Yesterday Hillary Clinton published an op-ed piece in the New York Times--How I'd Rein in Wall Street. She promised to strengthen the Volker Rule, impose new fees on banks, increase regulations on broker-dealers, and impose strict margin requirements on short-term borrowing. She proposed changing the way the Securities and Exchange Commission and Commodity Futures Trading Commission are funded 'so that they can do their jobs without political interference.'
She would tax high-frequency trading, extend the statute of limitations for major financial crimes, enhance rewards for whistle blowers, and force financial firms to admit wrong doing as part of settlements involving egregious conduct.
In other words, she wants to bring shock and aw' to an industry shell-shocked from seven years of shock and awe.
What's most fascinating about Clinton's op-ed, however, has little to do with her specific proposals. The goal of her op-ed, it seems to me, was two-fold:
1. To position President Obama as a strong economic leader; and
2. To appear tough on Wall Street
President Obama
She starts off by praising President Obama's handling of the economy:
'Under President Obama, our economy has come a long way back. Our businesses have created more than 13 million jobs. People’s savings are being restored. And we have tough new rules on the books, including the Dodd-Frank Act, that protect consumers and curb recklessness on Wall Street.'
It's here that she develops a narrative critical to her campaign. In the 2008 election cycle it was a forgone conclusion that a Democrate would take the White House. President Bush's approval ratings in 2007 and 2008 never rose above 40%. While President Obama's approval rating is higher, it still languishes in the mid-40's. Clinton is wise to be concerned that Obama's legacy could tarnish her campaign.
What Americans care about, however, is not political positioning. They care about electing a President willing to take an honest and sober assessment of our economy. In this vein it's interesting to contrast Clinton's current bright view of the economy under Obama's stewardship to what she said about Bush's handling of the economy during a presidential primary debate in January 2008:
Well, on January 20, 2009, the next president of the United States will be sworn in on the steps of the Capitol. I, as a Democrat, fervently hope you are looking at that next president. Either Barack or I will raise our hand and swear to uphold the Constitution of the United States.
And then, when the celebrations are over, the next president will walk into the Oval Office, and waiting there will be a stack of problems, problems inherited from a failed administration: . . . an economy that is not working for the vast majority of Americans, but well for the wealthy and the well-connected[.]
During the same debate she also noted that 'there are still 37 million Americans who are living below the poverty line and many others barely hanging on above.'
Let's compare.
Today the unemployment rate stands at 5%. In January 2008 it was also 5%. More importantly, the labor participation rate today is 62.5%. In January 2008 it was higher at 66.2%. One most look back to the 1970s to find a labor participation rate as low as it is today.
At the end of 2007 the U.S. debt stood at about $9 trillion. By the end of 2014 it had nearly doubled to $17.8 trillion.
In 2008 Clinton noted that 37 million Americans lived below the poverty line. Today that number stands at 46.7 million people. Further, the 2014 poverty rate was 2.3% higher than in 2007. One has to travel back in time to the early 1960s to find a poverty rate significantly higher than it is today.
To be sure, the Great Recession presented extraordinary challenges for Bush, Obama and the Congress. The country has moved past those painful and thankfully temporary struggles. Left in its wake, however, are long-term problems far worse than existed in 2008.
The listless recovery over the past few years underscores our challenge. After a seven-year span of near zero interest rates, maybe, just maybe, the Fed will raise rates 25 basis points later this month. With rates held near zero, and the Fed buying bonds for an extended period of time, our economy still struggles to gain traction.
If there were any doubt, the liberal economist Paul Krugman put it to rest. In his op-ed column yesterday he argued against the Fed raising rates, noting that the U.S. economy 'looks good only if you grade on a curve.'
Our next leader, whether a Republican or Democrat, must recognize the economic challenges we face. Only then can we begin to address them in a sensible way. Declaring the past seven years a success and promising more of the same is not the answer.
Wall Street
Clinton has taken heat for her ties to Wall Street. Even back in 2013, a New Republic article quoted a financial reform activist expressing concern over Clinton's ties to financial firms: 'Unless there is some major public break by
More recently CNN reported that Wall Street has made Clinton a millionaire. The CNN article noted that 'Clinton made $3.15 million in 2013 alone from speaking to firms like Morgan Stanley, Goldman Sachs, Deutsche Bank and UBS, according to the list her campaign released of her speaking fees.'
Bernie Sanders has taken note. In the November 2015 debate he responded to a question concerning Clinton's ties to Wall Street:
I have never heard a candidate never, who has received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate say, oh, these campaign contributions will not influence me. I’m going to be independent. Well, why do they make millions of dollars of campaign contributions? they expect to get something. Everybody knows that.
Clinton's response to these attacks is the op-ed piece she published yesterday. And it's understable. Sanders and Elizabeth Warren have succeeded in moving the Democratic party to the far left on economic issues. Their crusade, however misguided, has become the Democratic party's crusade. It's much easier to go with the flow than risk alienating the party base Clinton can ill afford to alienate.
It's here, however, that Clinton had the opportunity to demonstrate strong leadership. Her recent claims notwithstanding, Clinton has never been a progressive. Unlike Sandars and Warren, she understands the importance of Wall Street and corporations big and small to the future economic success of our country and the middle class. Pushing back against the juggurnaut that is Sanders and Warren would not have been easy. Then again, neither is serving as President.
Clinton had the chance to take the road less traveled. Yesterday she declined, instead choosing the well-worn path of 'Blame it on Wall Street.'
Yet there's something oddly artificial about her proposals. It's as if her heart isn't up to the task progressives have set before her. Her proposals range from the arcane, such as adding a "risk fee" to reign in big banks or stengthening the Volker Rule, to the silly, such as changing the way the SEC and CFTC are funded and increasing the statute of limitations from five to 10 years.
And the requirement that financial firms admit wrongding as part of regulatory settlements has already been trotted out by Warren. As a former Associate Director in the Division of Enforcement and Investigations of the Public Company Accounting Oversight Board, I can tell you that such a requirement looks far better from the ivory tower than it does down in the trenches where real work gets done.
Rarely is it in the best interests of investors to have regulators spending more time and money trying to strong-arm respondents into admitting wrongdoing. Successfully concluded enforcement actions are more important than scalps.
In the end, Clinton's proposals miss the political mark. They won't appease the progressives. Nothing short of breaking up large financial institutions will satisfy the likes of Sanders and Warren. And they certainly won't resonate with conservatives and moderates who recognize that our challenges moving forward can't be solved with more regulations over financial firms.
As a conservative, it's unlikely that I'll ever vote for a candidate whose last name is Clinton. If Hillary Clinton does win the White House, however, I hope it's not the one we see today. I much prefer the Hillary Clinton of 2007, who had this to say during a primary debate:
Well, I think that America is a great place because we have an entrepreneurial economy. We have people who are willing to make stakes in new enterprises and invest their money. And obviously, one of the other reasons we're a great country is because we've learned over the years how to regulate that so nobody gets an unfair advantage and that we, you know, have a framework within which our free-market system operates.
