Last Wednesday, I heard Perianne Boring, a new reporter on RT.com, report that Ben Bernanke was planning to resign as head of the Federal Reserve and that Larry Summers name had been mentioned as a replacement. I flashed back to four years ago and an article I wrote called “Bankrupting the world,” which said that Tim Geithner was just the face, the voice, behind the PPPIP (Public Private Partnership Investment Program) giveaway to America’s top commercial banks to restore what amounts to $200 trillion in their cumulative derivative debt.
I can say today that it’s even more apparent that Larry Summers was the corrupt brain behind the give-away and should go. Today, I can give you the same eight reasons why he shouldn’t be the Head of the notorious Federal Reserve Bank.
First: Summers and his backers persuaded Obama they had the best way to solve the worst financial crisis in history, that is, hand the keys to the banking system to a gang of hedge fund thieves.
Nevertheless, a number of “real” economists, like professor and noted author James Galbraith (son of FDR’s economic adviser John Galbraith), and Nobel Laureate Paul Krugman, warned that the bailout schemes would make things go from bad to worse.
They argued that to save the US banking system, it needed reorganization under bankruptcy protection. Additionally, Former Federal Reserve Chairman Paul Volker, who headed the President’s Economic Recovery Advisory Board, reiterated even more resolutely in a speech in New York City that the current system had to be reorganized in a Glass-Steagall framework, no ifs, ands, or buts.
Apparently, Summer’s notorious ego blew and his penchant for job-losing got the better of him. He actually had the chutzpah to tell President Obama he wasn’t going to continue working in the same arena with Volcker. In the army, you get shot for that or spend a long time looking at brick walls. Yet the novice president, perhaps intimidated or brainwashed, feeling he really needed Summers and Geithner to make things happen, quietly charged Volcker instead to head a tax-code review to close corporate loopholes, and streamline tax laws to generate revenue.
This was announced by OMB Director Peter Orszag, who said the review had a December 4 deadline, and the code, some 96 years old, needed simplifying to reduce tax evasion and what he termed “corporate welfare.” This is like being two touchdowns behind in the fourth quarter and you put your second-string quarterback in because the first one isn’t hacking it and is having a fit on the sidelines. Not good.
It didn’t take a rocket scientist to figure out that as soon as Volcker butted heads with Summers: first over timing of regulatory reform, second, over the larger question of bringing back the Glass-Steagall Act, there would be major conflict. After all, Summers spent all of 1999 wrecking the act as Bill Clinton’s Treasury secretary, replacing it with his fellow free-marketer friends’ Gramm-Leach-Bliley Act. The latter killed the parts of The Glass-Steagall Act that prohibited commercial banks from getting into the mortgage-backed securities and collateralized debt obligations game.
The Gramm-Leach-Bliley Act also split supervision of banking conglomerates among a host of different government agencies, creating an oversight disaster. The Glass-Steagall Act would have allowed Congress to simply break down the US’s five largest banking conglomerates into their smaller components, and to determine which were solvent enough to continue, and which were too broke to live. So a lot was on the table. Yet, Obama, like a Manchurian Candidate gave the nod to Summers and not to Volcker to proceed with “Summers plan.”
Second: consider Summers infamous comments at the World Bank.
In December of 1999 Summers, who was Chief Economist for the World Bank wrote in a memo that bore his signature and was leaked to the press that though free-trade wouldn’t much benefit the environment in developing countries, there was a clear economic logic in dumping toxic waste in them. This gives you a sense of the man’s character, or lack of it.
Summers actually wrote, “I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that . . . I’ve always thought that under-populated countries in Africa are also vastly under-polluted.”
I wonder how that would have sat with President Obama’s late father who was Kenyan. It’s patronizing beyond insult. And if that’s how Summers calculates human value, we are in big trouble.
Third: back in 1998 Summers testified in Congress against regulating the derivatives market. He actually said we could trust Wall Street.
“The parties to these kinds of contracts,” Summers pronounced, “Are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.” Is this our Wall Streeters he’s talking about? Bernie Madoff? Goldman’s Lloyd Blankfein? AIG FC’s, Joseph Cassano? You’re kidding?
Summers ladled even more praise on over-the-counter derivatives, blocking all moves to regulate them right up through 2000. He waxed patriotic, calling them “an important component of the American capital markets and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today.” As strong as it is today, as I wrote then, it happened to be April Fool’s Day, 2009. Of course, after Summers retired from the Treasury, he took a high level management position at D.E. Shaw, a hedge fund famous for its omertầ (Mafia’s conspiracy of silence).
Fourth: Summers backed the awful Commodity Futures Modernization Act of 2000, the flip-side of Glass-Steagall.
The CFM ACT stopped the highly effective government regulatory agency, the Commodity Futures Trading Corporation (CFTC), from any oversight over trade of financial derivatives. As of 2000, they could not touch a one. So the door was wide open to disaster—again, thanks to Summers.
Fifth: Summers ganged up with ex-Fed Chairman Greenspan and Enron’s corpse, “Kenny boy” Lay.
This was during the California energy crisis of 2000 when the boyz beat up on then Governor Grey Davis, lecturing Davis that the reason for their energy crisis was excessive government regulation. Believe that? Summers even browbeat Davis into additional deregulation of California’s utilities and even relaxing California’s environmental standards in order to “reassure the markets.” Reassure them, that is, that they were going to make a bundle bankrupting California.
Sixth: Summers proclaimed in a New York Times Op-Ed “we’re all Friedmanites.”
This was on the death of radical libertarian economist Milton Friedman, in which Summers confessed Friedman was “his hero,” “The Great Liberator,” and that “any honest Democrat will admit that we are now all Friedmanites,” adding that the old free-marketer made enormous contributions to monetary policy, and even greater contributions “in convincing people of the importance of allowing free markets to operate unencumbered.” That concept is in total contradiction to Obama’s platform of regulating markets to keep them safe and healthy for all concerned.
Seventh: economists and Democrats like Peter DeFazio (D.–Or.) stated President Obama was “ill-advised by Larry Summers.”
In January 2009, as the administration tried to pass its stimulus bill, DeFazio, James Galbraith, Paul Krugman, and economist Joseph Stiglitz argued that more of the stimulus money should be spent on infrastructure projects. But Summers of course favored more tax cuts for the rich.
DeFazio said, “Larry Summers HATES infrastructure.” After all, what did infrastructure ever do for him, except get him to work, pump water and power into his home, and build the city he made his fortune in? So, if he hates infrastructure, he doesn’t want a consumer driven recovery. He thinks we need an investment and productivity driven recovery (read financial give-away to banks’ recovery) for this county. Good luck.
But this is was the Summers who had the ear of President Obama, who ran on the need to overhaul infrastructure and reregulate the nation’s financial and banking system. Who’s on first? I thought it was Obama, who wants to push through a major social agenda and be known as the president who built a cross-country, high-speed, maglev transportation system and also led the US out of the biggest economic crisis ever. You have to put your foot down, Mr. President.
Eighth: Summers fired a derivatives whistleblower at Harvard. After suffering Enron’s collapse:
Iris Mack, a derivatives researcher, sought a quieter life. Mack joined Harvard Management Co., a privatized company which managed the university’s endowment fund in 2002. To her surprise, she found the Harvard endowment fund was not so staid. In fact, it was involved in the same speculative trading as her former employer, Enron. Worse, after she spoke up about it to Harvard President Larry Summers’ chief of staff, Marne Levine, she was fired four months later for raising the subject. No academic freedom in finance, I guess.
Mack eventually sued (and won out of court) saying she was “shocked at the inexperience of her co-workers,” some not even licensed securities dealers. “The group I was working for had no background whatsoever to be working on,” she told the Harvard Crimson. Traders were also using discredited variants of Black-Scholes statistical modeling, now acknowledged as having been at the heart of the 1998 collapse of Long Term Capital Management.
Bottom line: “When the bottom fell out” in 2007, Harvard’s endowment went with it. Her former boss, Jeffrey Larson, lost $350 million of Harvard’s cash in a hedge fund he’d started in 2005. Overall, the endowment plunged 22 percent in four months, with a projected collapse of 30 percent for the year.
Iris Mack adds, “I’m not trying to pretend I’m omniscient or anything, but a lot of people who were quantitative traders . . . we knew a lot of those models were just that: guestimates . . . I wasn’t crazy, I knew what I was talking about. But maybe if more and more people had spoken up, the economy wouldn’t be the way it is now.” How prescient!
Coda: And so it goes. There is also the terrible story about what Larry Summers did to the Russian economy in 1999, but let’s save that for another day and hope he doesn’t do it to America in 2009 of any time in the future. If you’re not convinced this guy’s not only a free-market loose-cannon, dangerous to and heedless of anyone around him; Summers, in fact, should be sticking to making speeches for neophyte capitalists for his six and seven number fees as new employment. It’s that simple. Sack him, President Obama. And give America, yourself and your vision a chance to survive.
The thought of having him back as Fed chief in 2014 sends shudders up and down my spine. Especially seeing how dangerously we are dancing on a policy of endless easements to bolster the stock markets and bust America.
Jerry Mazza is a freelance writer and life-long resident of New York City. An EBook version of his book of poems “State Of Shock,” on 9/11 and its after effects is now available at Amazon.com and Barnesandnoble.com. He has also written hundreds of articles on politics and government as Associate Editor of Intrepid Report (formerly Online Journal). Reach him at firstname.lastname@example.org.