The current Subprime Mortgage Crisis, which has been the single biggest factor in helping lead the United States into a recession, (and depending on which economic analyst is talking, a depression) has it's root's in the Clinton Administration.
Let's take a quick walk through history to find out more.
After four years of investigating the Black Friday crash in 1929, Franklin D. Roosevelt's Administration figured out that the main actions that lead us into the Depression were bank's using their clients money to speculate on risky investments and pushing other risky investments on the very same customers. Some of the investments were sold directly to the bank's investors, others were made by the banks themselves. When the investments went belly up, the banks had no money to pay their customers back.
To stop this from ever happening again, FDR and fellow Democratic Senators and Congressmen passed the Glass-Steagall Act in 1933. The law stopped commercial banks from merging with investment banks, established the FDIC to insure bank deposits, gave the Federal Reserve control over setting interest rates, and made other banking reforms. The entire point was to protect deposits and stop banks from speculating with that money.
Strictly speaking, the Glass-Steagall Act was a huge success. It restored confidence in America's banking system and worked relatively well for six decades. That is, until Citigroup decided to spend over 30 years working behind the scenes to repeal parts of the act.
In the 1960's, Citigroup, then known as First National City Bank, (and later Citibank and Citi) started talking to Washington about repealing the Glass-Steagall Act. It took many years, and to make a long story short, they finally succeeded in 1999. BTW, First National City Bank (Citi) is to blame for the modern credit card society, having introduced in 1967 the card that later was renamed Mastercard, the first credit card.
What does this have to do with Bill Clinton, or the current economic feces-fest we are currently in?
When Bill Clinton was President in 1998, Citibank, by then called Citicorp, was trying to merge with Traveller's group (the investment firm with the ads with the red umbrella). Under the Glass-Steagall Act, this was prohibited. Way back in 1933 FDR and Co. were wise enough to know that commercial banks shouldn't own investment banks, it leads to all sorts of illegal shenanigans.
But years of bribing, er, lobbying Congress had done it's trick, and Citicorp's CEO Sandy Weill said he was assured by Federal sources the merger would be approved, which it was in 1998. (Technically the merger was illegal in 1998 as the law wasn't repealed until November, 1999.) Renamed Citigroup after the merger, they have gone on to purchase other investment firms.
The Gramm-Leach-Bliley Act of 1999 (called the Financial Services Modernization Act at the time) repealed 66 years of consumer protections and paved the way for financial mergers and the introduction of new investment products. The Act was written by Republican Senators including Phil Gramm, and early voting was split down party lines until President Clinton forced a rewrite of the bill.
Clinton vowed to veto the Senate version of the bill unless it was re-written to include "requirements that banks make loans to minorities, farmers, and others who have had little access to credit." The new version passed 90-8 in the Senate, passed the House, and Clinton signed it into law. Clinton's required reworking of the bill should be studied closely to see what role, if any, it played in illegal, often racist, subprime loans at higher rates than Caucasian borrowers were offered.
Days before the act passed, Clinton's Secretary of the Treasury, Robert Rubin, resigned. As Secretary of the Treasury, Rubin had oversight over enforcing the Glass-Steagall Act. While the resignation at the time looked like Rubin had been against repealing the act, that might not be the actual story. While Rubin had been critical of repealing the Act during the early stages, a year after resigning, Rubin took a cushy job with the newly formed Citigroup as Chairman of the Executive Committee, drawing a salary of $40 million a year, a position Rubin still holds.
As for Phil Gramm, the Republican Senator from Texas left Washington to become Vice Chairman for UBS Investment Bank, a Swiss bank that used the Gramm-Leach-Bliley Act to purchase Paine Weber and become the largest private financial services bank in the world. To make the story even more complicated, Phil Gramm is also serving as co-chairman and financial adviser of John McCain's 2008 Presidential campaign, and would reportedly be in the running for a cabinet job if McCain were to win, most likely as Treasury Secretary.
In recent years, not content with helping destroy the U.S. economy and send us into a recession, Phil Gramm has lobbied Congress and George W. Bush on behalf of UBS to remove remaining state regulations that protect consumers from predatory lending. Gramm was paid an additional $750,000 for his lobbyist work for UBS.
And for the heck of it, let's also disclose that Gramm and his wife were tied to the Enron scandal when it was revealed that Wendy Gramm wrote an exemption from federal oversite for Enron while she was head of the Commodity Futures Trading Commission. What that means is that Wendy Gramm used her position as the head honcho of a major government agency to stop federal investigations and oversite of Enron's shady practices.
Wendy Gram then quit the commission and took a directorship with Enron. So Phil and Wendy Gramm each used their government positions to make specific companies richer and remove federal oversite, then quit their government jobs and went to work for those same specific companies (UBS, Enron). After the Enron disaster, Wendy Gramm and other former Enron directors agreed to pay $13 million of their own funds (plus $155 million from their insurance companies) to settle a lawsuit accusing them of insider trading.
Another random fact I discovered while researching:
Ron Paul voted against the Gramm-Leach-Bliley Act, however, as he says in this speech 4 days before it was signed into law, he was for repealing the Glass-Steagall Act.
Citigroup CEO Sandy Weill, along with his company, was under investigation by the Feds in 2002 for behavior that would never have been allowed had Citigroup not succeeded in removing the Glass-Steagall Act. Among the illegal actions Citigroup was accused of taking: "hyping the stocks of lackluster companies in order to rake in those companies' IPO business; using loans as loss leaders to encourage companies to give Citigroup their investment-banking business; helping Enron and WorldCom conceal their massive debts; "spinning" rocketing IPO shares to executives in exchange for business from the executives' companies."
What ever became of the investigations? Under the Bush Administration, nothing. No charges were filed. Sandy Weill was eventually replaced as CEO of Citigroup on October, 1, 2003, and sold $300 million in Citi stock back to the company. Weill received $1.967 billion worth of Citigroup stock as part of the Traveller's-Citicorp merger. And we can't forget this, "as of April 2006 he held 16,518,365 shares of Citigroup, Inc. and another 3,109,173 unexercised options."
So what have we learned? Hillary Clinton and John McCain are each connected to the current recession, either through the incompetent behavior of their spouse or their campaign manager.
The main players in repealing the Glass-Steagall Act - Sandy Weill, Phil Gramm, Robert Rubin, and Bill Clinton, have all continued to rake in ridiculous amounts of money, while the law they enacted contributed to the implosion of the U.S. banking system and our current recession. People are losing their homes, but the likes of Robert Rubin are still earning $40 million dollars a year. Bill Clinton has earned over $100 million dollars since leaving office despite not officially having a job. Sandy Weill apparently broke many federal laws, but didn't even get a slap on the wrist while pocketing $2 billion.
And then there's Phil Gramm. The man who may have actually had the most do with destroying the lives of hundreds of thousands of Americans, and affecting millions more, has enjoyed a posh job with a company that directly benefited from his legislation. And in a bizarro-world twist of irony, he may be "rewarded" for destroying our economy by being appointed to save us from himself.
UPDATE: UBS, the Swiss bank that Phil Gramm now works for, is accused of helping at least 19,000 of the wealthiest U.S. citizens avoid paying taxes by setting up offshore bank accounts to hide their wealth.
