Sunday, February 8, 2009

Rich on Summers

Hail Frank Rich!
Key players in the Obama economic team beyond Geithner are also tied to Rubin or Citigroup or both, from Larry Summers, the administration’s top economic adviser, to Gary Gensler, the newly named nominee to run the Commodity Futures Trading Commission and a Treasury undersecretary in the Clinton administration. Back then, Summers and Gensler joined hands with Phil Gramm to ward off regulation of the derivative markets that have since brought the banking system to ruin. We must take it on faith that they have subsequently had judgment transplants.

A welcome outlier to this club is Paul Volcker, the former Federal Reserve chairman chosen to direct Obama’s Economic Recovery Advisory Board. But Bloomberg reported last week that Summers is already freezing Volcker out of many of his deliberations on economic policy. This sounds like the arrogant Summers who was fired as president of Harvard, not the chastened new Summers advertised at the time of his appointment. A team of rivals is not his thing.

Rich then links to another article which talks about Summers role in ensuring that the derivative market didn't get regulated:
Odds are you've never heard of Gary Gensler, the man President Obama has nominated to run the Commodity Futures Trading Commission (CFTC). But it's slightly more likely you've heard of Brooksley Born, the woman who held that position under Clinton in the late 1990s. Amid the cascading financial crisis and cries of "Nobody could have predicted!" from many of those who were instrumental in bringing it about, Born has emerged as one of the rare voices that warned of the perils ahead. In 1997 she began to sound the alarm about the growth in the derivatives market, which, unlike traditional futures, were not traded on a regulated exchange. Born argued that derivatives should be brought under regulatory supervision, or they "could pose potentially serious dangers to our economy."

She proved prescient. These instruments, specifically credit default swaps, increased risk throughout the global financial system, eventually bringing down AIG, the world's largest insurance conglomerate. George Soros, economist Alan Blinder and many others now name the failure to regulate credit default swaps as one of the prime causes of the collapse.

But in 1998 powerful voices close to the Clinton administration--Robert Rubin, Larry Summers and Alan Greenspan--argued that the derivatives market was just fine. They had allies among the Wall Street banks who were making money hand over fist in the unregulated, over-the-counter market.

Summers really just keeps getting worse in my eyes... I'll have to admit, when I started this, I was concerned I might learn things which cast Summers in a more favorable light, making the blog pointless or even harmful. That has not been the case...

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