Several of the comments/ideas in President Obama's speech to Congress this past Wednesday (2/25/09) need clarification - for now I will focus on one. Throughout his campaign Obama placed much of the blame for the current economic crisis on "the failed policies of George W. Bush." Former President Bush certainly does warrant a considerable share of the guilt for his lack of action and his vow "to spread the dream of home ownership," which played a large role in artifically inflating housing prices. But, a name often ignored is that of Bill Clinton. While the ideology of (mostly) free market economics was brought back from the grave of Hoover by Reagan, it was Clinton that added legal muscle. In 1999, he teamed with Congressional Republicans to repeal the Glass-Steagall Act of 1933, which in effect was enacted by FDR in his famous 1st 100 Days to separate the fate of commercial banks and the stock market, and was the result of the collapse of the banking system, as well as speculation and corruption in the banking and stock markets. The 1999 Gramm-Leach-Bliley Act, as it was called, essentially de-regulated the banks, and enabled them, among other things, to invest capital in the stock market - once again directly linking the volatile stock market to the banking system and the insurance industry. In other words, any signifacant plunge in any of those markets would have an immediate and catastrophic impact throughout the US and global economy. The facts outweigh Clinton's deflection of his role.
Even worse for Clinton, as Time Magazine points out in their piece on the 25 People to Blame for the Financial Crisis, he "also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods." Adding to his track record of de-regulation, Clinton also signed NAFTA and the Telecommunications Act of 1996 into law setting off a new and unprecedented era of de-regulation.
All this creates an uncomfortable situation for Obama, who was quick to highlight Hillary's husband's role in NAFTA during the primary campaign, but not since. Perhaps he does not want to seem hypocritical considering he surrounds himself with economic advisers (both before the election and after) who adhere to the Chicago School Friedmanite Free Market ideology. Our current Secretary of the Treasury Tim Geithner, and head of the National Economic Council Larry Summers were both proponents of the 90s free market capitalism, and Larry Summers was by Clinton's side when he repealed the Glass-Steagall Act, and his advice played a key role in keeping regulation far from the derivatives market - both of which could have gone a long way to preventing the current crisis. In sight of the facts, it's not very comforting to hear Obama claim that Summers' advice "will be the foundation of all my economic policies."
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