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Autumn 2014
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By Nicole Gelinas

After The Fall: Saving Capitalism From Wall Street--and Washington

Books and Culture

Nicole Gelinas
The Bubble President
Bill Clinton seems oblivious to his own role in the financial crisis.
13 November 2011

Back to Work: Why We Need Smart Government for a Strong Economy, by Bill Clinton (Knopf, 208 pp., $23.95)

As of Sunday, Bill Clinton’s new book sat at #15 on Amazon’s best-seller list, wedged between I Never Thought I’d See the Day!: Culture at the Crossroads, by David Jeremiah, and 1Q84 by Haruki Murakami. Clinton’s enduring popularity a decade after he left office says more about the paucity of ideas and competence in Washington today than it does about him. It illustrates, too, the confusion over the economic crisis that is part of the reason why we don’t recover.

The former president outlines 46 prescriptions for economic recovery, cheerfully suggesting to readers that “if you disagree . . . or if you’ve got a better idea,” they should take to social media with the hashtag he provides. The meatiest proposal is the first: “End the mortgage mess as quickly as possible.” Clinton levels with readers, saying that “the mortgage problem is freezing us in place.” It’s a refreshing change from President Obama and his would-be successors, who try hard not to talk about housing at all. Clinton has no silver bullet for cutting mortgage debt; nobody does. He writes, for instance, that reducing outright the amount of money that people owe on their mortgages—the only real way to get at the problem—would push the losses onto taxpayers, as taxpayers guarantee the debt of Fannie Mae and Freddie Mac, which hold or guarantee most American mortgages. He observes, too, that “many Americans . . . don’t think it’s fair to modify the mortgages of people who shouldn’t have taken out risky mortgages the first place,” but that such a stance is “cutting off our nose to spite our face,” since permanent housing stagnation hurts everyone. He’s right that we’ve got to dig out from under this debt, even if no one, from liberals to conservatives to centrists, likes the solution.

Clinton’s other ideas read like a State of the Union address. Some are good. Let corporations bring overseas cash home at a lower tax rate, and the country could invest the money from those taxes in infrastructure. Build a “smart” electricity-transmission system so that investors in solar power, for example, could move such power from where it’s sunny to where it’s cloudy. “Speed up the process for approving and completing infrastructure projects.” It’s taken workers three years to rebuild a small railroad bridge in Clinton’s home base of Chappaqua, New York, he observes. Even when Clinton’s ideas are underwhelming—advertising abroad for more foreign tourists, plus lots of small-bore, make-work, green-energy stuff—they’re pretty harmless.

Why, then, does Back To Work leave one feeling vaguely queasy? The commonplace and often common-sense nature of the prescriptions is one factor. The same proposals presented in the same genial, down-home tone might be refreshing if they came from a newcomer. But why does Obama need an elder statesman to suggest politely that finishing just one high-speed rail project—rather than funnel inadequate money into starting and stopping a bunch of them—would be the more sensible course? And we don’t need Bill Clinton to tell us that the George W. Bush years hardly worked out terrifically. Nearly three years after Bush left office, 34 percent of the respondents in last week’s Wall Street Journal poll blame him for our “current economic problems.” Bush ranks behind only “Wall Street bankers,” upon whom 36 percent place blame—and he’s way ahead of Obama, who clocks in at just 21 percent. More people blame Bush today than did before the 2010 elections.

The bigger problem is the sense that Clinton is escaping his role in our recent history. Clinton seems maddeningly oblivious to his contribution to the financial and economic crisis. It was Clinton who strengthened the nexus between Wall Street and Washington that helped bring the economy down, and Clinton who unleashed Robert Rubin and Larry Summers on the American public. Rubin and Summers, each of whom served stints as Treasury Secretary, aggressively headed off rules to limit borrowing on newfangled derivatives like credit-default swaps—even after the government-supervised unwinding of the Long-Term Capital Management hedge fund in 1998 showed how dangerous these financial instruments could be to the financial system.

After Clinton left office, Rubin and Summers went on to cushy financial-industry gigs—and the unregulated derivatives that they had encouraged “insured” against mortgage-debt defaults seemingly at no cost, creating an illusion that risky mortgage debt wasn’t risky. This misconception fueled unnatural growth in the mortgage market and, in 2008, after everything blew up, it sent companies such as AIG straight into the arms of the U.S. government looking for bailouts. Rubin and Summers gravely harmed our national security, because the financial crisis they helped create has weakened the country. Yet Clinton glides over all of this, saying that even if he had wanted to regulate derivatives, Republicans probably wouldn’t have let him.

Clinton’s blithe treatment of how Washington and Wall Street have interacted over the past few years rankles most. Discussing the massive federal bailout package of fall 2008, Clinton casually notes that “most of the TARP money has been paid back,” and cites projections that the bailout program “would produce a net profit for the taxpayers.” It’s as if TARP were one of his laundry-list ideas for growth through public-private cooperation, rather than a program that has done massive damage to the American psyche by showing that free markets apply only to some people and companies, not to all.

Clinton defends the Obama administration’s treatment of Wall Street, arguing that the Dodd-Frank law “bars future bailouts and establishes a procedure for orderly bankruptcy instead.” But that’s not true. Two weeks ago, The Economist presided over a simulation of a big-bank meltdown. The exercise was a sort of play about Dodd-Frank, in which the characters—including Larry Summers, serving as Treasury Secretary (again)—proved too terrified to allow bondholders to take their losses.

Clinton is as out of touch as the Wall Streeters who whine about public criticism. Unlike them, he remains publicly unaccountable. In that sense, he is lucky that he escaped the fate of Tony Blair. In Britain, it’s the new Left, not the new Right, that has taken the blame for the financial crisis and for the profligacy that precipitated it. If Clinton had taken office a few years later and thus left a few years later, or if Clinton’s party had kept power through the collapse, as Blair’s did, he wouldn’t have been so lucky. Like Blair, he’d be reduced to gigs like advising the authoritarian government of Kazakhstan, rather than enjoying his popularity and the knowledge that, if the Constitution didn’t forbid it, he could pursue a third term in the White House.

The Occupy Wall Street t-shirts say, “It’s the bankers, stupid,” a remix of Clinton’s 1992 election mantra, “It’s the economy, stupid.” Yet few seem fazed that Clinton did more than anyone else to liberate bankers from free-market discipline—thus unleashing them on the rest of us.

Nicole Gelinas is a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute.

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