Ramesh S Arunachalam
Why is Bernie Sanders asking Hillary Clinton to immediately release the transcripts of her Wall-Street speeches, most notably the one made to Goldman Sachs? We need to look at this issue objectively from a larger stand point and that requires we understand the context of the 2007/8 financial crisis better!
If there is one thing that stands out about the 2007/8 financial crisis, it is the fact that weak, lax and laissez-faire regulation - caused by lobbying, PACs and campaign financing and the power of Wall-Street to influence policy makers, regulators and others – led to the financial crisis of 2007/8. There are no two doubts about this and this is what the Financial Crisis Inquiry Commission (FCIC) Final Report[i] Dated January 2011 says over and over again!
Just to understand the context,
“The Financial Crisis Inquiry Commission was created to ‘examine the causes of the current financial and economic crisis in the United States.’ In this report, the Commission presents to the President, the Congress, and the American people the results of its examination and its conclusions as to the causes of the crisis. More than two years after the worst of the financial crisis, our economy, as well as communities and families across the country, continues to experience the aftershocks. Millions of Americans have lost their jobs and their homes, and the economy is still struggling to rebound. This report is intended to provide a historical accounting of what brought our financial system and economy to a precipice and to help policy makers and the public better understand how this calamity came to be. The Commission was established as part of the Fraud Enforcement and Recovery Act (Public Law 111-21) passed by Congress and signed by the President in May 2009. This independent, 10-member panel was composed of private citizens with experience in areas such as housing, economics, finance, market regulation, banking, and consumer protection. Six members of the Commission were appointed by the Democratic leadership of Congress and four members by the Republican leadership. The Commission’s statutory instructions set out 22 specific topics for inquiry and called for the examination of the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government. “
What exactly did the FCIC say in its final report and what is the connection to Bernie Sanders asking Hillary Clinton to immediately release the transcripts of her Goldman Sachs speech?
This is what the FCIC said in its final report and I quote:
“We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves.
More than 30 years of deregulation[ii] and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets.
In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor. ...
Changes in the regulatory system occurred in many instances as financial markets evolved. But as the report will show, the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and products.
It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators.” (FCIC Final Report)
The FCIC final report further noted,
“In 1999, the financial sector spent $187 million lobbying at the federal level, and individuals and political action committees (PACs) in the sector donated $202 million to federal election campaigns in the 2000 election cycle.
FROM 1999 THROUGH 2008, FEDERAL LOBBYING BY THE FINANCIAL SECTOR REACHED $2.7 BILLION; CAMPAIGN DONATIONS FROM INDIVIDUALS AND PACS TOPPED $1 BILLION.[iii]
In November 1999 ... PRESIDENT CLINTON signed the Gramm-Leach-Bliley Act (GLBA), which lifted most of the remaining Glass-Steagall-era restrictions. The new law embodied many of the measures Treasury had previously advocated.[iv]
The New York Times reported that Citigroup CEO Sandy Weill hung in his office “a hunk of wood—at least 4 feet wide—etched with his portrait and the words ‘The Shatterer of Glass-Steagall.’”[v] (FCIC Report)
Readers would note the fact that the FCIC, which was the statutory commission inquiring into the 2008 financial crisis, strongly highlighted the FACT that PACs, Campaign Financing and Lobbying indeed played a HUGE role in the shattering of Glass-Steagall-era restrictions, which - as all of you can see - happened in November 1999, when Bill Clinton was the President. And we all know what happened in the end as John Reed, former co-CEO of Citigroup, acknowledged to the FCIC, in hindsight,
“the compartmentalization that was created by Glass-Steagall would be a positive factor,” making less likely a “catastrophic failure” of the financial system.[vi] (FCIC Report)
In other words, the de-regulation that happened during mid-end 1990s (including the “The Shattering of Glass-Steagall”) was a very important reason for the 2007/2008 financial crisis.
All of this must be clear to all of you by now but what is the connection to Bernie Sanders asking Hillary Clinton to immediately release the transcripts of her Goldman Sachs speech?
As noted in the opening paragraph of this post, the FCIC final report argues that weak, lax and laissez-faire regulation - caused by lobbying, PACs and campaign financing and the power of Wall-Street to influence policy makers, regulators and others – led to the financial crisis of 2007/8.
The same FCIC report has also clearly noted that the power and ability of Wall-Street to influence policy makers and regulators (and thereby create weak, lax and laissez-faire regulation) through lobbying, PACs, campaign financing is ENORMOUS and should NOT therefore be UNDERESTIMATED under any circumstances.
And Goldman Sachs is one the key investment banks at Wall-Street (that was at the CORE of the 2007/8 financial crisis) and any highly paid for speech by Goldman Sachs would fall under the realms of lobbying – let us make no mistake about that! It has been widely reported that Hillary Clinton was SUPPOSEDLY paid US $ 225,000 for her speech at Goldman Sachs!
That being the case, transparency demands that Hillary Clinton - a candidate in the democratic presidential nomination race - immediately tells the American people, what she told Goldman Sachs in PRIVATE! That is the key!
And indeed, it would be fair to argue that given what happened in the run up to the 2007/8 crisis as per FCIC final report, to prevent future financial crisis, one would need to thwart ‘vested interest groups’ (with conflicts of interest) from creating ‘weakened and friendly financial regulation’ again. And as I noted earlier, going by what the FCIC report has said, ‘weakened and friendly financial regulation’ was created by lobbying, PACs, campaign financing etc. And as I noted above, I would also put PAID SPEECHES (at Wall-Street firms) under the realm of lobbying!
That is why, Hillary Clinton, if she is serious about convincing people about her ability as well as her POLITICAL/ADMINISTRATIVE WILL to take on Wall-Street (if the situation so demands), she must immediately release the transcripts of her speech at Goldman Sachs (Just as Bernie Sanders has demanded)! Without a doubt, the American people and the World desire to know what she told Goldman Sachs - one of the key Wall-Street firms at the heart of the 2007/8 financial crisis – in PRIVATE! There are can be no compromise on this and failure to release the transcript of her Goldman Sachs speech would be tantamount to going very soft on Wall-Street, whose irresponsible and greedy behavior, caused the 2007/8 financial crisis in the first place!
[ii] The FCIC final report came out in 2011 and thirty years refers to the period 1981-2011, I guess
[iii] FCIC staff computations based on data from the Center for Responsive Politics. “Financial sector” here includes insurance companies, commercial banks, securities and investment firms, finance and credit companies, accountants, savings and loan institutions, credit unions, and mortgage bankers and brokers.
[iv] U.S. Department of the Treasury, Modernizing the Financial System (February 1991); Fed Chairman Alan Greenspan, “H.R. 10, the Financial Services Competitiveness Act of 1997,” testimony before the House Committee on Banking and Financial Services, 105th Cong., 1st sess., May 22, 1997.
[v] Katrina Brooker, “Citi’s Creator, Alone with His Regrets,” New York Times, January 2, 2010 - http://www.nytimes.com/2010/01/03/business/economy/03weill.html?_r=0
[vi] John Reed, interview by FCIC, March 24, 2010.