Lawrence Summers. (Reuters)
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).
Tell me it’s a sick joke: Former US Treasury Secretary Lawrence Summers, the guy who tops the list of those responsible for sabotaging the world’s economy, is lobbying to be the next chairman of the Federal Reserve. But no, it makes perfect sense, since Summers has long succeeded spectacularly by failing.
Why should his miserable record in the Clinton and Obama administrations hold him back from future disastrous adventures at our expense? With Ben Bernanke set to step down in January, and Obama still in deep denial over the pain and damage his former top economic adviser Summers brought to tens of millions of Americans, this darling of Wall Street has yet another shot to savage the economy.
Summers was one of the key players during the Clinton years in creating the mortgage derivative bubble that ended up costing tens of millions of Americans their homes and life savings. This is the genius who, as Clinton’s Treasury secretary, supported the banking lobby’s successful effort to make the sale of unregulated bundles of mortgage securities and the phony insurance swaps that backed them perfectly legal and totally unmonitored. Those are the toxic bundles that the Federal Reserve is still unloading from the banks at a cost of trillions of dollars.
But back on July 30, 1998, when he was deputy Treasury secretary, Summers assured the Senate agriculture committee that the “thriving” derivatives market was the driving force of American prosperity and would be fatally hurt by any government regulation of the sort proposed by Brooksley Born, the stunningly prescient chair of the Commodity Futures Trading Commission.
Summers opined that “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. … ”
Consider the astounding stupidity of that statement and the utter ignorance upon which it was based. One financial CEO after another has testified to not knowing how the derivatives were created and why their worth evaporated. Think of AIG and the other marketers of these products that were saved from disaster only by the injection of government funds not available to foreclosed homeowners whose mortgages were wrapped into those toxic securities.
Most of those dubious financial gimmicks were marketed by the too-big-to-fail banks made legal by another piece of legislation supported by Summers and passed a year later when Clinton tapped him to be Treasury secretary. Summers was an ardent proponent of repealing the Glass-Steagall Act that prevented the merger of highflying investment houses with traditional commercial banks entrusted with the government insured deposits of ordinary folks.