Elizabeth Warren Infiltrates The Clinton Borg

WASHINGTON -- Democrats still don't know what to do about the Clinton years.

That wouldn't be a big deal if President Bill Clinton's legacy didn't cut to the heart of the Democratic Party's biggest internal rift since the 1980s: Its relationship with Wall Street, and with it, the Democratic economic worldview. Or if the party weren't shaking off a bruising midterm election dominated by the economy. Or if Democrats weren't gearing up for a 2016 presidential cycle in which a woman whose last name is Clinton is already playing a starring role.

But as Democrats regroup, even the Center for American Progress -- D.C.'s bastion of Clintonism -- can't seem to sort out the 1990s. On Wednesday, CAP hosted its annual "Making Progress" policy conference, giving a platform to a slate of up-and-coming Democratic politicians, and an opportunity for a few mega-donors to share the stage with a few of the party's old hands. CAP isn't just another think-tank. It's the chief policy incubator for both the Clintons and the Obama administration (otherwise known as the Democratic establishment), and its major events are a guide to where the party is headed.

On a host of issues, Democrats seem united. Access to education, criminal justice reform, curbing carbon pollution, and moral legitimacy in foreign policy were all addressed without controversy from the well-heeled, invitation-only crowd.

But the economy was a different story. Sen. Elizabeth Warren (D-Mass.) riveted the crowd with an address about the New Deal's central accomplishments: Reining in Wall Street, investing in education, infrastructure and scientific research.

"We made these investments as a country," Warren said. "We said we're gonna have tough rules in place, a level playing field, and then we're gonna invest in building the future. And here's the deal. It worked. It worked for half a century. You take a look at the numbers, and GDP just keeps going up year over year over year. But but here's the key. At the same time, median family income, that family right in the middle -- income just kept going up the same. In other words, as our country got richer, our families got richer. And as our families got richer, our country got richer."

Until, of course, the GOP ruined everything, she said.

"The Republicans have a pretty simple philosophy," Warren said. "They say that if those at the top have more -- more power for Wall Street players to do whatever they want, and more money from tax cuts -- then somehow they can be counted upon to build an economy that works for everyone else. Well, we tried it. For 30 years. And it didn't work."

Financial collapse, Great Recession ... It's a compelling story, especially for an audience of Democratic partisans. But the clear implication is that President Clinton was running destructive Republican economic policy.

Some conservatives do, in fact, claim Clinton as one of their own. Clinton pushed through the North American Free Trade Agreement, a deal negotiated by President George H.W. Bush. House Budget Committee Chairman Paul Ryan (R-Wis.) still celebrates Clinton's welfare reform (although anti-poverty experts bemoan its effects during the Great Recession). He raised taxes, early in his administration, but instead of devoting the increased revenue to fund liberal investments, he paid down debt to appease Wall Street.

And for Democratic populists, Clinton's cardinal sins were two acts of Wall Street deregulation. In 1999, Clinton signed the repeal of Glass-Steagall's separation between traditional banking and high-flying securities trading. And in 2000, he signed a bill exempting newfangled contracts called derivatives from securities rules and anti-gambling restrictions.

Both are widely cited as causes of the 2008 crisis. But at CAP's conference on Wednesday, former Clinton and Obama economic adviser Gene Sperling wasn't having any of it.

"The harm created by the financial crisis was enormous," said Sperling. "I think it had virtually nothing to do with the laws passed in the '90s. None of the major players -- Fannie [Mae] and Freddie [Mac], Lehman [Brothers], Bear [Stearns] -- had anything to do with that."

Fannie, Freddie, Lehman and Bear were deeply involved in derivatives markets, so Sperling doesn't have a very good case. Sperling, in fact, was a deregulation advocate in Clinton's administration, writing a memo to the president in 1997 pressing the supposed merits of repealing Glass-Steagall.

But as legacy management, Sperling's comments Wednesday were similar to what Clinton himself said in May, when he told an audience at a deficit-reduction conference that not a single bank had failed because Glass-Steagall had been repealed. It might be true, but only because all of the big banks got bailed out. Citibank had asked Congress and the Clinton administration to repeal the law so it could buy a big insurance company, and subsequently went on a merger binge, became enormous, and then needed hundreds of billions of dollars in taxpayer support. Even then-Citi CEO Sandy Weill has said he thinks it was a mistake to repeal Glass-Steagall, and recommends reinstating it.

The hands-off approach to Wall Street is still a live issue in Democratic policymaking. A few years ago, Sperling was one of several Obama administration officials who insisted that the biggest barrier to foreclosure relief was a man named Ed DeMarco, who headed the regulator for mortgage giants Fannie Mae and Freddie Mac. DeMarco's agency was independent of the White House, Sperling emphasized, and his refusal to cut struggling borrowers a break on their debt burdens was preventing the Obama team from solving major problems in the housing market.

DeMarco was replaced by Obama pick Mel Watt almost a year ago. Right before Warren took the stage at CAP, she excoriated Watt at a Senate Banking Committee hearing for not providing that critical relief to homeowners during his tenure. Surely, Obama's hand-picked man should have been able to deliver the goods in the last 12 months. After a year, Watt's primary accomplishment as Fannie and Freddie's top overseer is signaling to banks they don't have to worry so much about getting penalized for sending the agencies fraudulent loans.

Sperling isn't a Paul Ryan conservative. On Wednesday, he blasted right-wing efforts to give corporations a tax holiday for bringing cash they've stashed offshore back home. Any corporate tax breaks, Sperling said, should reward specific good behaviors. Rewarding companies for tax-dodging, he says, isn''t going to help anything. It's a significant statement, since Obama himself signaled openness to a future corporate tax holiday the day after this month's elections.

But Sperling nevertheless represents part of the Wall Street wing of the Democratic Party. When discussing Thomas Piketty's landmark tract on economic inequality, Sperling suggested that one way to correct the imbalance would be to get more people involved in the stock market.

Ironically, Sperling was offering a far more conservative vision than Silicon Valley venture capitalist Nick Hanauer, who criticized high corporate profits as evidence that companies weren't investing in their people or the public good.

"I am violently in favor of significant reforms to our financial system," Hanauer said. "A very deep problem is the ability for financial institutions to take risk that benefits them, but ultimately, if it doesn't work out, will be socialized. And Glass-Steagall was one instantiation of a solution to that problem that served us well for 50 years."

Hanauer is a significant player in Democratic Party politics. He serves on the board of Democracy Alliance, an important conglomeration of top liberal donors. But there are a lot of wealthy Democrats out there. CAP reaching out to figures like Hanauer and Warren is a sign that the Clintonite core of the party's economic ideology is shifting.

CAP President Neera Tanden, who was policy director for Hillary Clinton's 2008 presidential campaign, gave Warren an effusive introduction -- "a role model," "my friend, our friend, Elizabeth Warren!" Warren responded in kind, celebrating Tanden's work building CAP into a liberal powerhouse.

Whether other Clinton loyalists -- who make up most of the Democratic Party's power center -- can live with that relationship remains to be seen.



Hillary Clinton