The Banks take over
Much has been made of Bill Clinton’s economic chops. And to be fair, during the decade of the 1990s, a failing economy was revived, inflation-adjusted wages rose a bit, and the federal budget was balanced (sort of). Unremarked upon was the collapse of oil prices following a breakdown in discipline in the OPEC cartel. Oil hovered at around $15 per barrel for most of Clinton’s two terms. (At one level everything in an economy is composed of energy and labor. When the price of one goes down, the price of the other has room to rise. The price of labor is wages, which is also the key to demand. Just sayin’.)
Clinton also benefitted from the Dot.Com boom. Similar to the bubble in housing that came later, the bubble in stock prices kept inflating and inflating and inflating, past all common sense. Borrowing to buy stocks was smart leveraging, and there was no want of money to borrow. Until there wasn’t. The bust came only in Clinton’s last year. Tens or hundreds of thousands of small, medium and large investors were ruined. The crash did not infect the broader economy as the housing bust did less than a decade later. Why? Because in the Dot.Com bubble and bust, it was equities not debt that went down. Those who took the risk paid the price.
A look at the NASDAQ:
1997 - 1300
1998 - 1600
1999 - 2100
2000 - 3800
(peak March 17, 2000)
2001 - 2400
2002 - 2000
(September 6, 2002 - 1300)
For reference to today:
Clinton’s presidency should be remembered for one more thing: the creation of the megabank. In 1994, in the second year of his presidency, under the eye of his Treasury Secretary Robert Rubin, the banking system was changed forever. Restrictions on banks’ operating across state lines was repealed. States effectively lost control of their banking systems. By explicit design a period of widespread bank consolidation was welcomed. Then in 1999, Rubin and his team at Treasury, including Lawrence Summers, led the charge to leliminate all the restrictions enacted after the Crash of 1929, with the repeal of the Glass-Steagall Act. In force since the early days of the Depression, Glass Steagall had separated commercial banking, investment and insurance functions. No more. Large, complex financial institutions like Citigroup began to dominate. For good measure, on his way out of office, Clinton allowed legislation preventing any regulation of financial derivatives. Robert Rubin moved from the US Treasury onto the board of Citigroup. Later he would become its head.
The Housing Bubble and the Great Financial Crisis
During the first part of the 2000s, house prices increased 10% year after year. The bubble inflated year after. More and more dodgy mortgage products were promulgated. Massive profits were made in mortgages and derivatives. When the inevitable downturn came, the financial industry failed spectacularly. But sorry, the house of cards was too big to fail. Economies across the world were brought to their knees. It was a debt bubble of unprecedented size. The out-of-control predatory lending, trading in bizarre derivatives, fraud and coverup created Great Financial Crisis (GFC), an event to match the Great Crash of 1929. This time, however, it would be the perpetrators and profiteers who were bailed out, not the victims.
Changing the Signposts
1990's Alan Greenspan: Regulation of financial institutions is not necessary. Market discipline will keep them in line.
2000's Alan Greenspan: Ooopsy.
Robert Rubin’s main co-conspirator was, of course, Alan Greenspan, head of the Fed for almost twenty years (1987-2006). The deregulation of Finance would not have occurred had Reagan not installed the unreconstructed libertarian Greenspan as Fed chairman. The massive housing bubble could not have occurred had Greenspan not taken the interest rate down to 1%. Greenspan’s libertarian contempt for regulation fit neatly into the interest not to be regulated by financiers like Robert Rubin and Jamie Dimon. Fewer than fifteen years after they were first allowed to operate across state lines, banks were “too big to fail.”
Barrack Obama’s contribution to the oligarchs was to agree they were too big to fail. Millions of homeowners were just the right size to fail. A similar housing bust in the 1930s ended with government making the opposite choice. Loans were marked at true value and the terms were renegotiated. Families stayed in their homes, banks went under. (See Home Owners Loan Corporation, HOLC.)
Among Obama’s latest arriving campaign advisers was Robert Rubin. Yes, THAT Robert Rubin. Obama bought the false promise that, if recapitalized, the banks would begin lending again, which would get the economy moving again. Sorry. Once they had solvency again, the banks reneged. The bailout became a way to retain profits for private companies and rich investors. A meaningful recovery never happened. Overnight Obama the change candidate was transformed into Obama the establishment president. But at least the oligarchs were intact. Justified bitterness and resentment set in across the country. Donald Trump beat Hillary Clinton.
Then Covid happened. Trump’s brazen incompetence and dishonesty in office bungled away more than 800,000 American lives and incidentally crashed the American economy. Democrats were called in for another fix. Enter Joe Biden. This time the economics was right on target. The economy stabilized, with huge government support for taxpayers. Jobs which might have been lost were retained. Then investment in infrastructure and high tech and climate friendly energy. The economy was the envy of the world when Trump banged the inflation drum like a painted shaman and demonized immigrants with ruthless lies. Voters turned their backs on reality and clutched their fears.
Changing the Signposts
Once: Corporations are profit-making enterprises whose shareholders are limited in their liability to the amount of their investment. They are business enterprises licensed and regulated by the state.
Now: Corporations are people too, with political rights. One dollar one vote. The oligarchs know how it should be done.
