This Is Not Bill Clinton's Financial Crisis

The U.S. economic meltdown was caused by this decade's greed, lack of regulation, and absent energy policy, says BusinessWeek reader Jim Kinney

By Jim Kinney

A technology director from Arlington, Va., Jim Kinney has been a BusinessWeek reader for 15 years and a BusinessWeek.com reader for 13 years.

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With plenty of blame for the U.S. financial crisis to go around, some have gone so far as to suggest the Clinton Administration is somehow responsible. Let me explain why that is nonsense.

Deregulation, corporate greed, irresponsible lenders, uneducated borrowers, a lack of criminal penalties, and abuse of credit cards and home equity loans are all cited as causes. They are true contributors to this mess, and they all festered during President George W. Bush's tenure.

Financial systems are supposed to make capital available to facilitate commerce and trade. The financial system that is coming to an end was based on artificially creating wealth instead of supporting tangibly productive activities.

Solid Wood Turned into Pressboard

Hedge funds weren't launched until the end of the Clinton Administration; no one can blame Clinton for the way operators exploited them. Credit default swaps and derivatives were purposely made incomprehensible by mathematical models that no human or regulator could understand. They created an unprecedented opportunity for investment bankers and chief executives to skim wealth off the top and leave taxpayers with a huge liability, again while Bush and Congress were asleep at the wheel.

Meanwhile, we were sold a bill of goods with globalization. Brand names such as Black & Decker (BDK), Levi Strauss, and Motorola (MOT) used to adorn U.S.-made products of the highest quality. These brands mean nothing now, as virtually everything—regardless of the sticker slapped on it—is made in the same Chinese factory. We've ended up with products that, if not outright dangerous, just don't last very long. Instead of high-quality, solid wood furniture made in the nation's furniture capital of Highpoint, N.C., we're offered foreign-made, cheap, and heavy-pressboard furniture covered with plastic "wood grain" veneers and glued together with toxic chemicals.

The South lost the U.S. Civil War in large part because the North had all the manufacturing. The whole country faces a similar situation today. We've abdicated our national security by shipping all of our manufacturing overseas. A recent BusinessWeek gave a perfect example of this situation's risks, revealing that our military aircraft are filled with worthless counterfeit Chinese chips (BusinessWeek, 10/2/08). How did this happen?

Bring Manufacturing Home

We've all known instinctively that getting rid of our factories made no sense. Clinton did support the North American Free Trade Agreement, but oil was so cheap then that globalization seemed like a good idea. Without factories, America's true productivity tanked. Businessweek's June 18, 2007, cover story, "The Real Cost of Offshoring," exposed how our government had been miscalculating productivity for years. I hoped the article would finally get the attention of Bush and our policymakers so Americans would rethink globalization. Nothing happened.

Shipping our manufacturing overseas saved us a few bucks at Wal-Mart (WMT), but our wages stagnated. The only asset many Americans have left is their home. Sadly the newer homes have been built farther and farther away from cities and jobs. We gave up farms and orchards in exchange for poorly made McMansions with vaulted ceilings and high heating bills so we can waste our time in long commutes. We became a nation of shoppers, with each city or town retrofitted with the same Starbucks (SBUX) and Gaps (GPS) you can find anywhere else. America has been "malled" by asphalt and tacky shopping centers.

We must start to restore productive activities to our economy by bringing our manufacturing home again.

A National Energy Program

But the worst indictment that could be made against the Bush Administration is that eight years have been squandered with no effort made to address our dependence on oil. The financial and economic implosion started when oil reached $140 a barrel. We finally got a small taste of what life would be like if gas were $5 or $10 a gallon. Suddenly the allure of the suburbs and those gas-guzzling SUVs evaporated. Let's hope declining gas prices will not lull us back into sleepwalking around our dangerous oil addiction. We have no contingency plans should oil supplies be disrupted—naturally, or by governments or terrorists. That's a scenario to make this financial meltdown look like a cakewalk, because we import 70% of the oil.

The money that went to pay for the war in Iraq and the bailout (a trillion dollars apiece) could have been spent on hundreds of nuclear power plants, research into fusion and alternative energies, converting our cars to electric, or upgrading our rail system. We can't waste another day without developing a national policy to address energy and transportation together. We need an effort equal to the moon race to solve our energy crisis. It is the only way to restore our personal, national, and financial security as we rebuild an economy based on truly productive activities. The next Presidential Administration must address this.

Editor's note: This is an amended version of the essay that originally ran on BusinessWeek.com.