by Jeff Gerth ProPublica, Nov. 13, 2015, 5 a.m.

An updated version of this story was published by Politico.

During the Democratic debate last month, Hillary Clinton assured viewers she would be a president at least as tough on Wall Street as her main opponent for the nomination, Sen. Bernie Sanders. She cited her history as “a progressive who likes to gets things done.” Sanders and others, she added, might be “missing the forest for the trees” by aiming at big banks alone and not the more risky shadow banking system.

Clinton also proudly recalled that while serving as U.S. senator from New York she warned bankers early in the financial crisis about their dangerous practices.

“I went to Wall Street in December of 2007 — before the big crash that we had,” Clinton said. “I basically said, ‘Cut it out! Quit foreclosing on homes! Quit engaging in these kinds of speculative behaviors.’ ”

An examination of her remarks to Wall Street in December 2007 and Clinton’s actions as a senator — a period when she had the best opportunity to translate her words into deeds — presents a more mixed picture of her record on the banking industry.

Clinton steered a middle ground in a 28-minute address to business executives gathered at an office of the Nasdaq stock exchange in New York’s Times Square on Dec. 5, 2007. In the event, she presented a detailed analysis of the burgeoning dangers in the housing market and its threat to the economy. (ProPublica obtained a video of the speech, which hasn’t previously been posted.)

Clinton gave a shout-out to her “wonderful donors” in the audience, and asked the bankers to voluntarily suspend foreclosures and freeze interest rates on adjustable subprime mortgages. She praised Wall Street for its role in creating the nation’s wealth, then added that “too many American families are not sharing” in that prosperity.

She said the brewing economic troubles weren’t mainly the fault of banks, “not by a long shot,” but added they needed to shoulder responsibility for their role. While there was plenty of blame to go around for the spate of reckless lending, and while Wall Street may not have created the foreclosure crisis, it “certainly had a hand in making it worse” and “needs to help us solve it.”

Finally, Clinton said, if the banks didn’t take the voluntary steps she proposed, “I will consider legislation to address the problem.”


The lenders did not adopt Clinton’s proposals. During 2007 and 2008, when the housing market collapsed and while she was also running for president, the Democrats controlled the Senate. Of the 140 bills Clinton introduced during that period, five were related to housing finance or foreclosures, according to congressional records. Only one of those five secured any co-sponsors. No Senate committee took action on any of them and they died without any further discussion.

When a broad housing bill finally became law in 2008, Clinton was not among the more than dozen senators credited by party leaders as playing a key role.

Clinton also introduced a bill in 2008 to curb compensation of corporate executives. It too died without any co-sponsors.

In dealing with Wall Street, Clinton faced the same challenge as any lawmaker representing New York, where the financial industry includes not only constituents but campaign donors. Wall Street executives were the largest donors to both her 2006 Senate re-election bid and her 2008 presidential race; employees of just eight banking firms gave $2.67 million to those campaigns, according to data compiled by the Center for Responsive Politics, a non-profit research group.

Clinton in 2007 publicly decried a tax break for hedge-fund and private-equity executives — and continues to do so in her current campaign. But she didn’t sign on as a supporter of a Senate bill that would have curbed the break.

As a senator, Clinton also had a brush with the shadow-banking world that she now describes as a continuing threat to the financial system. When AIG, the giant insurance company and poster child for lightly regulated finance, began to implode in September 2008, Clinton reached out to Treasury Secretary Henry Paulson, who was involved in talks to rescue the firm with government funds. Her little-noticed overture came on behalf of some wealthy investors who stood to lose millions and had hired two longtime associates of the Clintons to represent them.

Brian Fallon, a spokesman for the Clinton campaign, declined to comment for this story. The Clinton campaign has issued a fact sheet detailing her record with Wall Street as a senator.

‘Doesn’t Run Amok’

In Iowa last month, Clinton underscored the difference between fiery speeches and results when she told Democrats, “It’s not enough to just rail against Republicans or the billionaires.”

During the debate she had called for stronger regulatory oversight of the financial system and addressed the theme of income inequality that has powered the campaign of Sanders, who identifies himself a democratic socialist. “It’s our job to rein in the excesses of capitalism so it doesn’t run amok and doesn’t cause the kind of inequities that we’re seeing in our economic system,” she said.

Clinton’s campaign referenced her Senate record in the fact sheet issued a few days before the debate titled, “Wall Street Should Work for Main Street.” It cited one bill — the executive compensation legislation that died. It also mentioned four press releases or speeches from 2007 and 2008 — including a March 15, 2007, talk in which she proposed a series of housing initiatives and her call later that year for higher taxes on hedge fund executives.

Clinton had already hit the tax break in her new campaign. In April, during her first official appearance as a presidential candidate, she told students in a classroom for auto technology at an Iowa community college: “There’s something wrong when hedge fund managers pay lower taxes than the nurses or the truckers that I saw on I-80 as I was driving here.”

Her aides then told reporters she was referring to the so-called carried-interest loophole, which taxes compensation earned by private equity partners and hedge fund managers at a lower rate than ordinary earned income.

What they didn’t say was that Clinton never signed onto the bipartisan June 2007 bill that would have curbed the break. Her rival for the nomination, then-Sen. Barack Obama, became a co-sponsor on July 12. The next day Clinton gave a campaign speech criticizing the tax provision. Yet she still didn’t put her name to the legislation, according to records.

During Clinton’s first presidential campaign, her official campaign website gave short shrift to financial or housing matters. In April 2008, the section of the website called “Hillary on the Issues” listed 14 topics; none involved housing, mortgages or Wall Street.

The bills she introduced dealt with some of the issues she raised in her speeches — including one aimed at making it easier for homeowners facing foreclosure to get their loans modified — but none of them advanced, records show. The only co-sponsor who joined any of them was fellow New York Sen. Charles Schumer, who signed onto a bill that would have helped veterans refinance their mortgages. That bill also died in committee without any action taken.

Meanwhile the Senate moved forward on other bills with wider support. They eventually led to a sweeping housing and mortgage law signed by President Bush in July 2008. That legislation was voted on three times in the Senate in 2008, in addition to a few procedural votes related to the bill. Clinton missed votes in February and April, when she was running for president, but also missed votes in late June, after she had dropped out of the contest. On July 26, when the bill passed, Clinton was there to vote in support.

The bill’s main sponsor, Sen. Christopher Dodd, a Connecticut Democrat, summarized the bill’s journey and, in a floor speech, praised 13 other Senators for their help. Clinton’s name wasn’t among them.

‘Closed Door Meetings’

At the debate last month, Clinton said her campaign plan for Wall Street oversight was tougher than the one proposed by Sanders, in part because it would go beyond making sure banks aren’t too big to fail. “We also have to worry about some of the other players — AIG, a big insurance company; Lehman Brothers, an investment bank. There’s this whole area called shadow banking. That’s where the experts tell me the next potential problem could come from,” she said.

Clinton didn’t need an expert to tell her about AIG.

On Sept. 18, 2008, as the government grappled with collapsing markets, Clinton took to the Senate floor. “After years of laissez-faire policies for the middle class, the Bush administration has acted on behalf of Wall Street, with the largest and most significant Federal interventions in the history of our modern financial system,” she said. “The largest banks in the world could have closed-door meetings with the White House and the Federal Reserve and Treasury Department to discuss their bailout options, but millions of homeowners with mortgages worth more than their homes, or who are facing default and foreclosure, don’t have the same opportunity.”

A day before that speech, Clinton had quietly reached out to Paulson, Bush’s Treasury secretary, on behalf of some wealthy investors in AIG. The giant insurer had made bad bets on the mortgage market, couldn’t pay its debts and faced imminent collapse. Shareholders were poised to lose billions if the company went bankrupt or was taken over by the government.

A review of Paulson’s calendars shows that he and Clinton talked on Sept. 17 and 20. In his book about the financial crisis, Paulson mentions just the first conversation, saying that Clinton called on behalf of Mickey Kantor, a lawyer, who represented a group interested in staving off AIG’s imminent collapse. The group’s investment banker, according to news accounts at the time, was Roger Altman. Kantor and Altman are long-time friends of Hillary Clinton and served as senior officials in her husband’s administration. Altman headed a secret energy task force for Clinton when she was in the Senate.

In Paulson’s account of his conversation with Clinton, Kantor represented a group of Middle East investors who were considering a bid for the insurer.

Paulson quoted Clinton as saying the investors hoped to save the government from having to “do anything,” but Paulson said he told her any private solution would have to guarantee AIG’s billions of dollars in liabilities, a huge, if not impossible, hurdle.

But in an interview with ProPublica, Kantor said Paulson didn’t have it quite right in the book. Kantor said he was working on behalf of “major shareholders” in AIG, not Middle East investors. The shareholders he represented owned about 30 percent of AIG’s shares — one of them was Eli Broad, a Los Angeles billionaire, philanthropist and friend of the Clintons. Kantor said he couldn’t remember whether he had sought Clinton’s help but said it was possible given their 40-year friendship. Kantor said he hoped to persuade Treasury his clients could raise enough money to “put the ship in order” but by the time Paulson and Clinton talked the Federal Reserve had concluded a private rescue, at a cost of at least $75 billion, was not feasible.

With its stock in free fall, there was no private solution to AIG. The Treasury and the Fed feared that if AIG defaulted, the ripples might bring down the international banking system.

By Sept. 22, the Federal Reserve Bank of New York was completing a rescue package that gave the government almost 80 percent of the company in return for a loan of $85 billion. As a result, private shareholders, including Kantor’s clients, lost most of the value of their stock holdings. The U.S. eventually earned a profit of almost $23 billion on its investment.

Paulson declined to comment, Altman did not return a phone call and a spokesperson for Broad and his foundation didn’t respond to emails or phone calls.

More Bailouts

The most important action Clinton took related to the financial crisis may have been her vote in favor of the $700 billion bank stabilization plan, essentially a bailout of Wall Street. After a short but tumultuous debate the Senate approved the Bush administration’s plan, known as TARP, on Oct. 1, 2008. Nine Democratic senators, 15 Republicans and one independent (Sanders) voted no.

Clinton told the Senate during the debate:

“For two years, I and others have called for action as wave after wave of defaults and foreclosures crashed against communities and the broader economy.” She called for an end to the “culture of recklessness in our financial markets endorsed by an ideology of indifference in Washington.”

The next day Clinton spoke to a New York City radio host and expanded on her support for TARP.

“I think that the banks of New York and our other financial institutions are probably the biggest winners in this,” she said, “which is one of the reasons why, at the end, despite my serious questions about it, I supported it.”

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.