David Weidner's Writing on the Wall: Bill Clinton's legacy is our financial disaster - MarketWatch.
"Clinton bashing -- like Bush bashing -- is often a cop out, but he made some critical mistakes when it came to dealing with the financial industry. Three poor decisions stand out. The first was a change in 1997 to the amount of taxes a homeowner had to pay on the sale of his or her home on up to $500,000. This change effectively made buying and selling a home for profit the most compelling investment in America by tax standards. It changed our housing market from one of supply and demand to one of rampant speculation. The second mistake was one of inaction. In 1998, Long-Term Capital Management's use of derivatives and leverage required a massive $3.6 billion hedge fund bailout organized by the New York Federal Reserve Bank. After the fiasco rocked the markets, the administration was on the spot. Would it require tighter regulation of this new form of investment vehicle? Would it rein in the derivatives markets? Federal Reserve Chairman Alan Greenspan and Securities and Exchange Commission Chairman Arthur Levitt and Treasury Secretary Robert Rubin counseled against it to varying degrees and Clinton relented. Repeal of Glass-Steagall But perhaps the biggest mistake of the Clinton years regarding Wall Street and the one that rings loudest today was the repeal of Glass-Steagall, a 1933 law that effectively split investment banking and brokerages from commercial banks. In the years leading up to the repeal, Wall Street had been grumbling that the law had become an anachronism. Financial technology was sophisticated. We were so much smarter than they were back in 1929 that there was no way a financial services conglomerate could pose a threat to the system, Wall Street experts said. Besides, they argued, it was a good idea for a bank to handle customers' investments and savings as a hedge in the bad times."
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