A White House aide has now floated the word that Larry Summers is being “vetted” for nomination to head the Federal Reserve. Whatever the president’s preference, it is clear that the “boys club” that dominates administration economic policy is all in for Summers.
President Obama famously came to Summers’ defense when the trial balloon floating his name was strafed from all sides. The president said he defended Summers because he doesn’t like pre-emptive attacks on his nominees, and “I see them getting slapped around in the press for no reason before they’ve been nominated for anything.”
For no reason? As the aide-de-camp in the Clinton administration to former Treasury Secretary Robert Rubin, Summers was responsible for many of the calamitous policies that led directly to the Wall Street wilding that eventually blew up the economy and resulted in the worst recession since the Great Depression.
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He was a leading advocate for financial deregulation. He lobbied for repealing the Glass-Steagall division between commercial and investment banking that paved the way for the creation of Citigroup and the too big to fail banking conglomerates. He rather brutally squelched efforts even to discuss regulating the derivatives that Warren Buffett termed “financial weapons of mass destruction.” He joined Rubin as an advocate for the ruinous corporate trade policies that have racked up record trade deficits while shipping good jobs abroad.
With Rubin, he insured that the banks took first priority in the Asian financial crisis, and suppressed efforts by the Japanese to mitigate the crushing austerity inflicted on the countries affected. This led directly to the Asian strategy of currency manipulation to drive export led growth so they could amass dollar reserves, devastating American workers in the process.
Summers then, after a failed term as president of Harvard University, received his just reward from the financial community he had enriched, earning millions giving speeches and consulting hedge funds. Next he joined the Obama administration, where he supported the policy of bailing out the banks without restructuring them, defending paying out obscene bonuses to banks dependent on taxpayer money. He fought hard to fend off efforts by the Senate to break up the big banks, and tried to eviscerate former Fed chairman Paul Volker’s attempt to erect a new barrier to keep banks from speculating with government-guaranteed deposits when Volcker was Obama’s chair of the Economic Recovery Advisory Board. Summers then departed from the administration to once more add to his fortune, giving speeches at $100,000-plus a pop to banking audiences, and consulting once more with hedge funds and Citibank.
No reason? On the contrary, for his critics, this record on its face makes the notion of naming Summers to head the Fed, the leading regulator of the financial community, wholly bizarre.
This divide – between the critics and the insiders – dramatizes the looking-glass world that is today’s Washington, for the two sides look at the same facts and draw diametrically opposite conclusions.
Accountability or a Learning Experience?
For the critics, Summers’ catastrophic record as a champion of ruinous deregulation in the Clinton years should disqualify him from consideration. He had immense responsibility and he got it wrong, big time. He should be held accountable for the choices he made. Failure should not lead to advancement. Larry Summers would be well advised to return to the academy, study where he went wrong, and share those lessons with a new generation.
For the boys club, Summers’ catastrophic advocacy of financial deregulation was, in their words, “a learning experience.” Summers is a brilliant economist. He has remarkable “experience” in public service. He is one of the club. Everyone makes mistakes. His failures are simply an expression of a resume that recommends him for higher position.
Should elites be held responsible for the calamities produced by the policies they advocated? Are the Bush administration officials who drove the country into the disastrous war in Iraq to be rewarded for their “experience” or pay the price of their folly? Should the establishment experts who got it so badly wrong be appointed to higher positions, or should those go to the dissenters who turned out sadly to be right?
The Revolving Door: Corruption or Insight?
For the critics, Summers personifies the dangers of a corrupting revolving door, where public service provides a path to private enrichment. He deregulates Wall Street and then leaves to make millions giving speeches to the appreciative bankers he enriched. He bails out the banks, protects the bonuses and goes back out to pocket millions more from those he saved. This rather blatant revolving door corruption would, for the critics, make Summers appointment to head the Fed inconceivable.
For his defenders, Summers’ sojourns on Wall Street simply provide him with a better sense of how financial markets work. He may have amassed a fortune of tens of millions but he isn’t interested in money. He was gaining better understanding that will make him a more effective regulator.
We want our public officials to be informed. Yet we need them to be independent. But in the big money world of Washington, legislators, regulators, and attorneys all increasingly move from public service to private lobbies or law firms. One need not be utterly corrupt to be compromised. It is hard not to develop a shared world view, a view in which the health of the big banks is equated to the health of the economy, in which Gilded Age inequality is seen simply as a reward for brilliance, rather than a return on the investment made in rigging the rules.
The Boy’s Club: Bane or Boon?
For critics like Sheila Bair, former head of the Federal Deposit Insurance corporation, the most powerful economic positions – Treasury, Commerce, head of the Fed – are still monopolized by the “boys club.” Under Obama, most of these are acolytes of Clinton’s former Treasury Secretary Robert Rubin, the leader of the Wall Street wing of the Democratic Party. Federal Reserve Vice Chair Janet Yellen is, like Summers, a brilliant economist, with a broad range of public service. Unlike Summers, she has direct experience with monetary policy – and a far better record of warning on the dangers of the deregulatory excesses of the last decades. She is not one of the Rubinites who got it wrong. Obama has a unique opportunity to break a glass ceiling, while choosing the most capable candidate.
Summers’ supporters, in contrast, disdain Yellen as an affirmative action candidate. She hasn’t been part of the boys club that dealt with crises together. They criticize her for being careful in preparing her public remarks, in not being able to make decisions on the fly. She’s said not to have the “gravitas” needed to capture the market’s respect. Their critique, as Ezra Klein noted, essentially encapsulates the sexist argument against women leaders.
Is the Club Beyond Accountability?
“When I use a word,” Humpty Dumpty said, in a rather scornful tone, “It means just what I choose it to mean, neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master – that’s all.”
Accountability or experience, corruption or insight, boys club or equal opportunity, “no reason” or many reasons? In the Looking Glass World of Larry Summers, critics and defenders will not agree. They draw different conclusions from the same record. Are members of the club accountable? Or are they too powerful to be called to account? The question is “which is to be master.”
Hundreds of thousands of individuals have already signed petitions rejecting Summers’ nomination. You can join them here.