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. Continue reading