L.L. spends so much time discussing. It also does nothing to regulate Wall Street banks.
And most interestingly, L.L. doesn’t claim that this legislation regulates Wall Street. L.L.’s failure to claim argue this bit of legislation regarding mortgage brokers and their disclosures regulated Wall Street banks is an admission that it does not. The claim that “Hillary wanted to regulate Wall Street before the crash” simply isn’t true.
Now let’s look at Hillary’s views on Wall Street bankers escaping all criminal punishment, even though Bush Sr. obtained over 1,000 felony convictions for the crimes surrounding the much, much smaller Savings and Loan Scandal. Hillary, in her recent Daily News interview, says:
Daily News: Should some of those culprits have been prosecuted, and in prison, successfully? Does that rankle you?
Clinton: Well, it rankles me that I don't believe we had sufficient laws, sufficient prosecutorial resources to really go after what could have been not just dangerous, unethical behavior but perhaps illegal behavior. I've talked with some of the people responsible for trying to determine whether there could be cases brought. And they were totally outresourced.
We haven't adequately resourced the regulators — SEC, Commodity Futures Trading Commission, FDIC — and we have not sufficiently resourced the Justice Department and U.S. attorneys to have the expertise and the ability to go after anything they sought.
Daily News: There's two slightly different questions. One is, was it a problem of law or was it a problem of prosecutors not being sufficiently resourced?
Clinton: The prosecutors tell me it was the problem of the law. Other analysts, as you well know, have said that there could have been more vigorous efforts that might have led to prosecutions. Now there were cases brought in some of the mortgage companies. There's also a problem with the statute of limitations, because these are difficult cases to bring. They take a long time. I think we should certainly extend the statute of limitations.
So I'm not going to second-judge people who I believe were acting in good faith, because I think they were — U.S. attorneys, Department of Justice prosecutors. But they concluded that they could not make cases. So I think we have to have a very robust analysis of what were the real reasons they couldn't make cases. Are the laws insufficient? Therefore how do we try to make them tougher as a deterrent and make it clear to people in the financial services industry that there's a new sheriff in town so that there will be additional legal requirements and we will resource better.
So I think we have to take a hard look at this, and I believe we can do that.
Here, supposedly tough regulator Hillary excuse the failure to make Wall Street obey our country’s criminal laws. Sorry, but her claims that there weren’t enough resources and that our criminal statutes are now somehow deficient don’t fly. Concerning resources, there are more prosecutors and SEC regulators now than during Bush Sr.’s Administration. What has the Justice Department and SEC been doing that took prescedent over prosecuting the multi-billion dollar bank and securities frauds that destroyed the economy? Johnny buy a pound of weed?
This “lack of resources” claim is bullshit. If it were close to being true, more money could have been budgeted when the Democrats controlled Congress between 2008-10. No U.S. Representative or Senator in their right mind would have voted against more resources to prosecute Wall Street Banks. The real problem was a lack of political will to crack down on Wall Street. Hillary shows that same lack of will.
Concerning our laws, we don’t have insufficient laws. Our nation’s securities fraud, bank fraud, wire fraud, and RICO statutes haven’t been weakened since Bush Sr. sent 1,000 bankers to prison with felony convictions. This claim too, of insufficient laws, is bullshit.
Hillary excuses the Obama Administration’s complete failure to prosecute Wall Street. She buys the excuses of “not enough people’ and “insufficient laws.” So there is no indication Hillary wanted to regulate Wall Street before or even during the Crash. She excused the government’s failure to use our criminal laws post-Crash to regulate Wall Street is damning.
Let’s close on Hillary wanting to regulate Wall Street today, speciffically the “too big to fail” Wall Street banks. Hillary refuses to push for breaking them up. These banks were too big to fail in 2008. We were forced to provide them with billions in taxpayer funds, along with trillions in loans and asset purchases from the Federal Reserve to prevent a worse economic collapse. Now, the too big to fail banks are even bigger. So, the danger is worse. Why wait to the next crash to break them up? It makes no sense.
The too big to fail banks are a ticking time bomb. They are a sword hanging over our heads. They are a danger and need to be made less dangerous now, instead of waiting until the next crash, when again, they will be too big to fail. Want to regulate shadow banks too? Great. The more Wall Street regulation the better. But the too big to fail banks need to go.
So, contrary to the claims in L.L.’s FP article, Hillary Clinton did nothing to regulate Wall Street banks pre-crash. She also excuses the failure to prosecute the Wall Street banks in the aftermath of the Crash. Finally, her plan to regulate Wall Street banks is inadequate because it fails to break up the too big to fail financial institutions today.