Paul Volcker, or the “big guy,” as President Barack Obama refers to the former Federal Reserve chair who heads his Economic Recovery Advisory Board, nailed it in a series of blistering remarks on the sorry state of our economy. But what he said was even tougher than was indicated by the media’s scattergun reporting on his speech last Thursday to the Chicago Fed. Thanks to Reuters, which posted the video coverage online, it is possible to take the full measure of his concern over where we are and how we got here.

Volcker warned that “the financial system is broken. … We know that parts of it are absolutely broken, like the mortgage market, which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.” That sentence was quoted in brief mentions of the speech in The New York Times and other leading news outlets but not so his explanation of how this was allowed to happen: “I don’t think anybody doubts that the underlying problem in the markets is this too-big-to-fail syndrome, bailout and all the rest.”

Volcker is right that those too-big-to-fail banks were at the heart of the problem, but the folks who pushed through the legislation allowing the creation of those unwieldy financial monsters still feign innocence. They include Bill Clinton; his Treasury secretaries, Robert Rubin and Lawrence Summers; former Sen. Phil Gramm, a Texas Republican; and former Federal Reserve Chair Alan Greenspan. Their success in smashing the wall between investment and commercial banking is the source of our current misery.

As Volcker observed, the investment banks stopped investing in truly productive ventures and turned into “trading machines instead of investment banks,” resulting in “encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”

That melding of Wall Street high rollers’ risky bets with the federally insured deposits of ordinary folks required the U.S. government to bail out the former to save the latter. That was just what a small band of eight senators predicted when they alone voted against the radical deregulation that Clinton signed into law in 1999. The urgency behind passage of that law was the temporary waiver of the Glass-Steagall Act by the Fed, an action that allowed the merger of the Travelers insurance company and Citibank to form Citigroup, creating the biggest of the too-big-to-fail banks.

That merger was celebrated in an April 8, 1998, New York Times editorial that was all too typical of the response of the big news corporations:

“They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion. If regulators approve the merger, Citigroup, as the company will be called, will serve about 100 million customers in 100 countries. In one stroke, [they] will have temporally demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.”

The same theme of modernization was struck by President Clinton when he signed the law making permanent the temporary exemption for the newly formed Citigroup: “Today what we are doing is modernizing the financial services industry, tearing down those antiquated laws and granting banks significant new authority.”

Clinton then handed one of the pens he had used to sign off on the new law to a beaming Sandy Weill, Citigroup’s CEO, who had it installed in the hallway of the new company. The trophy was just steps away from the office where Weill installed Rubin, who had left the Clinton Treasury post after the law that cleared the way for Citigroup went into effect. Rubin was at Citigroup for the full crazy ride but insisted in congressional testimony that, despite his $15-million-a-year compensation, he did not know of the company financial shenanigans he had done so much to make legal.

Citigroup, thus freed from sensible regulation, went on to become a major leader in the securitization of subprime and Alt-A mortgage debt before being put on government life support. It required $45 billion in a taxpayer bailout and Fed backing of $300 billion of Citigroup’s toxic assets to stay alive, at less than $4-a-share stock valuation. On Monday, Norway’s central bank joined a long list of plaintiffs attempting to hold Citigroup responsible for the toxic debt it had sold. Guess they are not so happy with the destruction of those “unnecessary walls” that Clinton and the editorial writers at The New York Times had so wildly celebrated.