Larry Summers: Wrong Man for the Job

[edhopper]

http://www.ritholtz.com/blog/2009/04/summers/#comments

....Let’s review: Summers, along with Robert Rubin, pushed for the repeal of Glass Steagall, and supported the Commodity Futures Modernization Act; If memory serves, he was also around during the LTCM bailout.

If the history books eventually judge the Obama administration a failure, they may have to point to one horrific appointment as the root cause of the misguided policies: The “Smart Guy” who decided to continue the “Dumb Guy’s policies.......

He and and Geithner were the wrong choice to begin with and are still a bad choice. I don't know why Obama went with this group instead of a non-Wall Street choice.

[babylonsister]

1. Who would be 'acceptable' as a non-Wall Street choice?

Serious question.

And Mr. Ritholtz works for cnbc and is a frequent guest on Kudlow and Co? Should his word be definitive?



http://www.ritholtz.com/blog/about/

[edhopper]

4. Ritholtz does not work for CNBC

He is a sometimes unpaid guest. And is one of the few people Kudlow has had on that refutes his conservative boosterism.
He is one of those that has been spot-on in his analysis for the last five years I've been reading him.

Acceptable non-Wall Streeters. Steiglitz, Johnson, Reich, Roubini, etc...

[chill_wind]

9. edit-delete-wrong place

[babylonsister]

24. Unpaid? And you know that how?

But you've been reading him which is more than I have, so I take you at your word.

And thanks for your naming names, because I really don't know who is or isn't qualified. I'm familiar with all these names, but don't know if they were ever offered any kind of position or why they were or weren't.

[antigop]

12. OMG! You have HOW MANY posts on DU and you ask that question?

You mean YOU DON'T KNOW?

[babylonsister]

23. I don't presume to read minds, so no, I don't know

how other people are thinking. Oh, besides Krugman. :eyes:

[girl gone mad]

30. Why do you always try to attack the messenger?

Ritholtz is one of the few avowed liberals in finance. He endorsed Obama in the election.

He's very smart and a decent guy. He runs his own firm and is not an employee of CNBC.

[Reterr]

32. I have to echo the other poster

Why do you always attack the messenger? Your posts have become unrecognizable. It is kinda horrifying to watch this kind of transition in action.
Are we supposed to completely chuck all our principles and everything our brains tell us just because a new administration is in town.

I appreciate and like Obama, before I am called a hater. But neither he nor any other leader should inspire blind support. Now if someone who has always had a centrist, DLCish view point agrees with him now, at least that is consistent and not blind support. But how can someone who has been taking the more progressive positions for a while just blindly switch that off and support all of Obama's actions. It seems so inconsistent?


babylonsister, you have a posting history here. It seems very strange to see you pitching positions you posted extensively against under the previous adminstration, or problems you had regarding the Clintons, just because Obama is the prez.

[mix]

45. babble on

ain't no sister of mine

[leftchick]

42. oh I don't know....

how about an actual fucking economist? Krugman has said he is available but his phone isn't ringing. I would assume it is because they, meaning our government, want to eat from this gravy chain to its end. But if lollipops and candy are all you see, have at it.

[FLAprogressive]

2. "I don't know why Obama went with this group instead of a non-Wall Street choice."

Really? You obviously haven't been watching the presidency.

[nashville_brook]

3. we were told the reason they were picked was b/c change had to issue from inside -- such bullshit.

fooled again.

[FLAprogressive]

6. this is also the rationalization from the bots

[nashville_brook]

8. bots?

[hedgehog]

5. I predict that the point will come soon when the people and more effectively the Congress

demands that the Wall Streeters get tossed and people like Robert Reich come in. Would Obama have ever been elected if Bush had not so thoroughly screwed the pooch? Without Bush, we would have been given a right of center "moderate". I think the average voter, the chattering classes and the Congress has to see the big money men using our money to save their own skins before they will turn away to the "radicals".

[leveymg]

7. First, you try the carrot. Then the stick. Finally, you get another donkey.

I understand why they kept Bernanke, Geithner, Summers, et al. on, at least to start the First Inning. They knew every inch of the graveyard. But, after a certain point, you have to replace a losing starting squad.

Who's on the bench? Let's see - Krugman for Treasury, Stiglitz to head the Fed. Yes, now you're getting somewhere.

[antigop]

11. Didn't Krugman say he wasn't interested? n/t

[leveymg]

13. It wasn't really offered.

Or, that's my understanding.

[antigop]

15. Do you think he would accept, if offered? He said he was "temperamentally unsuited".

http://krugman.blogs.nytimes.com/2008/11/26/about-that-advisory-board/

A thought I’ve had: there have been some complaints from movement progressives about the centrism/orthodoxy of Obama’s economics appointments. To some extent this was unavoidable, I think: someone like the Treasury secretary has to be an experienced hand who can deal with Wall Street, and I haven’t heard anyone proposing particular individuals with clearer progressive credentials to hold that position. (And for those of you wondering about yours truly — I’m temperamentally unsuited, have never had any desire for the job, and probably have more influence as an outside gadfly than I ever could in DC.)

How much arm-twisting would we have to do to get him to take such a job?

[leveymg]

17. Don't know. But, gotta offer first. Did you read the Newsweek cover article on him?

I picked up that he likes teaching and writing. Bureaucracy and endless hearings may not be his cup of tea. That's hardly a fault. Would like to see him take a active role as a close advisor, part of a new White House economic team - maybe, that's what's next. Can only hope, for all our sake.

[antigop]

18. I'd definitely like to see him as a close advisor.

I agree. I just really don't know if he would be interested, based on his blog comments. He may think can do more good by writing blog entries and columns.

[leveymg]

20. He may know something we don't

In fact, I'm SURE he does.

[antigop]

21. Yeah, I was thinking that, too. I think there is more going on.... n/t

[KoKo]

28. same here...

almost as if a "(competent) silent hand" is trying to push Obama to do the right thing, early to save trouble down the road. There would be more backlash from the Dem Camp to tamp down some of the dissent that's getting so much attention if there wasn't more going on in the background than we can flesh out, right now. Just saying...

[truedelphi]

33. Also, every day,someone here puts out another OP about

An heroic individual at the top of the financial network who went in to the top brass at AIG (or wherever) and said, "Hey it's 2004 and this is bad strategy, we are going to bring down the economy, we need to watch this," and then they got fired.

If we resurrected some of those people, we could easily replace Geithner, Bernanke, Gensler, Summers, Rubin etc.

There seems to be one of those people at every big financial institution.

[chill_wind]

27. leveymg..

Siglitz is being kept out. As are others of his stature. They're not even in the outer circle. He's told Bloomberg he's only had a couple emails with the WH since Inauguration Day. (see clips below)

:-(

[chill_wind]

10. The Summers Bubble (November 2008)

The Summers Bubble

The American Prospect

http://www.prospect.org/cs/articles?article=the_summers_bubble

[leveymg]

14. That's a great article. Should be read in conjunction with Krugman's

"What Happened to Asia" (1998). Speaking of bubbles, Pangloss markets, and bailouts! He described the effect they all had on countries and currencies unfortunate enough to foster them in as sea of predatory hedge funds. http://web.mit.edu/krugman/www/DISINTER.html

Summers was there to engineer the US and IMF response to that crisis, too. IMF austerity programs were larely his design, as well.

Brilliant guy, Summers.

[antigop]

16. I need to go back and re-read that. Thanks. n/t

[leveymg]

19. Read it when it was current. Still seems fresh and relevant

Had a piece in Foreign Policy about the dangers of securitized assets and debt instruments that paralleled his early work. See, Foreign Policy, No. 106 (Spring, 1997), pp. 190-208 http://www.foreignpolicy.com/users/login.php?story_id=1561&URL=http://www.foreignpolicy.com/story/cms.php?story_id=1561

Also had some correspondence with Stiglitz.

Time and events have really proven the worth of both those guys.

[OHdem10]

22. He had no choices but Wall Street Choices. Check out Wall Street

to find substitutes.

Wall Street has to approve every Presidential Nominee.
No one is going to come out and say this. After all it
might be admitting who really runs the country.

The next election watch as Candidates court Wall Street
often behind the scenes. Every now and again some brave
reporter will write or report that "Wall Street likes so and so".

Just the other week when Wall Street did not like Obama's
approach, the breathless gaggle were going 'WS does not like
this...WS does not like that." Once Obama began to say the
right things (according to Business Reporters) Market rebounded
somewhat.

In conclusion, Geitner and Summers maybe the best we can get
on WS. They are more Government friendly than most.

Just some thoughts from a realist.

[edhopper]

25. Some people see things the way they are

and ask why?
I see things the way they could be, and ask why not?

RFK

[leveymg]

31. You seem to have the bulk of evidence on your side

:-(

I always knew that Obama wasn't as progressive economically as on some other positions, but I thought he was educatable and would learn fast enough to avoid disaster (going along with WS).

Time may not be working to our advantage on this. I'd be delighted to receive some sort of hopeful news.

[chill_wind]

39. leveymg..... here is some, just now....

it is a step! A good first one.

US watchdog calls for bank executives to be sacked

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x438567

Stiglitz.... first, fire the bankers and send a message.

.

http://www.democracynow.org/2009/2/25/stieglitz

AMY GOODMAN: So, you say Obama, too, has confused saving the banks with saving the bankers.

JOSEPH STIGLITZ: Exactly.

AMY GOODMAN: Should they all have been fired?

JOSEPH STIGLITZ: Well, I think one has to look at it on a bank-by-bank basis. Clearly, the banks that have not been managed very well, we need to not only fire them, we have to change their incentive structure. And it’s not just the level of pay; it’s the form of the pay. Their incentive structures encourage excessive risk taking, shortsighted behavior. And in a way, it’s a vindication of economic theory. They behaved in the irresponsible way that their incentive structures would have led them to behave.

[chill_wind]

34. There ARE qualified others. What they don't have

is the millions in lobby and campaign money clout. Yes, we see who runs things. And that needs fixed.

Fixing it always gets kicked down the road, though, because the next election of one kind or another is always coming and we are in perpetual fund-raising mode. I could be wrong, but I don't look for Pres Obama and key Wall Street Dems to rough up these guys even a hair more than they have to between now and 2012. Other Dems will thoroughly vilified for even trying.

[chill_wind]

26. The wrong man but the right GateKeeper.

A more legitimate complaint against the administration’s economic-policy team is that it shares similar moderately progressive positions, selectively balancing a pro-market view with greater governmental supervision. This is the Rubin school, and Geithner and Summers are charter members.

A Wall Street chief executive officer like Jamie Dimon of JPMorgan Chase & Co. has a direct pipeline to the White House. (That doesn’t awe White House security guards, who made Dimon repeat his name twice before admitting him to a meeting with Obama on Friday). Yet skeptics like Nobel Prize-winning economist Joseph Stiglitz, a former top adviser in the Clinton administration, are shut out. Stiglitz says he’s only had a couple of e-mail exchanges with administration decision-makers since Obama’s Jan. 20 inauguration.

Volcker Kept Out

Even Paul Volcker, who espouses a tougher posture on regulation than Wall Street chieftains like, is kept out of major policy decisions, associates say. Volcker was named to head a White House economic advisory board, and then several of his choices for that board were vetoed by the White House.

Geithner Will Outlast AIG Outrage, Public Pounding
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aCD4kw4I9XQ4

Volcker Chafes at Panel Delay, Clashes With Summers (Update1)
By Robert Schmidt and Julianna Goldman

Feb. 5 (Bloomberg) -- Paul Volcker has grown increasingly frustrated over delays in setting up the economic advisory group President Barack Obama picked the former Federal Reserve chairman to lead, people familiar with the matter said.

Volcker, 81, blames Obama’s National Economic Council Director Lawrence Summers for slowing down the effort to organize the panel of outside advisers, the people said. Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis, they said.

(...)

Outsider’s Disadvantage

The contretemps shows the difficulties Volcker, perhaps the world’s most respected economist, may encounter as an outside adviser charged with providing policy alternatives to the president, said William Silber, a finance professor at New York University’s business school.

Volcker “is not in the White House and he doesn’t have a bureaucracy to command,” Silber said. “It puts him at a disadvantage.”

After testifying at a congressional hearing yesterday, Volcker declined to respond to questions. His office said he doesn’t grant interviews.

Summers, in an interview, played down any conflict.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aaLzJZKNcc6Y&refer=home


The PERAB was eventually chosen, but with a number of Volcker picks shot down by Summers (see above)

President's Economic Recovery Advisory Board

The PERAB is supposed to provide that ground-level sense, and Obama said that this mission will be reflected in the board's diverse membership, which will be announced over the next few weeks.<3> Paul Krugman, a Nobel laureate in economics and a noted progressive columnist, has argued that, given the centrist makeup of Obama's economic inner circle, the new board could be used to "give progressive economists a voice." He mentioned James K. Galbraith, Larry Mishel of the Economic Policy Institute, Dean Baker, and Jared Bernstein as progressive economists who might be suitable for the board. <4> Bernstein, however, was subsequently named to a full-time administration position as chief economist and economic policy adviser to Vice President Joe Biden. <5>

Don't see ANY of those suggested progressive names on there either: (Biden did get Bernstein for his office.)

The President and Mr. Volcker announced the board's membership on February 6, 2009. Members include

* Jeffrey Immelt, General Electric chief executive
* James W. Owens, head of Caterpillar
* Robert Wolf, chairman and CEO of UBS Group Americas
* Mark T. Gallogly<7>, founder and managing partner at Centerbridge Partners L.P.<8>
* Penny Pritzker, chair and founder of Pritzker Realty Group and Classic Residence by Hyatt
* John Doerr, partner at Kleiner, Perkins, Caufield & Byers
* Monica C. Lozano<9>, publisher and CEO of La Opinion
* Charles E. Phillips, Jr., president of Oracle Corporation.
* Richard L. Trumka, secretary-treasury of the AFL-CIO
* Anna Burger, secretary-treasurer of the Service Employees International Union and chair of Change to Win.
* William H. Donaldson, former Securities and Exchange CoOmmission chairman
* Laura D'Andrea Tyson, professor at the Haas School of Business at the University of California, Berkeley
* Martin Feldstein, former chief economic advisor to President Ronald Reagan, economics professor,
and member of the Board of Directors of American International Group (AIG)<10>
* Roger W. Ferguson, Jr., chief executive of TIAA-CREF.
* David F. Swensen, CIO at Yale University<11>

According to a March 25, 2009 press briefing by OMB Director Peter Orszag, the administration has charged PERAB with proposing approaches to three budget related tasks: simplifying taxation, closing tax loopholes and reducing tax evasion, and reducing corporate welfare. <12>

http://en.wikipedia.org/wiki/President%27s_Economic_Recovery_Advisory_Board

This is a two year Advisory Board. Big progressive economist names that keep coming up over and over aren't even in the OUTER circle.

[scarletwoman]

35. "Big progressive economist names that keep coming up over and over aren't even in the OUTER circle."

That's because they're Dirty Fucking Hippies and the Owner Class who runs (owns) this country would be terribly put out if such riffraff were allowed a voice.

sw

[chill_wind]

37. IOW guys that favor some regulation on taxpayers' behalf.

The Owner Class hates that crap. But mostly, many of them favor at least a temporary nationalization of some kind- now.

:hi:

[scarletwoman]

38. Of course. Regulation=BAD! Might cut into their feeding frenzy.

And, Nationalization!?!?! Horrors! Only dirty commie socialists would want such a thing!

:hi:
sw

[Name removed]

29. Deleted message

Message removed by moderator. Click here to review the message board rules.

[scarletwoman]

36. k&r for a great, informative thread.

"I don't know why Obama went with this group instead of a non-Wall Street choice."

Actually, it's pretty simple. The political class works for the Owners. Their job is to placate the great unwashed masses enough to allow the Owner Class to go about its business unmolested.

Yes, even Obama. I would hope that no one would be naive enough to think he could have been elected if the Owner Class had not approved. He knows very well who he's in office to serve -- and it ain't US.

sw

[ProgressIn2008]

40. I disagree. I think Summers was precisely the right man for the job he was given.

The question is, what was that job?

[JFKfanforever]

41. His real job was to crash the Glass-Steagall Act and deregulate!

In 2000 the Clinton Administration then-Treasury Secretary
was a man named Larry Summers. Summers had just been promoted
from No. 2 under Wall Street Goldman Sachs banker Robert Rubin
to be No. 1 when Rubin left Washington to take up the post of
Vice Chairman of Citigroup. As I describe in detail in my new
book, Power of Money: The Rise and Fall of the American
Century, to be released this summer, Summers convinced
President Bill Clinton to sign several Republican bills into
law which opened the floodgates for banks to abuse their
powers. The fact that the Wall Street big banks spent some $5
billion in lobbying for these changes after 1998 was likely
not lost on Clinton. 

One significant law was the repeal of the 1933 Depression-era
Glass-Steagall Act that prohibited mergers of commercial
banks, insurance companies and brokerage firms like Merrill
Lynch or Goldman Sachs. A second law backed by Treasury
Secretary Summers in 2000 was an obscure but deadly important
Commodity Futures Modernization Act of 2000. That law
prevented the responsible US Government regulatory agency,
Commodity Futures Trading Corporation (CFTC), from having any
oversight over the trading of financial derivatives. The new
CFMA law stipulated that so-called Over-the-Counter (OTC)
derivatives like Credit Default Swaps, such as those involved
in the AIG insurance disaster, (which investor Warren Buffett
once called ‘weapons of mass financial destruction’), be free
from Government regulation. 

At the time Summers was busy opening the floodgates of
financial abuse for the Wall Street Money Trust, his
assistant was none other than Tim Geithner, the man who today
is US Treasury Secretary. Today, Geithner’s old boss, Larry
Summers, is President Obama’s chief economic adviser, as head
of the White House Economic Council. To have Geithner and
Summers responsible for cleaning up the financial mess is
tantamount to putting the proverbial fox in to guard the
henhouse. 

The ‘Dirty Little Secret’ 

What Geithner does not want the public to understand, his
‘dirty little secret’ is that the repeal of Glass-Steagall
and the passage of the Commodity Futures Modernization Act in
2000 allowed the creation of a tiny handful of banks that
would virtually monopolize key parts of the global
‘off-balance sheet’ or Over-The-Counter derivatives issuance.


Today five US banks according to data in the just-released
Federal Office of Comptroller of the Currency’s Quarterly
Report on Bank Trading and Derivatives Activity, hold 96% of
all US bank derivatives positions in terms of nominal values,
and an eye-popping 81% of the total net credit risk exposure
in event of default. 

The five are, in declining order of importance: JPMorgan
Chase which holds a staggering $88 trillion in derivatives
(€66 trillion!). Morgan Chase is followed by Bank of America
with $38 trillion in derivatives, and Citibank with $32
trillion. Number four in the derivatives sweepstakes is
Goldman Sachs with a ‘mere’ $30 trillion in derivatives.
Number five, the merged Wells Fargo -Wachovia Bank, drops
dramatically in size to $5 trillion. Number six, Britain’s
HSBC Bank USA has $3.7 trillion. 

After that the size of US bank exposure to these explosive
off-balance-sheet unregulated derivative obligations falls
off dramatically. Just to underscore the magnitude, trillion
is written 1,000,000,000,000. Continuing to pour taxpayer
money into these five banks without changing their operating
system, is tantamount to treating an alcoholic with unlimited
free booze. 

The Government bailouts of AIG to over $180 billion to date
has primarily gone to pay off AIG’s Credit Default Swap
obligations to counterparty gamblers Goldman Sachs, Citibank,
JP Morgan Chase, Bank of America, the banks who believe they
are ‘too big to fail.’ In effect, these five institutions
today believe they are so large that they can dictate the
policy of the Federal Government. Some have called it a
bankers’ coup d’etat. It definitely is not healthy. 

This is Geithner’s and Wall Street’s Dirty Little Secret that
they desperately try to hide because it would focus voter
attention on real solutions. The Federal Government has long
had laws in place to deal with insolvent banks. The FDIC
places the bank into receivership, its assets and liabilities
are sorted out by independent audit. The irresponsible
management is purged, stockholders lose and the purged bank
is eventually split into smaller units and when healthy, sold
to the public. The power of the five mega banks to blackmail
the entire nation would thereby be cut down to size. Ooohh.
Uh Huh? 

This is what Wall Street and Geithner are frantically trying
to prevent. The problem is concentrated in these five large
banks. The financial cancer must be isolated and contained by
Federal agency in order for the host, the real economy, to
return to healthy function. 

This is what must be put into bankruptcy receivership, or
nationalization. Every hour the Obama Administration delays
that, and refuses to demand full independent government audit
of the true solvency or insolvency of these five or so banks,
inevitably costs to the US and to the world economy will
snowball as derivatives losses explode. That is
pre-programmed as worsening economic recession mean corporate
bankruptcies are rising, home mortgage defaults are exploding,
unemployment is shooting up. This is a situation that is
deliberately being allowed to run out of (responsible
Government) control by Treasury Secretary Geithner, Summers
and ultimately the President, whether or not he has taken the
time to grasp what is at stake. 

Once the five problem banks have been put into isolation by
the FDIC and the Treasury, the Administration must introduce
legislation to immediately repeal the Larry Summers bank
deregulation including restore Glass-Steagall and repeal the
Commodity Futures Modernization Act of 2000 that allowed the
present criminal abuse of the banking trust. Then serious
financial reform can begin to be discussed, starting with
steps to ‘federalize’ the Federal Reserve and take the power
of money out of the hands of private bankers such as JP
Morgan Chase, Citibank or Goldman Sachs. 

 

By F.W. Engdahl March 30, 2009

[leftofthedial]

43. cries of "hater" in 3...2...1...

Yes, they were wrong, and anyone actually paying attention when they were named knew it.

180-degrees wrong. Totally wrong people, wrong role, wrong time. They are part of the problem, not part of the solution. They are making things worse, not better. They are in place to further enrich the crooks and to madly try to pump air into a shredded balloon. Give me enough trillions of dollars and I can make anything look good for awhile, but they are failing at even that. Horrible choices, both of them. The fact that Obama chose them and stands by them is deeply troubling.

[KittyWampus]

44. I am trying to compile a list of Whistleblowers and Regulators who've worked in Government, Banking

or larger Economic entities who would be considered to some extent 'Establishment' types.

See list on my Journal.

[scarletwoman]

46. *kick* for a deserving thread. (nt)