Hillary Clinton’s Take on Banks Won’t Hold Up
The inaugural Democratic debate Tuesday night was a strange show. It felt like two different programs.
One was a screwball comedy starring red-faced ex-Marine Jim Webb and retired Keebler elf Lincoln Chafee, whose Rhode Island roots highlighted the Farrelly brothers feel of his performance. The latter’s “I voted to repeal the Glass-Steagall Act because it was my first day at school” moment was the closest thing I’ve seen to a politician dissolving into his component elements on live television.
The other drama was serious and highly charged argument between two extremes on the political campaigning spectrum, pitting the unapologetic idealist Bernie Sanders against the master strategist Hillary Clinton. (Martin O’Malley seemed like an irrelevant spectator to both narratives.)
One of the most revealing exchanges in the Clinton-Sanders tilt involved the question of Wall Street corruption. Sanders has always been a passionate crusader against Wall Street perfidy, but Hillary’s take on the subject was fascinating.
Asked about it Tuesday night, she gave an answer that to me sums up her candidacy and the conundrum of the modern Democratic Party in general. She seemed to hit a lot of correct notes, while at the same time over-thinking and over-nuancing a question where a few simple unequivocal answers would probably have won everyone over.
The key exchange began with a question from CNN’s Anderson Cooper:
“Just for viewers at home who may not be reading up on this, Glass-Steagall is the Depression-era banking law repealed in 1999 that prevented commercial banks from engaging in investment banking and insurance activities. Secretary Clinton, he raises a fundamental difference on this stage. Sen. Sanders wants to break up the big Wall Street banks. You don’t. You say charge the banks more, continue to monitor them. Why is your plan better?”
Backing up: When Bill Clinton took office, it was still illegal in the United States for commercial banks to merge with investment banks and insurance companies. But toward the end of Clinton’s second term, he signed a bill called the Gramm-Leach-Bliley Act that essentially created Too Big to Fail “supermarket” banks like Citigroup.
This isn’t the only reason the financial system is so dangerous now. There’s also the matter of the extreme interconnectedness of the financial services industry. This problem came violently into play in 2008, when the failure of a single idiot investment bank, Lehman Brothers, caused a chain reaction that nearly blew up the whole financial system.
This latter problem was partially a consequence of another Clinton-era law, the Commodity Futures Modernization Act, which deregulated derivatives like swaps that were the agent of many of those chain-reaction losses.
So Cooper’s question to Hillary Clinton was really about a financial system that became dangerously over-concentrated thanks to multiple laws passed during her husband’s administration. Her answer:
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