Why Larry Summers Must Not Be Fed Chairman

For reasons I do not understand, the Obama administration seems to really, really want Larry Summers to replace Ben Bernanke as chairman of the Federal Reserve Board. They’re floating all sorts of stories in the press, trying to make him sound like a guy who led the charge for reform of the mortgage market when the reality is quite the opposite. Dean Baker debunks that nonsense:

The New York Times (NYT) article that uncovered the report told readers:

“The report recommended modest changes in federal law but Congress, then controlled by Republicans, made none. The Fed and other banking regulators also ignored the findings.”

There you have it. Larry Summers was ahead of the curve trying to clamp down on abuses in the mortgage industry, but other regulators and the Republican Congress just wouldn’t go along.

If this story doesn’t sound quite right, that’s because it isn’t…

Here’s what the June 2000 Washington Post story on the famous joint Treasury-HUD report had to say:

“An administration report on abusive mortgage lending practices that is due to be released today has raised concerns from consumer groups and key congressional Democrats. …

“Complaints that the report and the legislation it proposes will not go far enough to protect consumers and would ‘undercut’ a bill by Sen. Paul S. Sarbanes (D-Md.) and Rep. John J. LaFalce (D-N.Y.) could even block the report’s release, several consumer groups and congressional sources predicted.”

Contrary to the line being pitched by the Obama administration, Summers was not a lone voice in the wilderness arguing for a crackdown on bad lending practices. He was trying to put a break on efforts by consumer groups and their allies in Congress to rein in these practices…

This effort to rewrite history, turning Summers into a leading proponent of mortgage regulation, is a sign of the White House’s increasingly desperate attempts to appease those within the Democratic Party who oppose his appointment. That is a tough job.

There’s another aspect to this that needs to be pointed out. The problems in the subprime mortgage market were made far, far worse by the mortgage-based derivatives market, which were entirely unregulated at the time. And when Brooksley Born, head of the Commodity Futures Trading Commission (CFTC) in the last part of the Clinton administration, proposed in a memo that it needed to be regulated and that the CFTC had the authority to do so, Summers was one of the three hatchet men (Robert Rubin and Alan Greenspan were the others) who pushed her out of her job for it.

After Born resigned, Clinton put together a working group made up of Summers, Greenspan, Arthur Levitt, and William Rainer, her replacement. They quickly determined that the agency should be forbidden from regulating derivatives and Congress passed the Commodity Futures Modernization Act, which Clinton dutifully signed just before Christmas in 2000, before leaving office himself. The bill exempted credit default swaps from federal regulation, which would later play a huge roll in the 2008 economic collapse. Even after that collapse, President Obama named Summers the director of the National Economic Council, safely returning the wolf to the henhouse.

I’m seeing a pattern in Obama’s 2nd term appointments and it isn’t a good one. He seems intent on appointing insiders to run federal agencies that should be shut out of those jobs forever due to their past actions. John Brennan at the CIA is a textbook example, one of the architects and defenders of the Bush torture regime who should have been brought up on charges; instead, he got a promotion to run the agency he screwed up so badly. The same is now true of Summers, who shouldn’t be allowed anywhere near the Fed.

22 comments on this post.
  1. maudell:

    This makes me so mad. Not to mention Summers’ disastrous presidency at Harvard. Why does this guy still hold positions of power? I guess it’s ok for him to be a bigoted tool about the majority of the population because Democrats already have the vote of folks of color and of women?

  2. R Johnston:

    Why does this guy still hold positions of power?

    An overabundance of confidence combined with the ability to speak well extemporaneously is readily confused for analytic ability by people such as Obama who are bright but not analytic. Summers has those two qualities in spades, which makes him a go to member of the Boy’s club.

    Way back in the Democratic primary cycle in 2007 Obama made it clear that this would be a problem in his potential presidency. Health care reform was a big issue for a while in the primary cycle, and Obama had to be dragged kicking and screaming into support of some sort of mandate even though any basic analysis of the economics of reform show that universally available coverage can’t work without a mandate. That was Obama’s announcement that however smart he might be he lacked the analytical ability to understand basic policy, that he was the sort to be taken in by the Larry Summerses of the world.

  3. rickdesper:

    Obama has only three years left to ensure a lifetime of post-White House leisure. Keeping the Rubin/Summers crowd is vital for his future plans. Trivialities such as “what the constituents want” really don’t factor into Obama’s decision-making process.

  4. Modusoperandi:

    TYPICAL! OBAMA BRINGING YET ANOTHER MARXIST IN TO THE WHITEHOUSE!

  5. colnago80:

    As I understand it, Summers was one of the leading lights recommending repeal of the Glass=Steagall act. The question is, will members of the committee who would question him if nominated have the balls to bring these objections up. Probably not, unless Elizabeth Warren is on the committee. This is one appointment that the Democrats should filibuster if it happens.

  6. Don Williams:

    Re rickdesper at 3:

    1) I don’t think Bill Clinton picked up that $40 Million after leaving the Presidency by telling the Rich to pee up a rope:

    http://www.celebritynetworth.com/articles/entertainment-articles/15-richest-heads-state/#!/bonus-bill-clinton-net-worth_1266/

    $1 Million speaking fee!

    I’ve heard Bill speak. Twice. Any fee over $500 is money laundering, IMO.

    2) And I suspect Bill gets those $1 Million speaking gigs because he knew how to be a “team player”.
    And ole Larry Summers was there handing him the ball:

    http://www.zerohedge.com/news/defining-hypocricy-weill-who-led-repeal-glass-steagall-now-says-big-banks-should-be-broken

  7. Don Williams:

    Of course, when they hand Bill Clinton $1 Million they are not buying Bill — they are making a pitch to the current White House incumbent. Like the Devil saying to Jesus: “This too can be yours.”

    Fat Larry created most of the oligarchs in Russia after the collapse — I don’t see why anyone would think Larry would object to letting oligarchs in the USA also steal everything not nailed down.

    http://www.cepr.net/index.php/blogs/beat-the-press/can-we-blame-larry-summers-for-the-collapse-of-russia

    http://progressive.org/0901/intv0600.html (scroll down to “How Did US Russia Policy Develop?” to see
    Joseph Stiglitz’s view.)

  8. colnago80:

    Re Don Williams @ #6

    Let’s hear it for Senator Pat Roberts: I wouldn’t want Larry Summers to mow my yard, Maybe some disaffected Democrats in the Senate can attract some Rethuglican support and block this nomination if it happens. The usual suspects led by tax cheat Tim Geithner are lining up behind Summers. If the Democrats in the Senate can’t block this nomination, I will have to agree with ole Donaldo that they are a bunch of worthless fuckkes.

    http://www.washingtonpost.com/business/economy/summers-yellen-allies-wage-behind-the-scenes-effort-to-win-federal-reserve-nod/2013/08/20/5d7a3dfa-09a2-11e3-8974-f97ab3b3c677_story.html

  9. Gregory in Seattle:

    Since at least Clinton, the Democrats have been just as corporatist and just as rapaciously greedy as the Republicans. Except for a few small points of social policy, there is no difference between the parties and there hasn’t been for years.

    Point of example: who has done more to destroy constitutional rights in this country, Bush II or Obama?

  10. Hercules Grytpype-Thynne:

    Why Larry Summers Must Not Be Fed Chairman

    I agree. The Chairman is much too important. Feed Summers someone else.

  11. Hercules Grytpype-Thynne:

    He was trying to put a break on efforts by consumer groups and their allies in Congress to rein in these practices…

    Kudos to Baker for “rein”, but “put a break on”? Really?

  12. colnago80:

    Re Don Williams @ #7

    Ole Bill is a piker. Didn’t Ronnie the rat get 2.5 mil for a speech in Japan?

  13. DaveL:

    He seems intent on appointing insiders to run federal agencies that should be shut out of those jobs forever due to their past actions.

    How about Ray “Stop and Frisk” Kelly for DHS secretary?

  14. matty1:

    Am I the only one who read that headline and wondered why anyone was feeding chairmen to Larry Summers?

  15. caseloweraz:

    @Matty1:

    Judging by comment #10, you’re not.

  16. caseloweraz:

    Why Larry Summers Must Not Be Fed Chairman

    ObHeadlines:

    * Prostitutes appeal to pope
    * Milk drinkers turn to powder
    * Squad helps dog bite victim

  17. hunter:

    “For reasons I do not understand, the Obama administration seems to really, really want Larry Summers to replace Ben Bernanke as chairman of the Federal Reserve Board.”

    Because Wall Street wants him.

  18. dogmeat:

    It’s a good thing we’ve got those liberal Democrats to stop those corporatist Republicans from… oh wait…

    Can I hear again how Obama is a radical leftist socialist bent on destroying the free market? Other than his recent, reluctant support for same sex marriage, how is this guy anything but a liberal Republican?

  19. Don Williams:

    Re dogmeat at 18: ” how is this guy anything but a liberal Republican?”

    1) Cornel West disagrees — he argues that Obama is technically a ““Rockefeller Republican in Blackface”

    http://www.nonprofitquarterly.org/policysocial-context/21346-cornel-west-calls-obama-a-rockefeller-republican-in-blackface.html

    Some Democrats might argue that that is unfair –after all, black unemployment for the past 5 years has only been around 15%.

  20. Don Williams:

    Plus black real median household income is a little bit above what it was in 1970 and that ain’t bad.

    http://www.economicpopulist.org/files/u1/medianincomerace.jpg

  21. francesc:

    @18 Well, maybe putting Larry on charge is Obama’s strategy to destroy free market, it could be like giving free market enough rope to hang itself

  22. John Phillips, FCD:

    I seem to remember Rachel Maddow ripping into Summers’ past deeds with regards finance regulation the last time he was mentioned for a post in Obama’s administration and it wasn’t complimentary.

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