Clinton Accepts Responsibilty for Recession

Robert Rubin, as treasury secretary under Clinton, was responsible for three bad decisions: 1) to block the regulation of derivatives championed by Brooksley Born, chair of the Commodity Futures Trading Commission; 2) to urge Clinton in 1996 to reappoint Alan Greenspan as Federal Reserve chairman, clearing the path for 10 costly years of indifferent regulation of the financial sector; 3) and to repeal Glass-Steagall, the 1933 law that excluded commercial banks from investment banking (and vice versa).

This last decision did not play an appreciable role in creating the banking crisis, but, in the bank consolidation that resulted, it created ample future opportunities for banks to extend too much credit to companies whose stock their financial arms are trying to sell, and perhaps even more worrisome—is creating even more corporate entities that will henceforth be deemed "too big to fail."

Sheila Bair just said on Sixty Minutes this evening that there should be new legislation to prevent banks from getting too large and too diversified to be "too big to fail". Banks should stay in just the banking business.

"Going forward", Bair said, "I think we need to really review the size of these institutions and whether we should do something about that, frankly."

Bair surprised the interviewer when she suggested that maybe the mega banks, those bailed out by taxpayers, shouldn't be allowed to exist in the future.

"I think that may be something that Congress needs to think about.
I think taxpayers rightfully should ask that if an institution has become so large that there is no alternative except for the taxpayers to provide support, should we allow so many institutions to exceed that kind of threshold," she explained.

The idea would be that no bank would grow so large that it posed a systemic risk to the economy.

Clinton displayed infinitely more capacity for self-criticism on these matters than Robert Rubin, who refused responsibility for any of it. Keep in mind that while Rubin was the head of Citibank he was reputed to have made $115 million dollars.

Clinton rightly rejected as "just a totally off-the-wall crazy argument" that the Community Reinvestment Act, to which significant legislative and regulatory changes were made on his watch, is responsible for creating abuses in the sub-prime lending market.

But Clinton has also gone much further than George W. Bush, whose responsibility is infinitely greater than either Clinton's or Rubin's. But the idea that Bush would ever take adequate responsibility for his many blunders is so laughable that it hardly seems worth considering.)

As an after thought, I don't believe any company should be allowed to grow so large that it's failure causes national systemic failure....like GM, for example.