The widening circle applauding megamillionaire Larry Summers –of Harvard University, Washington, D.C. and Wall Street – agrees on one word to describe the colossal failure – Brilliant! That circle includes Barack Obama, who appointed Summers in 2009 to be his chief economic advisor, Bill Clinton, who made him Secretary of the Treasury, and the Harvard Board of Overseers, who named him president of Harvard University in 2001.
With Clinton and his promoter, Robert Rubin, who preceded him at the Treasury post before making over $100 million at Citigroup, Summers brilliantly deregulated Wall Street in 1999 and 2000 thus setting up one of corporate capitalism’s most harmful speculative binges.
With Clinton’s approval, these men pushed for the repeal of the successful Glass-Steagall Act of 1933, which separated investment banking from commercial banking. They then blocked the regulation of mounting speculation in complex, risky derivatives that led to the tanking of Wall Street in 2008. The collapse, caused by the plutocrats, cost 8 million jobs, drained away trillions of dollars in pension and mutual fund assets, and plunged the country into a “Great Recession”.
At Harvard, Summers remained brilliant in advising the University’s huge endowment into risky investments that lost it billions of dollars. His brilliance also led him to say that women just weren’t cut out for heavy duty scientific work.
Wall Street likes people labeled brilliant. It hides their greed. So firms like Goldman Sachs, JPMorgan Chase and Citigroup shelled out over $100,000 per visit to hear him speak his brilliance. While heading for bankruptcy and taxpayer bailouts (decided in one secret weekend in 2008 by Robert Rubin, Federal Reserve Ben Bernanke and Treasury Secretary Henry Paulson [fresh from the chairmanship of Goldman Sachs]) the shaky bank was receiving, according to Citigroup, brilliant “insight on a broad range of topics including the global and domestic economy.” Soon thereafter, Citigroup went belly up into the laps of you the taxpayers.
Clearly, Summers’ brilliance did not light a path toward banking prudence and productivity for the economy. But it sure did help Summers’ bank accounts. He reaped huge fees from the hedge fund D.E. Shaw, Silicon Valley startups, including equity positions in the Learning Club that charges its debtors interest rates reaching as high as 29 percent.
Summers has cultivated brilliance. He speaks fast and can be bombastic as he exhales his experience with international crises, government, Wall St. and academic life. He is quick with statistics and has a way of making vulnerable, smart persons around him feel inferior. That intimidating style did not work with former Federal Reserve Chairman Paul Volcker, who came to the Obama administration in 2009 with Summers, but as a lesser-titled economic advisor. So Summers worked the White House to marginalize Volcker who soon left. Later, when Volcker’s proposal to develop criteria to slow banking speculation with other people’s money started moving through Congress, Summers went ballistic. But his brilliance could not stop it from becoming law.
All the above matters because Larry Summers is one of the two candidates Barack Obama is considering for the Chair of the powerful Federal Reserve when Mr. Bernanke leaves in January. Many articles are being written about the pluses and minuses of Summers and his only competitor, Janet Yellen, the quieter vice-chair of the Federal Reserve who worried about the credit markets in 2007 pushing the US into a recession. She also worries about the government and the Federal Reserve not doing enough about unemployment.
The media commentary, thus far, has heavily focused on the personalities, pronouncements and establishment ties of Summers and Yellen. Who will get along with Obama best? The Federal Reserve is supposed to be defiantly independent of the White House but has become heavily politicized with its massive expansion of powers, including bailouts and printing money better known as quantitative easing.
Who will best supervise the banks? That goes to the level of the independence of the candidates’ character. Author Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled the Recovery, who is often admiring of Summers, writes: “My own view is that Summers is too fond of big shots – he’s always wanted to be part of the most exclusive club that will have him…. In my book, I describe the pleasure he took from attending dinners with top Wall Street executives as a Treasury official in the 1990s.”
Such awe of Wall Street – that has and will butter his bread – means that he would be more “credible” in the financial markets, though his brilliance may get under the skin of the Federal Reserve Governors who set interest-rate or monetary policy.
Obama’s White House circle is pitching for Summers with whom they have worked. Unfortunately, the typical Washington horserace is obscuring the many important policy issues regarding the Federal Reserve:
What will a new Fed Chair do to:
Establish legal limits to the expanded and legally dubious powers exercised by the Fed?
Improve the Fed’s own increasingly scary financial status?
Show commitment to enforcement of consumer protection laws?
Reconcile the Fed’s awkward position of pushing banks to be prudent while being funded by banks and governed by bankers through its regional offices?
Increase accountability by ending its refusal to be audited by Congress?
End the Fed’s chronic secrecy?
The answers to these questions should shape Obama’s selection of a new Fed Chair. What’s my choice? Either Nobel Prize winner economist Joseph Stiglitz or University of Texas Professor of Economics, James K. Galbraith who have brilliant records and writings as if people matter.
Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. Hopeless is also available in a Kindle edition.