We all remember the wonderful carefree days of the Clinton Administration, notably the second lame-duck term during which much was accomplished, for good and for bad. The economy was growing, unemployment was low, and the stock market performed swimmingly. Congress impeached the President, but most of the balding white men involved in the Broadway production secretly played intern with their Bill Clinton action figures. President Clinton did not embroil us in some meaningless conflict murdering innocent civilians and upending an entire civilization for no good reason. Instead, although late and saturated with poor political and policy decisions, he brought an end to the bloody and disturbing conflict in former Yugoslavia. With this and other foreign policy successes and a humming economy, it was peaches and cream in the United States. At least we thought it was.
What was overlooked at the time was the legislative unraveling of significant and efficacious financial regulation that took place in the final years of the Clinton Presidency. Following a decade of banking deregulation, Glass-Steagall was demolished by the Gramm–Leach–Bliley Act, the depression era law that had kept banks and investment houses separate entities, and ensured that bank deposits were not ultra-leveraged and gambled with on risky Frankensteinesque financial products cooked up by some MIT graduate using complicated algorithms. The benign sounding and exceptionally complex Commodity Futures Modernization Act of 2000 also passed and was signed into law by President Clinton. The law ensured that over-the-counter derivatives, you know, those adorable little weapons of mass financial destruction that helped fuel the financial crisis and sank AIG into bankruptcy, would not be regulated by the SEC or the CFTC, or by anyone else for that matter. Each of these laws was boosted by Republican lawmakers, specifically Senator Phil Gramm, and his financial backers. Unfortunately, the economic and financial markets advisers that held Clinton’s ear signed on to the right wing plan willingly as well.
Times were great, and after more than a decade of lesser financial regulation, the conventional wisdom was that more regulatory downsizing would ultimately juice the system to yet new highs, lifting all ships and dominating the world’s financial system. Nothing could go wrong, well, at least that’s what President Clinton’s advisers counseled, notably Larry Summers, Alan Greenspan, Arthur Levitt, and William J. Rainer. Each man an imbecile in his own unique way. The first signs that the The Commodity Futures Modernization Act was a flop came not one year later when Enron Corporation crashed due to the collapse of unregulated single-stock futures and over-the-counter energy futures given the stamp of approval by the act.
The futures themselves had been prohibited since 1982 under the Shad-Johnson Accord (Later reinstated in 2008 by overriding a George W. Bush veto), but Senator Phill Gramm insisted that the futures be included in the legislation at the behest of his financial contributors at Enron. Mr. Gramm’s wife also landed on the board at Enron following the deal. Ironically, the small loophole that allowed Enron to enrich itself and later implode was almost lost by Gramm’s overreaching on the larger legislation. But Gramm wanted it all. He wished to remake the derivatives markets completely, notwithstanding his utter absence of erudition on the matter. Ultimately, a deal was struck and Gramm achieved nearly all of the deregulatory reform he had set out to accomplish on behalf of his overlords on Wall Street. The moral of the story here is that Phil Gramm is a giant douchebag. The man is certainly a testament to the idea that a brilliant financial and political mind otherwise devoid of common sense or morality is a dangerous weapon.
President Clinton also signed sweeping welfare reform legislation–the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Passed in first term, although just prior to the election). While Clinton had promised to reform the welfare system during the campaign, the bill which was signed into law was largely fashioned by Newt Gingrich and his fellow Republicans in the Congress. The President had vetoed two previous versions, and the prospect of a third veto on a subject certain to be a major campaign issue was too great a political risk. Clinton also signed the Balanced Budget Act of 1997, which largely did nothing but appease Republicans and unnecessarily tie the hands of legislators. He also signed the Taxpayer Relief Act of 1997, which irresponsibly lowered the capital gains tax rate and raised the estate tax threshold. Unfortunately, the majority of these bills received wide bipartisan support.
Last but not least, Clinton signed the Securities Litigation Uniform Standards Act of 1998 to amend and apply to the states the Private Securities Litigation Reform Act of 1995, which greatly limited class action relief for violations of securities fraud and forced most litigants into federal court. The legislation was championed by Wall Street. It should be noted that Clinton did however mix in some laudable achievements along the way. For example, the Workforce Investment Act of 1998 which provided youths with interesting work opportunities and provided assistance for the training of individuals in coordination with employers for longer term employment. He also strengthened environmental laws and designated large areas of the Untied States and its shores off limits to developers and corporations.
I believe the Clinton administration, notably the second term, provides a glimpse of what may be in store for the United States if Barack Obama is successful in winning the Presidential election this November. Clinton was by all accounts a brilliant man, but also a pragmatist. Likewise, Obama is a brilliant man, yet his bow remains forever moored to practicality. It is unclear which of the two men owns a more principled belief system in progressive ideals or the very foundation of fairness. Once embarked upon a second term, a President and his or her staff naturally pivot from a focus on winning reelection to a course designed to buttress perceived legacy. Part and parcel of any legacy is the notion of accomplishment. For Clinton, working with a Republican House and Republican Senate in his second term offered few options for real progressive achievement. Instead, although wildly popular with progressives and independents alike, he chose to embark on a path of financial deregulation and a focus on specious budgetary issues. Leaving aside his significant foreign policy work, his domestic policies laid the groundwork for the 2008 financial collapse. It will never be clear whether he had an acute understanding of the ramifications of his actions or instead deferred to his team of economic adviser boneheads.
It appears likely that Obama will prevail in November, ridiculous and overstated fears of an economic collapse in Europe or war with Iran notwithstanding. It also appears likely that he will govern alongside a Senate that will be only marginally majority Democratic, or majority Republican, and a House which remains controlled by Republicans, leaving him in much the same political place that Clinton found himself in late 1996. It is extraordinarily unlikely that major financial deregulation will be on the agenda, even with Republican majorities in both houses of Congress. However, taxes, environmental regulation, discretionary non-defense spending, Medicare, and Social Security are sure to be scorching legislative wish list items for the Republicans. Most notably because they will be able to deflect responsibility for any adverse consequences onto the executive branch. The question is how President Obama will respond. Since 2008, the American public has unfortunately shown little regard for organizing in efforts to strengthen financial regulation. Jobs and unemployment have dominated the past few years’ political agenda, and will likely do so for years to come.
Much like Bill Clinton surrounded himself with narcissistic idiots, President Obama has done the same. From Geithner at Treasury, Bernanke at the Federal Reserve, to Salazar at Interior. His financial advisers portfolio of accomplishment reads like the syllabus of a graduate seminar entitled “What not to do in the face of a financial crisis.” Eric Holder at Justice appears determined to finish out his first term without prosecuting a single financial fraud case, praying that the statute of limitations frees him from any responsibility to act.
When Social Security ultimately finds itself center stage–and it will–will Obama stand and fight for facts or give in to pragmatism and swallow the conventional wisdom that changes must be made, and that raising the threshold of income subject to the tax is off the table as “job-killing?” Marco Rubio and his merry band of individualists have been plastering their pandering faces on television screens from Pompano Beach to Peioria spewing reasonable sounding rhetoric concerning the sacrifice we not-yet-retirees have to make in order to ensure that the Greatest Generation continues to receive its benefits.
Tax cuts, specifically the Bush tax cuts, will be extended this year temporarily and will be back front and center next year. Will Obama show progressive will and simply allow the cuts to expire in the face of unreasonable Republican demands, or will he allow himself to be pushed into extending disastrously low rates for the wealthy going forward? Will he ask for anything in exchange? Perhaps increases in the Social Security tax threshold or increases in the capital gains tax rate? Will he allow the grossly irresponsible 2% Social Security payroll tax cut that he championed to expire on schedule and end a two year period in which a Democratic President cavorted with the funding mechanisms of the program? Will he allow Grover Norquist to frame the tax debate? Obama has made it no secret that he has slight respect for Wall Street financial executives and little patience for arguments advocating that the value of their complicated concoctions as real and tangible. Will he act on his beliefs once reelection is no longer a concern?
Medicare will also be a principal Republican target over the next four years. Just the idea of the program is enough to burst Tea Party activists into flame. Of all of the federal programs under Republican attack, Medicare is the weakest target. It is the program most often conflated with ideas of socialism. It does in fact face future financial problems as currently constructed. The projections of financial solvency can be realistically spun by Republicans to predict dire consequences if action is not taken. The proper course of action is of course to begin to control expenditures, negotiate drug prices, and bring health care costs generally more in line with those of other industrialized nations. The Republican approach will be more of the same, frightening people into believing something that is actually false on its face in order to destroy another Democratic program in its long-term effort to drag its opponents onto an equal competitive footing with them. Will Obama give in and attempt to buttress his legacy by “reforming” Medicare in the Republican Tea Party image or will he defend the program as one of the Democratic Party’s crowning achievements?
Looking back over the past accomplishments of the modern Republican Party, it is impossible to point to a single major piece of legislation sponsored by Republicans that had the practical affect of bettering the lives of middle-class Americans and those in poverty. It is also impossible to find a single piece of financial deregulation legislation championed by Republicans that didn’t have deleterious consequences for the very same middle-class Americans and people in poverty. Yet, in the final four years of the Clinton Administration, Republicans were somehow able to convince a Democratic President to gut the welfare system and light the fuse for worst financial collapse since the Great Depression. The political forces that will soon be weighing on President Obama to build a legacy of achievement are staggeringly powerful. The group-think that will infiltrate his policy discussions with experts and advisers will be daunting and difficult to overcome. Following the past few years of Republican State Legislatures busily redistricting their State’s Congressional Districts in order to ensure Republican Congressional vicories, it will be incredibly important for Obama to stand firm in his second term. But will he?