Twilight of the Liberal Elite: Smearing Jack Lew and Barack Obama for Deregulation that Began with Jimmy Carter

For every so-called progressive out there running around with their hair on fire about the president's nomination of Jack Lew to succeed Timothy Geithner as Secretary of Treasury, I want you to carefully watch this interview Martin Bashir did with Jon Alter and Jared Bernstein about the nomination:


The rap from the Right on Jack Lew is twofold - that he runs circles around Republicans during negotiations, and that he is too kind to poor people to be able to close the budget deficit effectively. The rub from the Left, lead by Sen. Bernie Sanders and Robert Scheer is that he is a child of Wall Street and an advocate of deregulation, and since Obama is appointing him, he's supposedly slipped into the dark side for deregulation as well. All of this, regardless of the fact that Lew, like his predecessor Geithner is a career public servant, and has never had anything to do with deregulation. He did serve as a chief operating officer - an operational management position, not an investment decision making vehicle. Blaming him for Citigroup's follies during the financial meltdown is like blaming FAA officials for the catastrophic intelligence failure on 9/11.

The truth about Jack Lew is simple: he is a career, consummate budget professional who scares the pants off of Republicans because he's a tough negotiator and an unapologetic liberal. That's right, a liberal. Robert Scheer is so blinded by his hatred for Bob Rubin that he forgets Jack Lew is the product of liberal lions like Paul Welstone and Tip O'Neill.
A staunch liberal, he started his political career canvassing for anti-war hero Eugene McCarthy in 1968 (he was 12); his adviser at Carleton College was Paul Wellstone, later an iconic liberal senator; and one of his first jobs in Washington was working for Democratic lion and former Speaker of the House Tip O'Neill.
Subsequently, of course, Lew held the distinction of being the only head of the Office of Management and budget under whom the federal budget ran a surplus since Eisenhower.

But I can understand the liberal elite's problem with Jack Lew. You see, I don't think it has much to do with policy. I think it has much more to do with him embarrassing them. When every liberal elite political rookie - including Paul Krugman - in the country was howling about the president's "weak" negotiating performance during the 2011 debt limit deal, it turns out that the president and his team completely floored John Boehner, without Boehner even realizing it. A key member of that team that did it to them? Jack Lew. Not to mention how that deal shaped the complete Republican surrender in the recent fiscal cliff deal. If I didn't know that the howling Left is incapable of feeling embarrassed, I would contend they are opposing Jack Lew because of that embarrassment.

The other rub on Lew is that during his confirmation hearing to head the Office of Management and Budget, Sen. Sanders points out, he refused to admit financial deregulation as the "proximate cause" of the financial meltdown. However, one needs to examine more closely what Jack Lew's testimony was before being appalled at his response. Here is the full relevant portion of the hearing transcript.
SENATOR SANDERS: We are in the midst of a horrendous recession right now; 16 percent of our people are unemployed or underemployed. Clearly the immediate precipitating factor was the collapse on Wall Street. Do you believe that the deregulation of Wall Street pushed by people like Alan Greenspan and Robert Rubin contributed significantly to the disaster we saw on Wall Street several years ago?

MR. LEW: Senator, when we discussed it, as I mentioned to you, I do not consider myself an expert in some of these aspects of the financial industry. My experience in the financial industry has been as a manager, not as an investment adviser.

My sense, as someone who has generally been familiar with these trends, is that the problems in the financial industry preceded deregulation. There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point that in the period of time leading up to the financial crisis risks were taken. They were not fully embraced. They were not well understood.

I do not personally know the extent to which deregulation drove it, but I do not believe that deregulation was the proximate cause. I would defer to others who are more expert about the industry to try and parse it better than that.
So of that rather lengthy answer, and choosing to ignore Lew's response that he was not responding as an expert on the causes of the financial industry collapse, Sen. Sanders is hanging is hat on the underlined portion. And sure enough, by itself, that response seems pretty bad, considering the circumstances, and considering the president's own focus on re-regulating the financial industry. For the record, I have made it clear on many occasions that my personal view is that financial deregulation - creeping up over 30 years since Ronald Reagan's presidency and culminating with Gramm-Leach-Bliley in the late 1990s was the proximate and obvious cause of the financial meltdowns in 2008.

Sen. Sanders, however, asked a loaded question. He did not ask about deregulation in general but specifically deregulation that was enacted during the end of the Clinton years. Sen. Sanders wanted to specifically corner Lew into denouncing the president and the economic team he had worked with just prior to this administration. And while it is entirely true that Gramm-Leach-Bliley aided greatly in the meltdown of the financial institutions in 2008, it was by far not the only factor.

For example, the creative financial instruments kept out of the eyes of regulators that Lew refers to were neither invented in the 1990s, nor exempted from regulation in the 1990s. Actually, the federal law that allows for that is known as the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), and it was signed into law by... ahem, Jimmy Carter, long, long before the start of the public career of Bob Rubin, the Left's much despised Clinton Treasury Secretary. It, along with Reagan's Garn-St Germain Act ended interest rate ceilings, severely eased reserve requirements, allowed banks to merge, deregulated savings and loans and blurred the line between commercial (investment) and consumer banking. So much of Glass-Steagall was actually repealed by Jimmy Carter, not Bill Clinton. Gramm-Leach-Bliley merely repealed what was left of it.

So is deregulation pushed by Rubin and Greenspan a large contributory factor to the financial crisis of late last decade? Of course. Jack Lew never said that it wasn't. But that wasn't by any means, as Lew put it, the "proximate cause." In light of the facts, Jack Lew is right. What caused the financial industry meltdown was in fact "an increasing emphasis on abstract leveraged derivative products" - and the creation and exploded, unsupervised use of these products were allowed by deregulation, yes, but that deregulatory process (along with lax oversight) did not begin with Clinton; it began with Carter.

It should be noted that there is in fact no record of Jack Lew publicly supporting deregulation - not even as part of the Clinton administration. It's important to note that during Bill Clinton, Jack Lew was head of the Office of Management and Budget - his job was to balance the budget, and had nothing to do with monetary policy.

Dodd-Frank created a much more in-depth policy role for the Secretary of Treasury than existed before. Jack Lew, who has by all accounts been deeply committed to protecting the social safety net and investments in our future along with being a numeric genius, is the right man for that job right now. He has the capacity to address our long term debt while protecting our critical investments into the future and our commitments to older generations.

It is wrong to tar and feather him with deregulation simply because of his association with one of the several administrations that implemented financial deregulation, especially when Lew had nothing to do with those policies. Let me also remind my liberal friends that this man is nominated to serve a president who has expanded the social safety net by the greatest amount since Johnson's Great Society, as well as the president who signed into law the most significant re-regulation of the financial industry sine Franklin Roosevelt was president. This president, and his nominee for Treasury Secretary, have earned our trust.