The Clinton Bubble

By Robert Scheer

Has Timothy Geithner ever had lunch with a non-megamillionaire who has lost his job or home because of the banking meltdown? I ask that question after reading the list of the treasury secretary’s luncheon dates when he was head of the New York Federal Reserve, a list that the government was forced to provide in response to a lawsuit.

During those years when he was supposed to be supervising Wall Street, he supped most often in the top-echelon dining room of some bank or at the home of one of the financial moguls who created the mess that has now bankrupted billions throughout the world. One of his frequent luncheon buddies was Sanford I. Weill, who as chairman of Citigroup lobbied successfully for the reversal of key regulations that dated back to the New Deal era. That change permitted Weill’s oligarchy to become “too big to fail.” 

Another preferred dining companion was Robert Rubin, who as Bill Clinton’s treasury secretary pushed through Weill’s favored deregulation—a disastrous “reform” that lies at the heart of the current mess—and who went on to become chairman of Citigroup, where he presided over a downfall of the company that required a $45 billion taxpayer bailout. Geithner had worked for Rubin at the Treasury Department, and it was Rubin who got him his job at the New York Fed and hooked him up with Barack Obama.

Geithner has since pushed the Obama administration to approach the banking crisis not in response to the needs of destitute homeowners but rather from the side of the bankers who are seizing their homes. Instead of keeping people in their homes with a freeze on foreclosures, he has rewarded the unscrupulous lenders who conned ordinary folks.

He still wants to give more money to Citigroup, which has just been found woefully short of cash by Treasury’s auditors, and has not stopped Fannie Mae, Freddie Mac and some other big banks ostensibly under government influence, and indeed sometimes ownership, from recently ending their temporary moratoriums on housing foreclosures. Geithner has been in the forefront of coddling the banks in the hopes that welfare for the rich will trickle down to suffering homeowners, but that has not happened.

As The New York Times revealed this week in a devastating exposé of Geithner’s record: “An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions. His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.”

Most revealing was the Times’ discovery that Geithner shocked a meeting of top government officials, convened by then-Treasury Secretary Henry M. Paulson to deal with the financial crisis, when “[h]e proposed asking Congress to give the president broad power to guarantee all the debt in the banking system. … ” 

Now I know that the conventional wisdom among Democrats is that the Clintonistas were wildly successful in running the economy when they had their turn, and that Rubin and his protégés Lawrence Summers and Geithner deserve a lot of the credit. But that view is dead wrong. The seeds of the current economic chaos were planted in those years, in which Wall Street lobbyists were given everything they wanted in the way of radical deregulation, and hence was born the madcap world of credit swaps and other unregulated derivatives.

The result was a Clinton bubble, which saw the rise of a new superrich class that vastly skewed income distribution in favor of what was termed the “working rich” by Emmanuel Saez, who deservedly just won the top prize for young economists, the American Economic Association’s John Bates Clark Medal. Members of the “working rich” are well represented in the top 1 percent of income “earners,” who, according to a study by Saez, “captured about half of the overall economic growth over the period 1993-2006.” The record is clear that from the first year of the Clinton reign, the new class of superrich, including many Wall Streeters, benefited as much as the other 99 percent of the nation’s population did from the policies that Clinton put in place and George W. Bush accelerated.

To add salt to the wounds of those left out of the bubble, the Clinton administration summarily ended the federal poverty program in the name of a so-called welfare reform that “devolved” programs for the poor to the tender mercy of the states. The meanness derby between the cash-strapped states is on, and the poor, a category that includes a growing number of folks who only recently were judged “middle class,” are abandoned.

What is involved here is an extreme case of government-condoned “moral hazard” offering outrageous compensation to the superrich for screwing up royally. Where is the socially conscious Obama we voted for? E-mail him and ask.

AP photo / Evan Vucci

From one White House to another: Treasury Secretary Timothy Geithner, left, and Director of the National Economic Council Lawrence Summers, right, were both economic advisers to President Clinton and now are key members of President Obama’s economic team. At the rear is Council of Economic Advisers Director Christina Romer.