Short Memories in the Wall Street Fiasco?

Could it get any better than this for the Democrats? With a procession of fat cats from Goldman Sachs just begging to get carved up, this wasn't supposed to be a fair fight. (Does the name "Custer" ring a bell?)

The only surprise during Tuesday's day-long hearing to probe the cause of the financial crisis was Sen. Carl Levin's potty mouth - who knew?

But as therapeutic as it might have been to watch smug bankers get gob smacked in public, it wasn't really all that illuminating. Not when you consider that the structural roots of the Great Recession - which almost became another Great Depression - are complicated and point blame in many directions. Not that you'd know it from the gleeful reaction of Democrats, who viewed the spectacle as a way to put the Republicans on the defensive. "Republicans will have more opportunities to show whose side they are truly on," said Senate Majority Leader Harry Reid, Democrat of Nevada,.

Fair enough, but if Goldman was carrying on like a morally-compromised Vegas bookie, let's also remind ourselves how all this came to be. Wall Street got out of control but its reckless behavior didn't take place in a vacuum. The investment banks were only taking advantage of the rules regulators had put in place. And nowhere in the day's narrative did any of the Democrats want to revisit decisions they took a decade ago - decisions which would contribute to the ensuing economic crisis. Specifically, the repeal of the Glass-Steagall Act by Bill Clinton in 1999.

Special Section: Wall Street Under Fire

Democrats are now pushing the so-called Volcker Rule to erect a wall between commercial banking interests and investment banking interests. The irony is that Clinton's top economic advisors back then - Robert Rubin and Lawrence Summers - convinced the former president to do away with that separation by burying Glass-Steagall. (Here's what Summers, then Treasury Secretary, said at the time: "Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century...This historic legislation will better enable American companies to compete in the new economy." Looking back, Clinton now acknowledges that he got bad advice. (His mea culpa comes at the end of the quote below.)

Clinton: I feel very strongly about it. I think it's important to have vigorous oversight. Now, on derivatives, yeah I think they were wrong and I think I was wrong to take it, because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them. And they don't need any extra protection, and any extra transparency. The money they're putting up guarantees them transparency. And the flaw in that argument was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.

And secondly, the most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges. So much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries not investors, and I was wrong about that. I've said that all along. Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.