Let me quote from a speech that Lawrence Summers, then deputy Treasury secretary (and now the Obama administration’s top economist), gave in 1999. “If you ask why the American financial system succeeds,” he said, “at least my reading of the history would be that there is no innovation more important than that of generally accepted accounting principles: it means that every investor gets to see information presented on a comparable basis; that there is discipline on company managements in the way they report and monitor their activities.” And he went on to declare that there is “an ongoing process that really is what makes our capital market work and work as stably as it does.”Reminds me of when he arrogantly told a Korean envoy asking for help in getting American bank to roll over their short-term loans to Korea during the Asian Financial Crisis that "In America, we don't tell our banks what to do."
So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.
UPDATE: A commenter writes: "In America, banks tell the government what to do!"
I'm just wondering something. You've generally seem to let Obama off the hook for hiring Summers (I believe, perhaps I've misread you). In general I agree somewhat that his academic status and prestige coupled with his credentials could certainly lead Obama to believe Summers should certainly be a top choice.
ReplyDeleteHowever, if Obama has even a rudimentary understanding of the crisis (and I hope he does); couldn't his research team just look as his past actions and realized that he was obviously not the best choice? That makes me think either his vetting team is hopelessly incompetent or Obama actually does agree that Summers actions were right during the 1990s.
Let me clarify -- I think it was an understandable mistake for Obama to have picked Summers as his go-to guy for economic issues. Nevertheless, his faith in Summers is terribly misguided, and so of course Obama does deserve some blame here. I suspect Obama was not necessarily privy to all of Larry's doings in the 90s, and Larry, with his alpha-male persona, prestigious degrees and uncles, and having been tenured at Harvard at 28, was probably an easy choice -- and if you read Summers' editorials in the FT last year, they were extremely liberal, and no doubt written with an eye toward impressing the presidential candidates...
ReplyDeleteIt would help if every other media story written about Larry Summers did not call him "brilliant".
-TV
I suppose, I do think Obama could have knowledge of his views in the 90s and what the results were if his vetting team had done their job, which might be a large assumption.
ReplyDeleteRandom question though. You rant about Bernanke and Summers quite a bit. I'm curious though, if you were President, who exactly would you put in those roles?
Hello by your words the American financial system I got remember one thing that Apart from a foreign power taking over the US, this administration has achieved the complete destruction of these United States. What the terrorists could not achieve at the beginning of Bush’s administration, Bush has single-handedly managed to accomplish. May God help the next administration.
ReplyDeleteIn America, banks tell the government what to do!
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