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Aug 01 2013

Why Lawrence Summers should not be the next Fed Chair

As Ben Bernanke ends his term as the chair of the Federal Reserve in January 2014, there has been intense speculation amongst Fed watchers as to whom president Obama will choose to replace him, and the betting is that it will be either Janet Yellen, deputy chair of the Fed, or Obama advisor Lawrence Summers.

Robert Scheer makes the case why Summers would be a terrible choice, saying that Summers is largely responsible for the policies that seriously undermined the middle class whose plight Obama regularly bemoans, though 50% of the people have seen through his crocodile tears and don’t believe that he really cares about them.

As Clinton’s Treasury secretary, he pushed for radical deregulation allowing investment bankers to take wild risks with the federally insured deposits of ordinary folks, a disastrous move compounded when he successfully urged Congress to pass legislation banning the effective regulation of the tens of trillions in derivatives that often proved to be toxic.

In addition, he is emblematic of the corruption in Washington of people going back and forth through the revolving door between government and the big banks, enriching themselves in the process. While in government they advocate for policies that benefit those groups that handsomely reward them when they leave office.

At that time, Citigroup paid Summers—teaching at Harvard and yet hustling as a Wall Street consultant—$45,000 for a lecture, a piddling amount compared with the $135,000 he got per talk from Goldman Sachs. In all, while he was advising candidate Obama during the 2008 election season, Summers made off with $8 million in Wall Street compensation, with the lion’s share coming from the D.E. Shaw hedge fund.

Some might argue this is ancient history, but as The Wall Street Journal reported, Summers, after serving as a top economic adviser to Obama, has done just as well on his second passing through the revolving door between Washington and Wall Street. He rejoined the D.E. Shaw hedge fund, not having done anything to inconvenience its operation while in government, and got a gig with the operator of Nasdaq and other heavy hitters.

The Journal also revealed that Summers re-entered service with Citigroup, but neither he nor the bank has revealed his current rate of pay. The Journal did report that Summers has been paid more than $100,000 per speech for some of his recent talks to the financial industry goliaths.

Economist Dean Baker at the Center for Economic and Policy Research also criticizes a possible Summers choice, showing that his record on dealing with crises was abysmal.

One should not expect Yellen to be a progressive but Summers will be a total servant of the banks. Also, the thought that the odious Summers finally gets to achieve his great ambition of being Fed chair is a bit much to take. But unfortunately Summers is just the kind Wall Street and oligarchy friendly person that the ruling class loves, and Obama may well ignore the protests of his liberal democrat supporters, as he normally does.

4 comments

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  1. 1
    eigenperson

    It’s “Yellen”, with two Es.

  2. 2
    Corvus illustris

    Paul Krugman has been beating this subject to death on his NYTimes blog, which is not behind either a paywall or a quota. (You have to enable cookies to read the comments, but then you just disable them when you’re done … )

    http://krugman.blogs.nytimes.com/

  3. 3
    Mano Singham

    Thanks. I have corrected it.

  4. 4
    sigurd jorsalfar

    Summers has done so much for his country already. Let him spend more time with his family.

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