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Bill Clinton Critiques His Own Economic Record

Peter Baker has a fascinating riff in his must-read profile of Bill Clinton in this Sunday's Times magazine, in which Clinton acknowledges some key blots on his otherwise impressive economic record:

What role did Clinton’s policies play in creating the conditions that led to the Great Recession?

When the subject came up during our conversation in Chappaqua, Clinton calmly dissected the case against him and acknowledged that in at least some particulars his critics have a point. In almost clinical form, as if back at Oxford as a Rhodes scholar, he broke down the case against him into three allegations: first, that he used the Community Reinvestment Act to force small banks into making loans to low-income depositors who were too risky. Second, that he signed the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business. And third, that he failed to regulate the complex financial instruments known as derivatives.

The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission. “Letting banks take investment positions I don’t think had much to do with this meltdown,” he said. “And the more diversified institutions in general were better able to handle what happened. And again, if I had known that the S.E.C. would have taken a rain check, would I have done it? Probably not. But I wouldn’t have done anything. In other words, I would have tried to reverse everything if I had known we were going to have eight years where we would not have an S.E.C. for most of the time.”

Clinton argued that the Gramm-Leach-Bliley Act set up a framework for overseeing the industry. “So I don’t think that’s such a good criticism,” he said. “I think, actually, if you want to make a criticism on that, it would be an indirect one — you could say that the signing of that legislation sped up what was happening anyway and maybe led some of these institutions to be bigger than they otherwise would have been and the very bigness of some of these groups caused some of this problem because the bigger something is and the newer it is, the harder it is to manage. And I do think there were some serious management problems which might not have occurred.”

Then there are the derivatives. There, Clinton pleads guilty. Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. “They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need,” he recalled. “And it turned out to be just wrong; it just wasn’t true.” He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.” He added: “If you ask me to write the indictment, I’d say: ‘I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.’”

Hard not to admire Clinton's intellectual honesty here.

P.S. Baker gave the transcript of the economics portion of his interview to Times economics columnist David Leonhardt, who posted it on his blog in annotated form. Leonhardt makes an especially important point here in response to some slight shading from Clinton:

Mr. CLINTON: Yeah. But you got to understand, again, we were living in a different world. We had a lot of confidence in the S.E.C. We had a lot of confidence in the broad-based nature of our economic growth. We never dreamed there’d be a time like in the first five years of this decade where literally the whole growth of the country would be in the housing, finance and consumer spending because we had no other investment strategy.

ECONOMIX: This is a bit of an oversimplification. It’s true that economic growth in the 1990s was far more broadly based — and significantly faster — than growth during George W. Bush’s presidency. Mr. Clinton’s policies deserve some credit for the 1990s growth. But so does an enormous stock-market bubble. The popping of the bubble, starting in 2000, led to the recession of 2001. It was an accident of history that Mr. Clinton left office before that recession began. The fact that the Clinton administration did nothing to stop the 1990s stock bubble is the main reason to be skeptical it would have done much to stop the housing bubble.

--Noam Scheiber