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.