Reagan Didn't Do It
By Robert Scheer
Truthdig: June 3, 2009
How could Paul Krugman, winner of the Nobel Prize in economics and author of
generally excellent columns in The New York Times, get it so wrong? His
column last Sunday-"Reagan Did It"-which stated that "the prime villains
behind the mess we're in were Reagan and his circle of advisers," is
perverse in shifting blame from the obvious villains closer at hand.
It is disingenuous to ignore the fact that the derivatives scams at the
heart of the economic meltdown didn't exist in President Reagan's time. The
huge expansion in collateralized mortgage and other debt, the bubble that
burst, was the direct result of enabling deregulatory legislation pushed
through during the Clinton years.
Ronald Reagan's signing off on legislation easing mortgage requirements back
in 1982 pales in comparison to the damage wrought 15 years later by a cabal
of powerful Democrats and Republicans who enabled the wave of newfangled
financial gimmicks that resulted in the economic collapse.
Reagan didn't do it, but Clinton-era Treasury Secretaries Robert Rubin and
Lawrence Summers, now a top economic adviser in the Obama White House, did.
They, along with then-Fed Chairman Alan Greenspan and Republican
congressional leaders James Leach and Phil Gramm, blocked any effective
regulation of the over-the-counter derivatives that turned into the toxic
assets now being paid for with tax dollars.
Reagan signed legislation making it easier for people to obtain mortgages
with lower down payments, but as long as the banks that made those loans
expected to have to carry them for 30 years they did the due diligence
needed to qualify creditworthy applicants. The problem occurred only when
that mortgage debt could be aggregated and sold as securities to others in
an unregulated market.
The growth in that unregulated OTC market alarmed Brooksley Born, the
Clinton-appointed head of the Commodity Futures Trading Commission, and she
dared propose that her agency regulate that market. The destruction of the
government career of the heroic and prescient Born was accomplished when the
wrath of the old boys club descended upon her. All five of the above
mentioned men sprang into action, condemning Born's proposals as threatening
the "legal certainty" of the OTC market and the world's financial stability.
They won the day with the passage of the Commodity Futures Modernization
Act, which put the OTC derivatives beyond the reach of any government agency
or existing law. It was a license to steal, and that is just what occurred.
Between 1998 and 2008, the notational value of the OTC derivatives market
grew from $72 trillion to a whopping $684 trillion. That is the iceberg that
our ship of state has encountered, and it began to form on Bill Clinton's
watch, not Reagan's.
How can Krugman ignore the wreckage wrought during the Clinton years by the
gang of five? Rubin, who convinced President Clinton to end the New Deal
restrictions on the merger of financial entities, went on to help run the
too-big-to-fail Citigroup into the ground. Gramm became a top officer at the
nefarious UBS bank. Greenspan's epitaph should be his statement to Congress
in July 1998 that "regulation of derivatives transactions that are privately
negotiated by professionals is unnecessary." That same week Summers assured
banking lobbyists that the Clinton administration was committed to
preventing government regulation of swaps and other derivatives trading.
Then-Rep. Leach, as chairman of the powerful House Banking Committee,
codified that concern in legislation to prevent the Commodity Futures
Trading Commission or anyone else from regulating the OTC derivatives, and
American Banker magazine reported that the legislation "sponsored by
Chairman Jim Leach is most popular with the financial services industry
because it would provide so-called legal certainty for swaps
transactions. . "
Legal certainty for swaps-meaning the insurance policies of the sort that
AIG sold for collateralized debt obligations without looking too carefully
into what was being insured and, more important, without putting aside
reserves to back up the policies in the case of defaults-is what caused the
once respectable company to eventually be taken over by the U.S. government
at a cost of $185 billion to taxpayers.
Leach, an author of the Gramm-Leach-Bliley Act, which allowed banks like
Citigroup to become too big to fail, is now a member of the board of
directors of ProPublica, which bills itself as "a non-profit newsroom
producing journalism in the public interest." Leach serves as the chair of a
prize jury that ProPublica has created to honor "outstanding investigative
work by governmental groups," and perhaps he will grant one retrospectively
to Brooksley Born and the federal commission she ran so brilliantly before
Leach and his buddies destroyed her.
***
Politics and the Price of War
Bill Moyers and Jeremy Skahill
PBS Airtime: Friday, June 5, 2009, at 9:00 p.m. EDT on PBS
(local listings: http://www.pbs.org/moyers/journal/about/airdates.html
From $1 billion sought for embassies in Pakistan and Afghanistan to
May's highest casualties for US forces in Iraq since September, the wars
abroad are taking their toll on our nation. Bill Moyers sits down with
award-winning investigative journalist Jeremy Scahill to examine the human
and financial costs of America's wars.
Scahill is author of the best-selling book "Blackwater: The Rise of the
World's Most Powerful Mercenary Army." And, from headlines surrounding the
health care debate to media frenzy over Supreme Court nominee Sonia
Sotomayor, NPR's On the Media host Brooke Gladstone and NYU journalism
professor and PressThink blogger Jay Rosen sort the messages and spin from
the week's news.
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