Jim Armitage: Why Bill Clinton must take his share of blame for this crisis

He set about the creation of too-big-to fail behemoths capable of lending vast amounts of mirage money

US Outlook Michelle Obama delivered a mighty shot in the arm to her hubby's election campaign this week, but without the subsequent backing of Bill Clinton, the boost to the President would have fizzled out within days.

For while Obama, as Mitt Romney's team delightedly point out, has never excited Americans as much as he did the day they voted for him, Mr Clinton remains one of America's most popular politicians. If many Democrats had their way, he'd be chiselled up on Mount Rushmore by now.

But the bulk of the warm Clinton glow is down to that most precious of resources: luck with the economy. Because his rule was in a time of prosperity, Americans remember his years with nostalgic fondness.

What they forget is that it was the same Bill Clinton who primed the subprime mortgage crisis. Much of the country's wealth stemmed from a bubble he was instrumental in starting. For it was Mr Clinton who, in repealing the Glass-Steagall Act banning high street banks from "casino" investment banking, set about the creation of too-big-to-fail financial behemoths capable of lending vast amounts of mirage money.

Little mentioned now in the popular memory of Mr Clinton, this was an act of epic political amnesia. It was Democrat hero Franklin D Roosevelt's government which passed the Act in the 1930s, following the Wall Street crash. FDR's reasoning? That never again should hard-working Americans walk into their banks only to find their money had been gambled away on the markets.

The biggest beneficiary, you could argue, was the bank now known as Citigroup. Then run by Sandy Weill, Citi was a major donor to the Clinton camp and was able, thanks to the repeal of Glass Steagall, to become the world's biggest bank. Mr Weill even reputedly had the pen with which Mr Clinton signed off the dirty deed framed on the wall in his office.

When Citi stood on the brink during the financial crisis, so structurally important had it become that it had to be rescued by the US taxpayer's $45bn cash injection plus $300bn or more in loan guarantees and $2 trillion in low-cost loans. Thanks, Bill. But Mr Clinton is more culpable than even that. Under his administration, banks were encouraged (some say bullied) into offering mortgages to poor folks who couldn't afford them. This was done for the best of liberal intentions — achieving decent homes for poor, ethnic-minority communities. Mr Clinton and other luminaries, including Treasury chairman and bubble-blower-in-chief Alan Greenspan, in 1994 signed an edict in effect ordering banks to stop discriminating against lower-income minority groups.

Further, the administration ordered state-backed mortgage financier Fannie Mae to end its policy of refusing to lend in high-risk areas, a safety net set up in the 1930s to protect taxpayers. Let's be frank, there's a darn good chance there was rampant and inexcusable racism in many of those decisions to refuse loans. But there was also a large measure of prudent underwriting in which politicians shouldn't meddle. The banks rightly receive the bulk of public ire over the economic crisis. But we must not allow the past two decades of political leaders to escape their share of the blame.