Janet Yellen backed the repeal of Glass-Steagall in 1997. That’s not such a big deal.

September 17, 2013

Zach Carter has an excellent article revisiting Janet Yellen's 1997 Senate confirmation hearings. Among the revelations is that Yellen, who was up to lead President Bill Clinton's Council of Economic Advisors, supported the repeal of Glass-Steagall, NAFTA and chained-CPI.

Which isn't such a surprise. Another way of saying that is Clinton chose a chief economist who supported his economic policies.

How many Obama administration officials can you find in this picture? (AP Photo/Doug Mills)
When Janet Yellen was in the Clinton administration, she supported Clinton's policies. (Doug Mills/AP)

And it's not as if Clinton's economic policies were out of the mainstream. As Carter notes, "these policies all enjoyed substantial support among economists during the 1990s." They also enjoyed substantial political support. The repeal of Glass-Steagall, for instance, passed 90  to 8 in the Senate.

This is a point made fairly often by Larry Summers's defenders. The financial deregulation of the 1990s wasn't some secret scheme that Robert Rubin and Larry Summers somehow managed to pull off while the country was distracted by Monica Lewinsky's blue dress. These were widely supported laws. Summers was, then and now, a conventional Democratic policymaker on these issues.

Another point here is that Glass-Steagall really wasn't behind the crisis. Wonkblog's Glass-Steagall explainer has much more detail on this, but perhaps the simplest way to make the point is to quote Sen. Elizabeth Warren, the lead sponsor behind the bill to restore Glass-Steagall. When Andrew Ross Sorkin asked her whether the law would've prevented the financial crisis or JP Morgan's subsequent losses, she said, “the answer is probably ‘No’ to both.” There are good reasons to bring back Glass-Steagall, but they're separate from the events of 2007 and 2008.

Which is only to say that supporting the repeal of Glass-Steagall in 1997 doesn't say that much about somebody's opinions on regulating Wall Street today. And, in general, we don't know very much about Janet Yellen's views on the subject. As I've argued before, the support for her on this dimension (as opposed to on the monetary policy dimension) really comes from an anybody-but-Summers impulse.

As Dean Baker, president of the liberal Center for Economic and Policy Research, told me, “The question is whether you are prepared to beat up on the banks, yes or no. If no, then everything else doesn’t matter. With Summers you’re picking someone you know is not. I don’t know that Yellen is prepared to, either. But there’s reason for hope that Yellen would be stronger on regulating finance.”

But the danger with Yellen isn't just that she's less interested in, say, breaking up the big banks than some of her new admirers hope. It's that she's less interested in financial regulation period, and so that part of the Fed's brief simply won't get the attention it deserves. Probing her thinking on this will be a key part of the Senate hearings if she's nominated.

One final note here is that it's never made much sense to combine the roles of chief monetary policymaker and chief financial regulator in one person, and the Dodd-Frank reforms sought to break those roles apart by creating a new vice chair position in the Fed to deal with financial regulation. That position has sat empty, but it's possible the Obama administration will finally act to fill it, and whoever they name to that slot — probably Fed Governor Dan Tarullo — will take the lead on these issues. If Yellen is open to delegating there, then it's possible her views on financial regulation won't even be decisive.

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Lydia DePillis · September 17, 2013