Bill Clinton’s Self-Criticism
Peter Baker interviewed Bill Clinton for a New York Times Magazine article and some interesting material from the interview ended up on the cutting room floor. David Leonhardt does us all the favor of posting an interesting section on the Economix blog in which Clinton expresses some regrets about his administration’s economic policy. He defends himself (persuasively, I think) from the charge that Glass-Steagall repeal was key to the economic crisis. He also defends his trade policy record (which I agree with, but what he actually says here is probably too vague to convince anyone) but says that he thinks he erred on derivatives regulation:
But I do believe on the derivatives they made the argument, the people who were against regulating it, that people like you weren’t buying derivatives. It wasn’t like you were investing your 401(k) in derivatives. You were investing your 401(k) in mutual funds, which were subject at least under normal times to the jurisdiction of the S.E.C., which was supposed to be minding the store. And so because we had a hostile Republican Congress which threatened not to fund — I don’t know if you remember this but we had a huge knock-down fight when they threatened not to fund the S.E.C. because of what Arthur Levitt was doing to try to protect the American economy from meltdowns. They said, “Oh, he’s interfering with a free market” and all that. This is what he’s supposed to do.
They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need. And it turned out to be just wrong; it just wasn’t true. And once you got that massive amount of money invested in derivatives that people thought — it’s like these credit default swaps, where people thought, the Lehman people talk about it, they thought, or the A.I.G. people, they thought it was 100 percent safe investment, they thought there would never be defaults on these mortgage securities. So of course you wanted insurance there because you got the insurance premium, you make the profit and you couldn’t possibly lose money, right? Well, it turned out to be all wrong. That rested on a lot of assumptions, including the fact that the ratings agencies would do a good job, which didn’t happen, in evaluating risk. So I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.
This seems about right. That said, regulation is only as good as the regulators, and I think Clinton could probably say in his defense that even if SEC authority had been on the books and even if the Clinton-era SEC had zealously used that authority, that the Bush administration almost certainly wouldn’t have and basically the same stuff would have happened.
25 Responses to “Bill Clinton’s Self-Criticism”
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May 27th, 2009 at 5:35 pm
The history of insurance, of probability, and gambling have long been tied together. A lot of what we know about probability and chance came as a result of Dutch towns making money by selling annuities in the 1600’s. Importantly, much of what we learned was due to many of these towns going broke. The history of insurance is full of companies going broke by improperly betting, improperly valuing risk and probabilities. That should have made people nervous, but people selling derivatives and default swaps and the like worked very hard to not have their products classified as insurance. In a few hundred years this will just be another chapter in history, but hopefully we’ll learn something in the mean time.
May 27th, 2009 at 5:38 pm
Re “even if the Clinton-era SEC had zealously used that authority, that the Bush administration almost certainly wouldn’t have and basically the same stuff would have happened.”
———
Yeah, the Founding Fathers used the same light-hearted approach when crafting the Constitution. It’s in James Madison’s notes.
After a long debate on a hot August day, some bright light said “Fuck it. The government will inevitably be taken over by blackguards and curs. Screw this checks and balances shit. Why don’t we adjourn to the local tavern for a beer? All in Favor? AYE!”
May 27th, 2009 at 5:41 pm
Brooksley Born should be regarded as a national hero.
May 27th, 2009 at 5:41 pm
I especially admire how the Democrats and Bill Clinton wrote healthcare and campaign finance into STONE when they controlled the Congress and White House from 1992-1994.
And the way they protected that $3 TRILLION in Social Security assets and the federal surplus from future Republican depredations — simply awe-inspiring.
That DSCC investment in Zell Miller’s reelection was a particularly judicious investment.
May 27th, 2009 at 5:42 pm
The problem for Clinton and MattY is that they don’t understand that the thinking that supports their free trade policies is exactly the sort of thinking that leads to derivatives deregulation, because it always brushes aside specific concerns and micro-economic circumstances for “let The Market decide” and macro-economic theory.
Mike
May 27th, 2009 at 5:51 pm
Matt’s dismissal of the importance of good regulations is really annoying. First, good regulators are useless without good regulations to enforce, so you still need good regulations for the times you have good regulators. Second, the Bush Administration combined with the GOP Congress was an extreme outlier when it came to bad regulatory behavior and oversight, and I suspect going forward we will likely get many years, perhaps many decades, before seeing such an outlier again. And in any event, better regulations would make it at least harder for them to be bad regulators.
So sure, good regulations aren’t going to guarantee good results, but they are still necessary, if not sufficient, to that end.
May 27th, 2009 at 5:52 pm
This is completely incoherent. It’s like Bill Clinton can’t even think straight any more – it seems as though his heart attack really has affected his brain, alas. For example, Clinton says “And so because we had a hostile Republican Congress which threatened not to fund…” and then never finishes the thought. Because we had a Republican Congress that threaten not to fund the SEC… what, exactly? Clinton never says.
And then there was this “And once you got that massive amount of money invested in derivatives that people thought…” People thought *what*? He never says. He says that AIG thought CDSs were very safe and they turned out to be wrong. But he never says how those evil Republicans in Congress caused AIG to think that.
The rest of the interview is nonsense too. It’s a faux attempt at self criticism which is actually mostly a justification of his administration’s many, many mistakes.
I mean, take the following, for instance: “I do not believe this would have happened in this way if I had been in office or if Al Gore had been elected. I just don’t. I think we would have caught the housing bubble and taken steps to stem it before it got out of hand.”
Like he and Al Gore caught the Internet bubble and took steps to stem it for it got out of hand? Oh, right, that never happened.
“And I know that having Arthur Levitt at the Securities and Exchange Commission would have made a huge difference.”
You mean the Arthur Levitt who completely missed the Enron fraud? It seems doubtful that he would have made a huge difference.
It’s sad. Clinton used to be a great politician. But he really has lost it lately.
May 27th, 2009 at 5:53 pm
It’s good that Clinton can admit mistakes and hasn’t made any trouble for Obama. So props for him. Interesting that he reads the Huffington Post.
Yeah and it’s a definite plus for Clinton that he hired/brought in Brooksley Born even if he didn’t back her at the time of the confrontations with Rubin, Greenspan, etc.
May 27th, 2009 at 5:55 pm
It doesn’t help Clinton’s case that his boys Rubin and Summers were working hard to eliminate regulation and increase allowable leverage.
But I guess he is offering a bit of a mea culpa – not bad for a “it depends on the meaning of is” kinda guy.
May 27th, 2009 at 6:13 pm
It is a hell of a lot more reflective than anything we got out of the last administration, that is for sure. So far I have yet to hear anything but, “no one could have predicted…” in response to the number of calamities that happened over the last 8 years.
But the previous comment has some truth to it. In general, Clinton’s economic views were “Republican” (for lack of a better word). In general, he was in favor of deregulation, free markets, free trade, etc. I think the deregulation of the media is another example of such policies gone wrong. It gave us the Murdoch empire and conglomerates like ClearChannel. No matter your opinions on NAFTA, one thing that is fairly certain is that it didn’t quite play out as expected.
Ultimately, it does not matter if the deregulation happened under Reagan, Bush, or Clinton, the one thing that we have learned is that the more safeguards we strip away (in any market), the more volatile they become. This may be ok for some on the upswing, but is very good when things head south, and definitely not worth the upside (at least, for the average person).
May 27th, 2009 at 6:23 pm
The same reasoning can also be used to explain the vast difference in the way BushCo handled the financial crisis (giving away $ billions to Wall Street crooks) and the way Obama handles the financial crisis (giving away $ billions to Wall Street crooks). Also, one cannot help but recall the way in which Democrats like Frank, Dodd, Schumer, and Obama protested vociferously when the financial services industry greased their ever so unwilling palms.
May 27th, 2009 at 6:34 pm
My god, what a fucking mess. A series of nonsequiturs and otherwise incoherent or incomplete thoughts, mixed with a few flat misstatements. “Yeah, I don’t think I’d have done anything differently, except that I’d have insisted that the SEC take jurisdiction over derivatives.” Which was such an obvious choice that no one proposed it during his 8 years. The one proposal made–the one his cabinet fought against, his Fed chair fought against, and his SEC chair fought against–was regulating derivatives at the CFTC. And of course there’s no reason to think that the SEC–an agency which broadly speaking administers a disclosure based regulatory regime (not a merit based regulatory regime)–would have done a good job regulating derivatives or otherwise helping the financial industry avoid the problems it now faces.
So of course Matt loves it. I bet he wants to sound just like Bill. He often does.
May 27th, 2009 at 7:17 pm
“Fuck it. The government will inevitably be taken over by blackguards and curs. Screw this checks and balances shit. Why don’t we adjourn to the local tavern for a beer? All in Favor? AYE!”
This is pure win, Don.
Also, the idea that the Republicans could have definitely gotten away with everything anyway is ridiculous because at no point did the Democrats actually try to oppose them. In anything.
Which ought to come as no surprise on the matter of derivatives since Wall Street was and is intimately connected to the Democratic Party bigwigs.
The reason this is such bullshit on Clinton’s part is that nowhere does he say:
“Well, not only did I, personally, never think to do this because my biggest donors would have told me to fuck myself, I’m positive most of the Democratic leadership in the Senate would have hung me up to dry. Haven’t you ever seen who donates to Corzine or Lieberman or Feinstein or Koch?”
May 27th, 2009 at 8:36 pm
If we regulate the risk out of investing don’t we also eliminate the profit? Wheres the advantage for investors that actually research their investments and make a good choice?
Most die hard Repubs may not recognize it, but Clinton was one of the most libertarian, and ultimately successful presidents ever.
May 27th, 2009 at 10:36 pm
It is opined:
“I especially admire how the Democrats and Bill Clinton wrote healthcare and campaign finance into STONE when they controlled the Congress and White House from 1992-1994.”
Anyone who thinks the Democrats controlled Congress in the sense needed to pass health care in 1992-1994 can’t be over about twenty. There is therefore room to hope such a person might grow up.
May 27th, 2009 at 10:41 pm
If we regulate the risk out of investing don’t we also eliminate the profit?
You are right that you can’t entirely eliminate the risk involved in investing, nor indeed should you want to. But proper risk regulation is designed to put a limit on the total amount of systemic risk, so that when risks show up they don’t take down large portions of the financial system, and consequently the greater economy as well.
May 27th, 2009 at 10:41 pm
[...] be interested in hearing the thoughts of readers and other bloggers, too. (Update: Mark Thoma and Matt Yglesias weigh [...]
May 28th, 2009 at 3:30 am
Any sane bettor that I know, whether taking odds on the pass line or merely dropping a dime in the nearest slot machine knows that the next roll of the dice or pull of the arm might result in a loss. To suggest that the ‘masters of the universe’ were not so smart is disingenuous, at best.
She should be regarded as a national hero in the alternate universe where she kept pushing for awareness and reform even after forfeiting her prestige and influence and is known even today for attempting to get the word out about continuing financial malfeasance. In this world, the real world, she should be regarded as a tragic figure who could see but could not communicate.
May 28th, 2009 at 5:16 am
I was searching the web for relevant blogs and came across your blog. Happy to read interesting information on your blog. Thanks.
May 28th, 2009 at 6:14 am
What’s most odd about this form of looking back is that it doesn’t really engage with all the arguments (and the people making them) at the time, against the de/non-regulatory approach and the likely consequences. And not just Dorgan, either.
It’s a game to pretend that at the time, the Serious People didn’t listen to certain ostensibly legitimate arguments, but We only learned that the arguments posed against the Serious People were actually serious in retrospect.
“No one could have anticipated”, in other words.
May 28th, 2009 at 8:34 am
Oh yeah, right, check out what Bubba actually said:
Argument from the fucking left? That’s what you claim is persuasive? Letting banks take investment positions didn’t have much to do with this meltdown?
It was CENTRAL to the meltdown.
May 28th, 2009 at 8:38 am
Oh, and one other gem from Bubba:
WTF planet is this asshole on?
May 28th, 2009 at 10:03 am
[...] of the economic growth during the Clinton years. Worth reading, as are the takes of Noam Scheiber, Matthew Yglesias, and Mark [...]
May 28th, 2009 at 10:29 am
Petey and Ole O did y’all see the WaPo Style section article on her this week? Glad to see she was getting a little vindication even if it should be more.
May 30th, 2009 at 2:51 pm
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