Wednesday, October 01, 2008
Earl Ofari Hutchinson
The normally expansive Democratic House Speaker Nancy Pelosi was anything but that when she was asked if the Democrats should get some of the blame for the Wall Street financial mess. Pelosi answered with a terse “no.” But Pelosi quickly got expansive when she finger pointed Bush and the Republicans for creating the mess. This is the standard Pelosi line. Bush and the Republicans eagerly cut sweetheart deals with financial industry lobbyists to gut lending and stock trading regulations, winked and nodded at the banks and brokerage houses as they engaged in an orgy of dubious stock swapping, buys, and trading, conned millions of homeowners into taking out catastrophic sub prime loans, and watered down the oversight powers of government regulatory agencies.
But Pelosi’s Bush rap is disingenuous. Democratic president Jimmy Carter and Congressional Democrats kicked off the rush to deregulate in the late 1970s when they cajoled Fannie Mae and Freddie Mac to relax lending standards for banks and S&Ls to provide more home loans for home seekers. Their goal was noble. It was to get the financial industry to loosen the lending purse strings to lower income and minority home buyers.
But relaxing the standards heightened the risk to banks and lenders and sent the signal that Democrats were willing to also relax regulations and oversight on banks and lenders. It was a short step from that to relaxing regulations and oversight on other financial transactions by the banking and brokerage houses.
It didn’t take long for Democrats and Republicans in Congress to take that step. Under relentless pressure from top bankers during the 1990s, Congress scrapped most of the provisions of the decades old Glass-Steagall Act. The Act was a Depression era measure that kept federally insured banks out of the go-go world of stock trading, exotic lending, and financial speculation. It also set rigid standards for mortgage lending and strict oversight over banking practices.
Clinton’s Treasury secretary Robert Rubin lobbied hard for dumping the Act. The rationale being that U.S. banks and brokerage houses needed to have the restrictions snatched off to stay competitive with Asian and European bankers and financial traders. President Clinton bought the line. The revision bill passed with bipartisan support in 1999 and Clinton quickly signed it.
Despite the havoc to the financial markets and damage to consumers the gut of the Act has created, Clinton still says that he has no regrets over signing the bill. The one regret that Clinton has in hindsight is that he didn’t push harder for tougher oversight of Fannie Mae and Freddie Mac and financial traders. Clinton’s regret rings hollow given that it was Congressional Democrats and Democratic mayors who clamored the loudest to relax the oversight rules under the guise of bumping up minority homeownership. And it was Rubin and other Clinton administration officials who pushed Congress to loosen the constraints on financial trading.
In 2005, Senate Democrats had another chance to reform Fannie Mae and Freddie Mac. The Senate Banking Committee passed a bill to give regulators the power to require companies to shed their investments in risky assets (the so-named government-sponsored enterprises GSE reform bill).
The bill never got to the Senate floor thanks to Democrats. They killed it in committee. Democrats continued to parrot the line that any limitations on the financial industry would hamper its ability to compete in the financial markets. This was only part of the reason Democrats flacked for the financial industry. The other part is the sway that industry lobbyists have over Congress through the gargantuan amounts of cash they dump into the campaign coffers of top Democrats. That includes Barack Obama, Hillary Clinton, and Banking Committee Chair and short lived Democratic presidential candidate Christopher Dodd.
Obama got more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac. Obama’s top presidential campaign contributors and bundlers read like a who’s who of Wall Street bigwigs. They have either directly contributed or bundled millions of dollars into his campaign.
Clinton ranks number 12 on the Fannie and Freddie PAC gift list. She has received more than $75,000 from the two enterprises and their employees.
Dodd grabbed the top spot on the list of Fannie and Freddie PAC campaign payouts. He has received more than $165,000. Yet, Dodd has screamed just as loud as Pelosi that the blame for the financial muddle lay exclusively with Bush and Republican bungled policies.
Dodd griped that the Bush Bailout scheme was too skimpy on details. That’s a sure sign that if, or when, the Bush plan gets to the Senate, Dodd and other Senate Democrats will back it. Why not? They’re no different than Bush and Congressional Republicans in giving Wall Street pretty much everything else it has wanted, Pelosi’s Republican saber rattle notwithstanding.
Earl Ofari Hutchinson is an author and political analyst. His new book is The Ethnic Presidency: How Race Decides the Race to the White House (Middle Passage Press, February 2008).