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Why We Don’t Need to See the Hillary Clinton Transcripts

We already know that she gives priority of place to Wall Street.

Mark Wilson/Getty Images

I don’t want to see the transcripts from Hillary Clinton’s Goldman Sachs speeches.

I’m fairly certain they would look similar to what Kevin Drum theorizes at Mother Jones: Clinton was probably unfailingly polite to her audience—as people normally are when they’re offered $225,000 for an hour of work—but that’s likely about the extent of it. In the post-47 percent age, politicians are so appropriately spooked that private confabs may become public that they take care in crafting remarks to interest groups. That’s especially true of a cautious politician like Hillary Clinton.

The actual transcript is unnecessary because we already have enough in the public domain to know the real issue with these speeches: the rapport and camaraderie between political leaders and financial institutions, which results in a frame of mind that accepts their arguments and privileges their views. In fact, the best example of this comes from a speech that Clinton habitually touts as an example of her get-tough approach to Wall Street.

On the stump and in debates, including last week’s in Brooklyn, Clinton highlights a speech she made at Nasdaq in December 2007, in the thick of the foreclosure crisis. “When I was serving as the senator from New York, I did stand up to the banks,” Clinton said last week. “I did make it clear that their behavior would not be excused.”

In the speech, available here, she castigated Wall Street for “playing a significant role in the current problems,” for fueling irresponsible mortgage lending through securitization, and for having “shifted risk away from people who knew what was going on onto the people who did not.” Clinton has been criticized for this speech, however, because of a few lines where she said “there’s plenty of blame to go around” for the housing bubble, and that “homebuyers who paid extra fees to avoid documenting their income should have known they were getting in over their heads.”

You can read this as a throwaway nod to personal responsibility, a typical politician’s remark, when the thrust of the speech indicts Wall Street. I would argue that spreading around responsibility for something that was a demonstrably criminal action by lenders fits with Wall Street’s moralizing about deadbeat borrowers who should have known the risks. It’s a form of public shaming. And it arguably led to the lack of accountability we saw for the financial crisis—after all, if everybody is responsible, then ultimately nobody is responsible.

But I want to focus on something else: the solutions Clinton proposed in her Nasdaq speech. Remember, this was December 2007. The economy was already in recession. Two of the three biggest subprime lenders, New Century and Ameriquest, had already gone out of business. Foreclosure rates had nearly doubled over the prior year.

For many months, advocacy groups and any lawmaker who heard from their desperate constituents were screaming about why the mortgage-servicing industry couldn’t get borrowers into sustainable loan modifications to stop the carnage—including Clinton, in a March 2007 speech to the National Community Reinvestment Coalition. These modifications would have benefited homeowners and investors, since it’s more lucrative to keep someone in a home, even at a discount, than to sell it in foreclosure at a much deeper discount.

At the time, mortgage servicers, who collect monthly payments on behalf of investors and make decisions about foreclosures, argued that their hands were tied, that the securitization agreements didn’t allow them to modify loans unless they got clearance from the investors, who were scattered around the world. They worried about being sued by investors if they modified loans. It was a big mess.

How did Clinton react to this? In the Nasdaq speech, she asked the industry to take three voluntary steps: a 90-day foreclosure moratorium on subprime loans, a five-year freeze on resets of adjustable-rate mortgages, and status reports on the number of modified loans. At the time, the industry was already engaged in a voluntary effort called HOPE NOW to coordinate foreclosure mitigation with housing counselors. It failed to stop the bleeding, and the industry never took up Clinton’s other ideas, as you might suspect they wouldn’t.

Without voluntary action, Clinton said, she would “consider legislation to address the problem.” At the same time, responding to the complaint that servicers feared legal trouble from investors, Clinton added, “I’m prepared to consider giving legal protection to servicers and others who administer these loans and who do the right thing by balancing the interests of homeowners, the investors, and our economy.”

That same month, in December 2007, Sheila Bair of the Federal Deposit Insurance Corporation, speaking before the House Financial Services Committee, put forward a different proposal, based on months of work, for long-term, sustainable mortgage modifications in mass quantities. In the proposal, Bair specifically took aim at the idea that restructuring loans would violate securitization agreements. Servicers had a legal mandate to maximize returns for investors, and they would merely have to demonstrate that modifying loans would represent higher long-term gains for the total investor pool. As long as they showed that, Bair said, “it is difficult to argue that doing so represents a violation of anyone’s contractual rights.”

So we had two responses to the mortgage servicers’ claim that there was nothing they could do for homeowners. Clinton, in her speech said, in effect: That sounds reasonable, let’s give servicers legal immunity so they can modify loans while being protected from the investors. Bair, in her proposal basically said, in the measured language of a regulatory official: That claim is garbage, servicers have all the authority right now to operate in the best interest of the investors, and loan mods would actually accomplish that. Don’t give me these excuses.

Unfortunately, over two administrations, nobody backed up Sheila Bair. They took the servicers’ argument at face value, and did little to pressure them to do sustainable loan modifications like reducing principal balance, even if that would be positive for investors. They didn’t try to legislate this dispute in any way (nor did Clinton ever introduce her promised legislation). The Obama Administration’s incentive program for loan modifications, HAMP, was an unmitigated failure, achieving few of its goals. The servicers who whined about needing legal immunity ended up illegally ripping off homeowners left and right, and deliberately pushing them into foreclosure. Their compensation models dictated this, because they made more money from foreclosures than modifications, a problem that exists to this day.

As a result, six million families lost their homes.

When something could have been done to pressure mortgage servicers, Hillary Clinton, like many politicians, adopted their argument that they were prevented from helping homeowners. She believed their claims that they were hamstrung, when they weren’t. And I have to believe that’s attributable to proximity, access, and whose arguments get priority of place.

Wall Street purchases that priority of place simply by donating to campaigns, bringing politicians in for chats, marinating them in its worldview. Finance executives can make very compelling arguments about the complex intricacies of the financial system. They can sound charming and smart and logical. And in a moment of truth, they can get the payoff, when a powerful politician like Hillary Clinton makes a reasonable-sounding statement about mortgage servicers needing legal immunity.

That’s what the fuss over the Goldman Sachs speeches is all about: who you believe and who you trust as a politician. As Barack Obama wrote in The Audacity of Hope, “I can’t assume that the money chase didn’t alter me in some ways … your schedule dictates that you move in a different orbit from most of the people you represent.” Nobody is perfectly objective and unmoved by the people around them. It’s why politicians need a diversity of opinion and experience in their inner circles, to fight through the inevitable bubble mentality. And it’s why spending hours giving talks to financial elites matters.