How FDR Saved Capitalism, But Did Bill Clinton Destroy It? Robert Sheer Thinks So
Robert Scheer, journalist and Editor in Chief for the online magazine Truthdig, has just come out with a new book called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. The title is certainly provocative, but is it fair? Excerpts of the first chapter of the book have appeared online and after taking a look at Scheer’s argument, he makes a compelling case.
Scheer starts by arguing that Clinton deserves more of the blame for the current economic recession than Bush does because while Bush aggravated the situation, the current problems are primarily due to “the Clinton bubble.” On that point Scheer is not only correct but his logic is inarguable. From the 1940’s until the 1980’s, financial bubbles were rare occurrences because of the well-designed regulatory framework put into place by Franklin Roosevelt during The New Deal. The dismantling of that carefully-constructed framework took more than the limited capabilities of a blind ideologue like Ronald Reagan, or a simpleton like George W. Bush; it needed the political savvy of a brilliant but misguided man like Bill Clinton.
The two critical financial deregulation measures enacted under the Clinton administration were the Reigle Neale Interstate Banking and Branching Act of 1994 and the Gramm-Leach-Bliley Act of 1999 (also known as the Financial Services Modernization Act of 1999), the bill that repealed Glass-Steagall. Reigle-Neale accelerated the concentration of financial assets and the creation of “too big to fail” firms by allowing interstate mergers between “adequately capitalized and managed banks.” Five years later the Financial Services Modernization Act allowed for banking, securities, and insurance companies to act as one entity while also enabling banks to continue to be active participants in the derivatives business for all credit and equity swaps.
Before those two laws were enacted, the six largest U.S. banks had assets equal to 17 percent of our GDP. Today the six largest U.S. banks have assets equal to more than 60 percent of our GDP. In addition to the consolidation of the financial marketplace, those two laws aided the creation of a 600 trillion dollar derivatives market (a figure 10 times the size of the entire global economy), where a mistake of microscopic percentage points can lead to a global economic meltdown. All of this was accomplished by Wall Street executives and their lobbyists in the name of massive short-term profits at the expense of long-term sustainability. But why did Wall Street succeed in these victories under a Democrat like Clinton after they failed under Republicans like Reagan?
As Scheer so eloquently puts it:
Clinton, being a smart person and an astute politician, did not use old ideological arguments to do away with New Deal restrictions on the banking system, which had been in place ever since the Great Depression threatened the survival of capitalism. His were the words of technocrats, arguing that modern technology, globalization, and the increased sophistication of traders meant the old concerns and restrictions were outdated. By “modernizing” the economy, so the promise went, we would free powerful creative energies and create new wealth for a broad spectrum of Americans — not to mention boosting the Democratic Party enormously, both politically and financially.
Some conservative historians argue that The New Deal brought socialism to America when in actuality it saved capitalism from its demise. The genius of The New Deal is that it was designed with the understanding that in order for capitalism to survive, it needs rules harnessing its benefits for the public interest; otherwise it destroys itself either through economic collapse or political revolution. FDR is seen as a liberal demigod by many progressives today because of the accomplishments of The New Deal, but many do not understand the context in which those achievements were made possible.
The New Deal was the capitalist alternative to a socialist revolution led by a charismatic challenger to FDR’s Left, Louisiana Senator Huey Long. FDR’s brilliance, charisma and wisdom helped him save capitalism from his worst excesses. Sheer argues that this framework endured until his legacy was betrayed by another brilliant, charismatic, but misguided man, Bill Clinton. The results thus far have been catastrophic and it will take another transformational figure to once again retrieve capitalism from the abyss.Click here for reuse options!
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