After Summers Comes the Fall
This story originally appeared at Truthdig. Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
When will the president give Lawrence Summers his pink slip? He can thank him for his years of service and use the excuse that his top economic adviser wants to spend more time with his family. I don’t care how he sugarcoats it. But Summers deserves the same fate as the millions of workers laid off because of the banking debacle he helped cause, the dire consequences of which he has done precious little to mitigate.
It was Summers who, as treasury secretary in the Clinton administration, pushed through the Commodity Futures Modernization Act, which opened the floodgates to the toxic mortgage-backed derivatives that still haunt the economy. The Federal Reserve now holds $2 trillion in junk securities it took off the books of banks. But the financiers who packed those devilish derivatives still hold a huge amount, and the houses they unload every time the housing market shows faint signs of stabilizing keep the economy in the doldrums.
The bane of our economic security now and well into the future is those collections of mortgages—the nest eggs and castles of 14 million families—now underwater or already foreclosed. Newfangled derivatives that were exempted from any regulation, and removed from the purview of any regulatory agency, by the law that Summers got President Bill Clinton to sign off on. Summers claimed that the suggestion of the prescient Brooksley Born, who headed the futures regulatory agency, to rein in those scams would have killed the golden goose of a derivatives market which, thanks to Summers, was allowed to run wild. He offered the following reasoning in congressional testimony supporting a ban on derivatives regulation:
“First, the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.… Second, given the nature of the underlying assets involved—namely supplies of financial exchange and other financial instruments—there would seem to be little scope for market manipulation.”
Tell that to the victims of the AIG crash, including us taxpayers, who funneled $180 billion in the government bailout of that sophisticated financial institution to equally sharp counterparties like Goldman Sachs, which got a cool $12 billion from the deal. Ask Summer’s protégé and now Treasury Secretary Timothy Geithner why he bailed out those market manipulators when he was head of the New York Fed working with the Bush administration.Summers got his cut from those grateful bankers, receiving $8 million in consulting and speaking fees from major Wall Street firms while he was a top adviser to the Obama election campaign. For just one speaking appearance, Goldman Sachs paid him $135,000.
During his tenure as President Barack Obama’s top economic adviser, Summers has continued the Bush policy of throwing money at Wall Street without getting anything in return by way of a moratorium on mortgage foreclosures. Or increased power through the bankruptcy courts to force the banks to readjust the mortgages of folks swindled by the collateralized-debt-obligation and credit-default-swap con artists.
Now, Summers opposes Obama’s selection of Elizabeth Warren, who in the mold of Brooksley Born has earned a strong reputation as a consumer advocate, to head a new consumer agency. The man has no shame and has uttered not a word of contrition over his sorry record.
Even Bill Clinton, who signed off on the radical deregulation enabling this financial meltdown, expressed remorse in one surprisingly honest moment. In an interview on ABC’s “This Week” last April, Clinton was asked by Jake Tapper if he had received bad advice from Summers and his predecessor, Robert Rubin, on regulating financial derivatives, and he replied: “On derivatives, yeah I think they were wrong, and I think I was wrong to take [their advice], because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection and any extra transparency.”
Exactly the argument Summers had made in his congressional testimony. But then Clinton backtracked shamefully and had an aide contact ABC to say that Summers, Rubin and Alan Greenspan, who also pushed the radical deregulation, were fine fellows and that, although derivatives regulation had been needed, the Republicans would have stopped it.
One can expect similar obfuscation from Obama in the future concerning bad advice from Summers, but he can’t claim he wasn’t forewarned about that advice. Why not help the president do some damage control while he still is in office? Demand that Summers and Geithner be fired the next time you receive an appeal from the Obama fundraising machine asking for yet another contribution to the movement for change.
Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).