There is no shortage of blame for the financial debacle rocking America and scaring the world. And among the names popping up in the pathology of this vicious malaise are former Fed Chairman Alan Greenspan, former Treasury Secretary Robert Rubin, former Texas Senator Phil Gramm, and former President Bill Clinton. It was on their watch that the banking strictures of the 1933 Glass-Steagall Act were dismantled. Some critics say tearing down the barriers between commercial and investment banks contributed to the current crisis because it allowed commercial banks such as Citigroup (C) to trade mortgage-backed securities. In fact, former Citi CEO Sandy Weill led the fight for deregulation. President Clinton was in New York this week for the annual meeting of his philanthropy, the Clinton Global Initiative, and I asked him about the banking crisis.MARIA BARTIROMO
Mr. President, in 1999 you signed a bill essentially rolling back Glass-Steagall and deregulating banking. In light of what has gone on, do you regret that decision?FORMER PRESIDENT BILL CLINTON
No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter. But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch (MER) by Bank of America (BAC), which was much smoother than it would have been if I hadn't signed that bill.
Phil Gramm, who was then the head of the Senate Banking Committee and until recently a close economic adviser of Senator McCain, was a fierce proponent of banking deregulation. Did he sell you a bill of goods?
Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.