In 2016, there was a slew of criticism from the left about the 1994 Crime Bill and the 1996 welfare reform bill. Both were characterized as reactionary cave-ins to the far right by Democrats who voted for the bills and me for signing them. This false revisionism is hurting Democrats today in their efforts to take a commonsense approach to empowering the poor and to crime, in spite of President Biden’s firm refusal to go along with it.
Let’s start with the Crime Bill. When I took office, violent crime had more than doubled over the previous thirty years, while the police forces in the U.S. had increased only 10 percent. People, especially in minority communities with a strong gang presence, wanted more police—not the kind of policing we saw in the Rodney King beating, the stranglings of George Floyd and Eric Garner, or the fatal shooting of Philando Castile, but policing by well-trained officers from racially diverse backgrounds, walking the streets and driving cars in pairs, relating to their communities, reducing tensions, and using force as a last resort. Community policing was already working in New York and a few other places and we needed more of it. Citizens also wanted alternatives to prison for first-time nonviolent offenders, and support for community nonviolence efforts to keep their kids out of trouble and safe from violent gang activity, which was spreading from big cities into suburbs and midsized cities in the heartland.
For a few years, Little Rock was one of them, with one of the highest murder rates in the country for cities its size. Across the country, young people, mostly Black and brown, fell victim to drive-by shootings, getting caught in the crossfire of gang wars, or sometimes becoming victims of gangs that required young men to kill someone before they could become fully accepted members.
The Crime Bill I put together, along with Senator Joe Biden and then-Congressman Chuck Schumer, provided money for 100,000 new police officers; funding for drug courts and other options to sentence nonviolent offenders to treatment, not jail; and $6 billion for prevention programs, including local block grants, recreation programs, community schools, and rape prevention and education. The bill also included the assault weapons ban and the ten-bullet ammunition clip limit, Senator Biden’s Violence Against Women Act, and funds to implement the Brady background check bill, which I had already signed.
When several Democrats made it clear that they couldn’t vote for the assault weapons ban and survive the next election (fifty-eight of them voted against bringing it to the floor), I had to negotiate with the Republicans or lose at least the assault weapons ban and the ten-bullet clip limit. The price of getting the votes to pass the Crime Bill with the provisions we thought essential was pretty steep, including $8 billion in prison grants to states that required serious violent offenders (murder, rape, manslaughter, aggravated assault, and armed robbery) to serve 85 percent of their sentences. It did not apply to minor drug offenses, burglary, larceny, or weapons possession. An Urban Institute study later reported that thirty states did nothing at all, and the Government Accountability Office said the grant programs, about 1 percent of previous spending, made an impact on the prison population in only four states. The Republicans also demanded that the death penalty be added to about fifty existing crimes. They knew they were unlikely to be used but would look tough and hopefully minimize the wrath of the NRA over the gun reforms.
The tougher sentences in federal law that had led to the dramatic increase in the prison population were enacted by Congress in the mid-1980s, before I took office. I tried to change one of them—the huge disparity in sentences for crack cocaine versus powder cocaine: 100 to 1. It took only 5 grams of crack to trigger a five-year mandatory sentence but 500 grams of the much more expensive powder to do so. Most of the crack offenders were people of color; most powder cocaine users were better-off white people. I asked Senator Orrin Hatch if he would support eliminating the disparity. He said he would but only if we raised the powder sentences to the crack level. He made it clear that his caucus wouldn’t lower them.
In my second term I appointed a Commission on Race chaired by the eminent Black historian John Hope Franklin and asked them to look into the racial disparities in criminal justice (as well as the economy, healthcare, and education). The commission found there were still too many people in jail for too long. Their findings were the basis of my last message to Congress, asking that the effort to close the gaps continue. In 2010, President Obama signed a bill to lower the crack-to-powder disparity to 18 to 1. In 2018, a large bipartisan majority passed the First Step Act, allowing federal prisoners to earn time off their sentences for good behavior and President Trump signed it.
I think the Republicans came around on the sentencing because their evangelical supporters’ views changed, in part because of the opioid epidemic, and because they learned that they couldn’t keep building prisons and cutting taxes without starving their schools of essential revenue. Teacher and parent revolts in red states, including Oklahoma and Kansas, brought that home to them. President Biden has strongly supported First Step’s vigorous implementation. It’s the right thing to do.
The Crime Bill’s sentencing provisions had little to do with the big drop in crime, other than helping get the votes to ward off a filibuster and pass it. But community policing with better-trained officers did. So did vigorous enforcement of the background check law, the assault weapons ban, the ten-bullet limit, the Violence Against Women Act, and the prevention efforts.
What happened to crime in the 1990s? The crime rate declined for eight straight years to a twenty-five-year low. Murder declined to a thirty-three-year low. Black deaths from homicide dropped 40 percent and all gun homicides were at a forty-six-year low. And mass shootings dropped for eight years. That’s a lot fewer funerals. By the time I left office, the Brady background checks had denied more than two million felons, fugitives, stalkers, and domestic abusers the ability to buy guns, though it still needs to cover gun shows and all online sales. And the annual growth in the federal prison population dropped from more than 8 percent to 1 percent.
When it passed, the loudest criticism of the Crime Bill came from the right, as conservatives claimed we were spending too much on prevention and alternatives to prison for first-time nonviolent offenders. Gingrich Republican Jack Fields from Texas said it was “a touchy-feely piece of legislation that gives new meaning to the phrase hug-a-thug.” Really? Sadly, more than a dozen Democratic House members lost their careers because they stood up to the NRA for safer streets and schools in passing the assault weapons ban and the ten-bullet limit.
On April 9, 2016, about a week after I was interrupted by protesters of the Crime Bill at a Philadelphia rally for Hillary, Dean David Yassky of the Pace University Law School wrote an op-ed in The New York Times responding to the event and my defense of the good done by the bill. In 1994, Yassky was counsel to the House Subcommittee on Crime, then led by Representative Chuck Schumer, now the Senate Majority Leader.
“I spent 18 months helping to draft and negotiate the Crime Bill,” Yassky wrote. “Anyone who thinks the bill was just about locking people up is simply wrong.” As Yassky pointed out, in addition to the 100,000 police, the Violence Against Women Act, and the assault weapons ban, the bill actually reduced sentences for federal drug crimes by exempting first-time nonviolent offenders from the mandatory minimum penalties created before I took office, “funded specialized drug courts, drug treatment programs, ‘bootcamps,’ and other efforts to rehabilitate offenders without incarceration, and allocated more than $3 billion to keep at-risk young people away from gangs and the drug trade, and growth in the federal prison population dropped from 8 percent to 1 percent per year.
“We didn’t get everything we wanted. There are two parties in Congress; the Republicans won some concessions,” including leaving many of the Reagan-era sentences in place and expanding the federal death penalty, but “it was indisputably a de-escalation of the so-called War on Drugs, a first step toward the more wholesale decriminalization underway today.”
Then Yassky noted that between 1994 and 2016, violent crime rates were cut in half and “people who benefit most from decreased crime are residents of poor urban neighborhoods.” He also called on us to fix the flaws in the current system because “far too many young African American and Latino men have been subjected to unconstitutional or inappropriate stops by police officers” and an “unacceptable number of Americans are in prison.” More active policing produces more convictions and therefore more inmates. As I said, “We had the biggest drop in crime in history” but “we still had a lot of people who were minor actors who were locked up for way too long.”
Yassky concludes by saying that we need to keep the active policing but move away from mass incarceration, with greater use of parole, halfway houses, and other forms of supervised release, and more mental health services. I would add education to that list. Colleges like Bard in New York pioneered programs to educate the imprisoned and the evidence indicates the recidivism rates for those who get degrees is almost zero. Universities in other states have been doing the same thing. We still need more schooling in prisons and the federal government should fund it through Pell Grants or otherwise.
In the end, if we are to keep our country safer from crime without police abuse and overreach by the courts, we need to keep pushing sentencing reforms that work, boost programs that prevent violence, and provide law enforcement agencies with what they need to provide top-flight training for officers.
On welfare reform, I ran for president on a platform to promote work over welfare and help welfare recipients get jobs, keep them, and be better off than they would have been on welfare. By then I had been interested in the welfare system since Arkansas received an experimental grant to help people move toward work in the late 1970s when Jimmy Carter was president. Next, we participated in the federal Workfare program started by the Reagan administration. Then for two years, representing the National Governors Association along with moderate GOP governor Mike Castle of Delaware, I worked with the White House and leaders of both houses of Congress on a reform bill that would promote work, strengthen families, and meet children’s basic needs.
Castle and I testified before Congress and participated in the markup of the bill by the House Ways and Means subcommittee, chaired by Democratic representative Harold Ford of Tennessee. When President Reagan signed it, we were at the White House for a bipartisan celebration.
Unfortunately, a weak economy led to large increases in welfare numbers and increased spending on Aid to Families with Dependent Children (AFDC) by almost 50 percent. There was already a dramatic difference in support for the basic needs of poor people in the various states, from $923 per month in Alaska to $120 in Mississippi, and between 1970 and 1996, the real value of cash benefits after inflation declined by 40 percent or more in two thirds of the states.
When I became president, I decided we had to try again. Although most people moved onto and off welfare after a couple of months when they could find work, the number of recipients dependent on it for eight years was growing. So, in 1994, I sent Congress a bill that emphasized work and more child support. By the time the bill came up for a vote in 1996, Donna Shalala, the secretary of health and human services during both my terms, had worked with governors in thirty-seven states to fashion welfare reform “waivers” that would protect cash benefits and increase employment. It was working—welfare rolls were dropping and people were going to work. The number of states involved grew to forty-three by the time I signed the bill.
Then, in 1994, the Republicans won both houses of Congress. The new Speaker, Newt Gingrich, proceeded to push his Contract with America, including the GOP right wing’s radical version of welfare reform. It was a people-destruction bill, with the biggest cuts in Medicare and Medicaid in history; slashing Social Security insurance benefits for disabled kids; block-granting Medicaid and food stamps so they were no longer federal guarantees; cutting the school lunch program; capping existing block grants for child welfare and foster care; making deep cuts in Head Start and in the Direct Student Loan program, which was actually saving students (and taxpayers) billions, and providing way too little support for childcare and for helping people move from welfare to work; and the cherry on top—the denial of food and medical benefits to fully documented immigrants, most of whom worked and paid taxes.
When they put all that and more in their first budget, I vetoed it and the Republicans shut the government down. When they sent me back a cosmetically changed version of the bill, I vetoed it again and they shut the government down again. Then I proposed an alternative balanced budget that had far more support.
Many Democrats urged me not to do that because it was already clear that the budget was going to be balanced anyway in a couple of years, thanks to my 1993 budget and economic plan which every Republican opposed, because it abolished their trickle-down theory and replaced it with a bottom-up, middle-out plan with tax hikes on the wealthiest Americans and big corporations, spending cuts in nonessential areas, and the critical investments needed to grow the middle class and help poor people work their way into it, while also bringing down the big deficit.
I disagreed with those who opposed our balanced budget legislation because I believed that America’s future required us not just to abandon trickle-down economics but also to restore respect and support for the essential role of government in building a growing, fairer economy. That meant enacting a progressive balanced budget and humane welfare reform and getting some Republican votes for it. President Reagan had made a lot of hay talking about welfare queens in Cadillacs. We needed to show poor people empowered, far preferring a hand up to a handout, and the role government had to play. On welfare reform, that meant the chance to get a proper job that would pay more than the cash benefit and provide real childcare, transportation, and housing support, along with much stronger efforts to secure child support payments from noncustodial parents.
As I said, Donna Shalala had been working with governors, Democrats and Republicans alike, to develop waivers from the old rules to increase the movement from welfare to work. By the time Newt Gingrich launched his war on poor people, we had been working hard for two years. The welfare rolls peaked in early 1994 and had already fallen by more than a million before the bill passed.
I also vetoed the Republican budget for what it did to health and nutrition programs, and because it gutted the work of the Department of Education and the Environmental Protection Agency. As I said, in January of 1996, when Congress sent me a standalone welfare reform bill they had passed just before Christmas, I vetoed it, too. It had all the flaws of the first one, with too little support for the families of the working poor.
Then they sent a third bill that retained the federal guarantees of Medicaid and food aid; increased federal childcare assistance by 40 percent, adding $4 billion dedicated to childcare for families moving from welfare to work; gave states the ability to convert monthly cash benefits into wage subsidies as an incentive for employers to hire welfare recipients; included the provisions I wanted for stronger child support enforcement; and dropped the attempt to abolish our new college loan program that cost students less and saved taxpayers money because there were far fewer loan defaults.
But the bill left four big problems: a five-year lifetime limit without eliminating from the count the months we were in recession; denial of food stamps and Medicaid to legal (the word we used then) immigrants; a reduction in the overall budget for food aid; and the end of the federal guarantee of a monthly level of cash support. Gingrich was Trump before Trump.
Several of my advisors were deeply concerned about these problems. So was I. But in the end, I decided the good things we had put in the bill, including a generous tax credit for hiring people off welfare, plus forty-three states with their reforms already underway, made it worth the risk to replace a system originally designed to keep mothers out of the workforce with one designed to get them in. I felt sure I could use the budget process to reinstitute documented immigrants’ eligibility for benefits, and we largely did that. I thought any future government facing a recession would include the lowest-income people in food and Medicaid assistance, and the Obama budget did that twice after the July 2008 crash. But to my surprise, the Democratic Congress didn’t stop counting deep recession months against the five-year limit, or reinstate the federal requirement of some cash assistance and raise the benefit floor.
For the first decade or so, the bill worked as we had hoped, thanks in part to a provision that put a floor under total expenditures that was set in February 1994 when welfare enrollment and expenditures were at an all-time high, so that by 2000, when welfare rolls were down 58 percent, we were able to spend up to 58 percent more per family on childcare, transportation, and child support for those in training or already at work. With stronger enforcement, child support payments to single mothers and their children doubled. The coalition we put together to hire a million people off welfare, led by the late Eli Segal, the first leader of AmeriCorps, included 20,000 companies which hired more than 1.1 million people. And a nonpartisan study found that in the brief 2001 recession, employees who had been hired when on public assistance were actually less likely to be laid off than other workers.
When I went to speak at the Harvard Kennedy School in 2007, Dean David Ellwood, an expert on the economics of poverty who had thought I was wrong to sign the bill, said it looked like I was actually right, that the law was doing far more good than harm. In several states the reform spirit was still alive and the value of cash benefits was enhanced because people could keep them, for example, and own a car, something they couldn’t do under the old law.
But in just a few years too many of the good things about the bill were allowed to die in too many states. The federal government began to permit the money to be spent on things that had no connection to helping poor people pay their bills, raise their kids, or find a job. And after the crash, several states—red and blue—slashed already meager cash benefits.
You can argue that I should have seen it all coming a decade out, powered by the hard move to the right in so many governorships and state legislatures. I didn’t, and if I’d vetoed the bill we would have lost all the money that helped people support their kids and go to work, and later when the Koch brothers–funded long-term strategy to move state legislatures to the far right happened, they would have cut welfare spending anyway.
Still, you should work for the best but plan for the worst, and I should have urged the Democrats to restore the other half of my change formula when they won the House in 2006 and the White House in 2008, especially to restore a federal cash benefit to raise the minimum level of assistance to the poorest of the poor, because there will always be some families who can’t make it out of dependency. After the Tea Party crowd won the House in 2010, the chance to do that evaporated. The Republicans at the national and state levels kept moving to the right, confident that they could always find a new hot-button culture clash to scare, divide, and conquer.
Thankfully, the Earned Income Tax Credit endured, and in all the states that kept at reform efforts, the results were good. And when things got really bad after the 2008 crash and with Covid in 2020, Congress stepped in with large relief packages to ease the misery and ensure that low-income people weren’t left to fend for themselves. The economy needed their spending, too.
What should we do now? The same thing we should do with the Crime Bill. Thanks to the Affordable Care Act, low-income workers don’t have to worry anymore about losing healthcare in states that have accepted Medicaid expansion. But we should double down on what works and fix what’s wrong: restore a monthly cash benefit tied to cost of living but always make work pay more; don’t count economic downturns as part of the five-year limit; push states that haven’t expanded Medicaid to do so, with carrots and sticks (a lot of rural hospitals really need it); and don’t permit states to use the funds on things unrelated to helping poor Americans. We need to fix those things, but we shouldn’t abandon the focus on empowering parents to work and raise their kids.
On September 12, 2022, Jason DeParle published an article in The New York Times on the remarkable decline in child poverty from 1993 to 2019, falling from 28 percent to 11 percent. He cited a study showing that government aid played a critical role in the steady decline in every state, among children of all races, living with one parent or two, in native or immigrant households, and including “deep” poverty. While cash benefits shrank, other investment grew, starting with doubling the Earned Income Tax Credit in 1993 and, later, more increases in the child tax credit. So far Congress hasn’t passed President Biden’s proposal to maintain the most recent increases, which would cut child poverty in half again.
The study also found that increased labor force participation among single mothers, which spiked from 67 percent to 79 percent after the welfare reform bill passed, and state minimum wage hikes all helped. Over the twenty-six years, child poverty reduction measures shrank the number of children in poverty by 6.5 million, 2.2 million from that first doubling of the EITC in late 1993. Poverty fell most in the high-job-growth years of the late 1990s and 2010s, but in between, child poverty didn’t increase very much, even during the Great Recession. Then it fell again before Covid hit in 2020.
The 23 percent increase in the minimum wage was all done at the state level. I raised the federal minimum wage once and proposed but couldn’t pass a second one. The Republican Congress wouldn’t vote for it. Neither will many GOP state legislatures. But culturally conservative, working-class Republican voters like minimum wage hikes. In Arkansas in 2014, a banner election year for right-wing candidates, a big minimum wage increase won 70 percent approval in a referendum, with all the major Republican candidates opposing it, knowing they’d win anyway.
The study says that the largest policy factors in child poverty reduction are, in order, the Earned Income Tax Credit, Social Security, SNAP (food stamps), housing assistance, free and discounted school meals, Supplemental Security Income, cash assistance, women/infant/children nutrition (WIC), unemployment insurance, and home energy assistance. Everyone who says that government is the problem, and can’t be part of the solution, should read DeParle’s piece!
They should also read the article by David Leonhardt, run in The New York Times two days later, with the chart showing the big drop in child poverty since 1996, and asserting the “conservative critiques of the old welfare state” were right that “poor single mothers were better able to find and hold jobs than many liberals expected.” But the biggest cause of the drop in poverty was the continued expansion of the Earned Income Tax Credit and eligibility for food stamps, and of course the Medicaid expansion for those workers whose jobs didn’t provide private health insurance. What welfare reform did was to shift our antipoverty efforts from people who weren’t working to those who were. Leonhardt quotes Dolores Acevedo-Garcia of Brandeis University, who points out that “12 million additional children would be poor today” if the poverty rate were still as high as it was when I took office.
There are still 20 million poor people in this country and more just above the poverty line who have trouble making ends meet, and I’m sorry Congress hasn’t passed President Biden’s proposal increasing support for childcare and the Earned Income Tax Credit and making the child tax credit permanent (they seem to be the only tax cuts the Republicans oppose). With millions of jobs still unfilled in America, now is the time to do it. I hope the attention given to this report will help. Beneath all the noise and bad-mouthing of today’s politics, real lives continue to unfold, and I still believe most poor people prefer being empowered to chart their own course over a lifetime of dependence.
Look at what we were able to do during my time in office when we worked together. Overall, family incomes rose by 15 percent, but by 32 percent for Black Americans, the largest of any racial group, followed by 23 percent for Latinos. Poverty, including child poverty, fell to record lows for Blacks, as did unemployment. Latinos also had the lowest unemployment rate on record, and the lowest poverty rate since 1979. All these policies should be judged by their consequences.
The $17.5 billion in Small Business Administration loans to minority-owned businesses in those eight years were more than twice the amount of minority business loans in the entire forty-year history of the SBA. The $34 billion in Development Block Grants to low-income communities was more than any other administration before or since. More than 90 percent of community reinvestment loans for home mortgages, small businesses, and community development in the twenty-four-year history of the Community Reinvestment Act came in those eight years, which led to a 58 percent increase in home mortgages to Blacks, and 125 percent for Latinos. Doubling the EITC lifted more than four million people out of poverty, more than half of whom were children. The Empowerment Zones brought needed investment in low-income communities. In Harlem, with large Black and Latino populations, unemployment fell by 60 percent.
To build a healthier environment, we cleaned up more than three times as many toxic brownfield sites as in the previous twelve years, almost all in minority communities; increased the number of Americans living in communities that met clean air standards by 43 million, which was predicted to reduce premature deaths by 15,000 and severe asthma cases by 350,000 per year; and thanks to Hillary’s work and Senators Ted Kennedy and Orrin Hatch, we created the Children’s Health Insurance Program in 1997, which had insured 2.5 million kids by 2000, with the number growing steadily to more than five million by the time it was included in the Affordable Care Act. It now insures seven million children.
In education, we almost tripled funding for Head Start and created Early Head Start for three-year-olds. With the public schools facing the first generation larger than the baby boomers, we provided more than a billion dollars to repair old schools with the most urgent needs for the first time since World War II; funding for 100,000 teachers to reduce class size; funding for summer and afterschool programs for 1.3 million students, which increased math and science learning and reduced violence. We also funded GEAR UP, an initiative designed for high-poverty middle schools to help more than two million kids by guaranteeing college admission to those who completed the program. Finally, we expanded internet access for our schools from 35 percent in 1994 to 98 percent in 2001, through the deeply discounted “e-rate” program covering schools, libraries, and health centers.
I’m especially proud of what we did in higher education, with the largest increases in college aid since the G.I. Bill, including a 90 percent increase in Pell Grants, a million more Work-Study slots, and tax credits to make community college free and lower the cost of other higher education and training by 20 percent. More than 10 million families had claimed the credits by the time I left office. We also offered college students the chance to borrow the money directly from the federal government with the option to pay it back as a small fixed percentage of their income, saving students about $1,200 for each $10,000 borrowed. This change saved students a total of $9 billion and saved the taxpayers $4 billion because the loan default rate dropped a lot. If we’d kept at it, student debt would be a much smaller problem today.
Finally, in the area of racial justice, the budget of the Department of Justice’s Civil Rights Division increased 50 percent, and civil rights enforcement increased across all agencies. We cut the backlog of job discrimination claims before the Equal Employment Opportunity Commission by 60 percent, preserved affirmative action programs, and vigorously supported the preclearance provisions of the Voting Rights Act (which the Supreme Court would later gut); passed the Motor Voter law, which increased the number of voter registration sites and led to more than 28 million new voters in the 2002 election alone; defended majority-minority districts and fought Election Day discrimination, voter intimidation, and harassment by monitoring a record number of states and counties.
Beyond the criticism of welfare reform and the Crime Bill, the criticism I disagree with most strongly is that I aided and abetted the victory of the long Republican assault on government and somehow became a creature of corporate culture by saying in the 1996 State of the Union speech: “The era of big government is over.” To get that, the political press had to omit the rest of the sentence, the argument for the necessity of government action, and the very issues I was speaking about. Here’s the whole quote: “The era of big government is over. But we cannot go back to the time when our citizens were left to fend for themselves. Instead, we must go forward as one America, one nation working together to meet the challenges we face together.”
Keep in mind the Gingrich Republicans had just shut the government down twice. In a heated meeting in the Oval Office during the shutdown with leaders of both parties, when Gingrich and his lieutenants threatened to destroy me if I didn’t cave in to their demands, I told them I didn’t care if my approval went to 5 percent, they’d have to get another president if they wanted to destroy the country. Al Gore dryly said it was a good line, but I should have said I didn’t care if my approval rating dropped to 1 percent.
In the 1996 State of the Union address, I also introduced Richard Dean, a Vietnam veteran who worked in the Oklahoma City federal building for the Social Security Administration when it was bombed in 1995. He risked his life to reenter the ruins four times and saved three lives. Dean got a standing ovation from the entire Congress. Then came the zinger:
“But Richard Dean’s story doesn’t end there. This last November, he was forced out of his office when the government shut down. And the second time the government shut down he continued helping Social Security recipients, but he was working without pay. On behalf of Richard Dean and his family, and all the other people who are out there working every day doing a good job for the American people, I challenge all of you in this Chamber: Never, ever shut the federal government down again.” This time only the Democrats were standing.
The reverse plastic surgery performed in 2016 on the “era of big government is over” speech ignores the pivotal role it played in one of the major projects of my first term—restoring the legitimacy of the federal government. The balanced budget and surpluses, Al Gore’s Reinventing Government initiative, a more progressive tax code, the new student loan program, the Family and Medical Leave Act, and, most important, the broadly shared prosperity of those eight years dramatically increased confidence in the role of government, a case the Democrats can never stop pressing.
The big spending that occurred after the 2008 crash and during the Covid crisis was necessary because both caused multitrillion-dollar hits to the economy. For a long time, real interest rates were negative and government spending was necessary to keep the economy running and speed the recovery. That’s why I wrote Back to Work in 2010, supported President Obama’s recovery efforts after the crash, and back President Biden’s initiatives today.
After the “big government is over” hit, the second big economic criticism is that I sided with big corporations and big banks, triggering the process that eventually led to massively overleveraged derivatives and the inevitable big crash of 2008.
In the 1990s, the big banks had three priorities: to make it harder for plaintiff law firms to bring lawsuits against investment banks when changes in the market resulted in losses to their clients; to repeal Glass-Steagall in order to allow commercial banks’ holding companies to own insurance companies and allow banks to trade more securities for their own accounts; and to make sure neither the Securities and Exchange Commission nor the Commodity Futures Trading Commission (CFTC) could regulate large bets on highly leveraged housing and other derivatives.
I didn’t like any of those bills and wanted to veto them all when they came before me. The bill raising the lawsuit bar passed Congress first. The bill went too far and would have resulted in meritorious suits being thrown out of court, so I vetoed the bill. Congress promptly overrode it.
Then, when Congress passed bills repealing the Glass-Steagall law and the bill limiting oversight by both the SEC and the CFTC on derivatives trading with veto-proof majorities even larger than the lawsuit bill got, I knew those vetoes would be overridden, too. So I got the Congress to put some good things in them, including an extension of the Community Reinvestment Act, which increased housing and small business loans in low- and moderate-income communities, in return for not vetoing bills they were going to pass anyway.
I thought the commodities bill was by far the most dangerous, and had an argument about it in the Oval Office with the Federal Reserve chairman, Alan Greenspan. Alan asked me why I cared about the high-risk trading, since it cost $100 million to participate in most big trades and those people could afford to lose the money. I responded that the high-risk derivatives market would grow, become increasingly overleveraged, and if future regulators weren’t as vigilant as my appointees, SEC commissioner Arthur Levitt and Comptroller of the Currency Gene Ludwig, were in using the powers they still had, there could eventually be a crash that would reach way beyond the $100 million gamblers and hurt all Americans. Sure enough, once we had an OTS commissioner who posed for the photographers holding a chainsaw over a pile of federal regulations, it was only a matter of time.
One fight I should have taken on more personally was that of Brooksley Born, my chair of the Commodity Futures Trading Commission, when she was attacked by the financial interests for exposing Big Finance’s bill to exempt large trades in derivatives from regulation by the CFTC or the SEC. I was unaware of the cold shoulder she was getting, not just from Federal Reserve Chair Alan Greenspan but also from some others in the executive branch. When she quit without talking to me, I was angry and didn’t call and ask her to stay on the job and keep fighting. That’s on me. In the end, we would have lost anyway, but I wish Brooksley would have stayed in the fight.
The anti-historical rewrite of the 1990s in 2016 has made it more difficult for the Democrats to be seen as both tough on crime and for civil rights and racial justice, both pro-work and for the support necessary to help poor people live and raise their kids in dignity, both pro-business and pro-labor. The treatment of trade as a con game makes it harder to reap the benefits of cross-border exchanges while getting funds on the front end to repair communities hurt by trade. We need an upbeat, forthright effort to combat climate change, inequality, and isolation by investing in physical and digital infrastructure and the education and training that will allow all Americans to access all kinds of work. Minimizing the importance of disciplined budgets to keep down interest rates and the percentage of our budgets that go to bondholders undermines our ability to win the race for the future with research and development and education and training for all. We have to beat the “brand and blame” crowd with a fair defense of our past and a fearless embrace of the future.