Jeff Gerth is a senior reporter at ProPublica. Previously, he worked as an investigative reporter at the New York Times.

Under attack during Saturday night’s Democratic debate over her historical reliance on campaign contributions from Wall Street, Hillary Clinton said she isn’t influenced by such donations and would be at least as tough on the industry as her opponents.

“You can look at what I did in the Senate,” Clinton said. “I did introduce legislation to rein in compensation. I looked at ways that the shareholders would have more control over what was going on in that arena. And specifically said to Wall Street, that what they were doing in the mortgage market was bringing our country down.”


Yet an examination of Clinton’s remarks to Wall Street in December 2007 and her actions as a New York 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 financial industry.

The bills Clinton introduced on banking and housing finance got no traction. When she had a chance to support a 2007 bill that aimed to curb a tax break she publicly decried for hedge-fund and private-equity executives, she failed to sign on.

Clinton also has some history with the shadow-banking world she says is a continuing risk to the financial system. While in the Senate, she made a little-noticed overture to Treasury Secretary Henry Paulson, who was involved in talks to rescue giant insurer AIG with government funds. She was calling on behalf of wealthy investors who stood to lose millions and had hired two longtime Clinton associates to represent them.

‘Cut it Out’

In his most direct attack on Clinton’s record to date, Sanders on Saturday suggested that she was in Wall Street’s pocket.

“Why, over her political career has Wall Street been a major—the major campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're going to get, but I don't think so,” the Vermont senator said.

In her defense, Clinton brought up her efforts to help Wall Street rebuild after the 2001 terrorist attacks, a reference that later led one panelist to suggest she was avoiding the original question. But Clinton also defended her record as tough on the banks, saying she is “going right at them” with a comprehensive plan. For the second time in the debates she referenced a speech she gave to executives before the economic meltdown. In October’s debate she had described herself as going to Wall Street and saying, “Cut it out! Quit foreclosing on homes! Quit engaging in these kinds of speculative behaviors.”

A review of that 28-minute talk at an office of the Nasdaq stock exchange in New York shows Clinton steered a middle ground. 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.”

Bills Died

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, including one aimed at making it easier for homeowners facing foreclosure to get their loans modified. Only one of the five secured any co-sponsors -- New York Sen. Charles Schumer signed onto a bill that would have helped veterans refinance their mortgages.

Clinton also introduced in 2008 the bill she referenced Saturday, which would have curbed compensation of corporate executives.

No Senate committee took action on any of the bills, and they died without further discussion.

Meanwhile the Senate moved forward on other bills with wider support. These 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.

Brian Fallon, a spokesman for the Clinton campaign, declined to comment for this story.

‘Something Wrong’

Clinton’s campaign referenced her Senate record in a fact sheet issued last month 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.

Last April, during her first official appearance as a presidential candidate in Iowa, she said: “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 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.

AIG

At the debate, Clinton said her plan for Wall Street oversight would go beyond the one issued by Sanders. Big banks aren’t the only danger to the system, she said. “Look at what happened in '08, AIG, a big insurance company, Lehman Brothers, an investment bank helped to bring our economy down,” Clinton said.

Clinton had some first-hand knowledge of AIG’s fall. In September 2008, she 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.

Paulson’s calendar 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.”

A version of this story originally was published by ProPublica, an independent nonprofit newsroom.