The current debate over who should be replacing Ben Bernanke at the Federal Reserve should be a no-brainer, if you base it solely on abilities and sound judgment. There is no good reason why President Obama shouldn’t appoint Janet Yellen. But there is a lot of resistance to it anyway, and I imagine a lot of it is from the people who would rather see Larry Summers in the position.
Personally, I can’t believe people still take Larry Summers seriously.
I don’t really want to get into any of Larry Summers’ shortcomings as a human being, because that could easily take up a hell of a lot of my time. I would rather discuss his shortcomings as an economist, because they are much more relevant to the discussion of why he should not be in charge of the Fed.
Larry Summers is one of a handful of economic “experts” (Robert Rubin, Tim Geitner, and Alan Greenspan would be some of the other notables that come to mind immediately) who have had a tremendous amount of influence on the shaping of economic policy for the last twenty years… and have consistently been wrong, wrong, wrong. Summers is one of these guys who has completely swallowed the Thomas Friedman-esque idea that globalization is the answer to everything and the ability of corporations to move capital around freely to invest anywhere and set up their factories anywhere with as little oversight as possible is what we should be aspiring to accomplish. Sure, great idea on paper. In reality, it has been nothing but one train wreck after another.
To put it in perspective, let’s go back to around the turn of the millennium when President Clinton, at the behest of Bob Rubin and Larry Summers and others of like mind, pushed for more deregulation of the financial industry. The deceptively-named Financial Services Modernization Act, passed in 1999, was one of the biggest causes of the financial meltdown of 2008. Glass-Steagall, which was largely eliminated because of FSMA, had protected us for decades from the worst tendencies of banks to take HUGE risks with other people’s money. Deposit banks were deposit banks, and investment banks were investment banks, and never the two shall meet in a sane world. But since there was potentially a ton of money to be made by those ready to throw off the “oppressive” yoke of oversight and regulation, these said individuals used their considerable amounts of money and influence to persuade folks like Bob and Larry that no, really, banks CAN be trusted to police themselves.
The willingness of so many people who should have been looking out for the public good to buy into this execrable economic theory is just beyond belief. The banks are like an habitual drunk driver who keeps insisting that he can drive just fine, even after he has repeatedly driven through guardrails, wrapped cars around trees and maybe even run over some little old ladies in the crosswalk. “But that wasn’t my fault! That was before! This is now! I am fine! LET ME DRIVE!” *hic*
So rather than doing what any sane adult would do and say “hell no, give me the keys, you idiot”, Larry and Bob persuaded the President and all his advisers that not only should we let this drunk keep his keys, we should give him OUR keys too. And then ride in the car with him. So that’s what they did, at least in terms of our economy. And look what happened, all in the space of less than a decade. At least Big Dog realized later he was wrong to listen to them.
The first sign of things to come was the collapse of a large number of corporations, many of which seemed like economic powerhouses and were constantly put up on pedestals by the larger business community. “Wow, these guys are making a ton of money, so they MUST be GENIUSES!!!” Remember WorldCom? Or Tyco? Or Global Crossing? Or Or Adelphia? Or my own personal favorite, Enron? Hell, Fortune magazine named Enron “America’s Most Innovative Company” for six consecutive years: 1996 to 2001. And Enron managed to wreak a tremendous amount of havoc on its employees, its stockholders, and literally millions of other people. Especially in California, where Enron’s crass manipulation of the energy trading market made them a lot of money at the expense of, well, everyone else in California, more or less.
Larry, of course, insisted that any talk of Enron manipulating the market was just silly, so how about we just keep deregulating, and maybe even cut back on some of those environmental regs too? Of course, he turned out to be horribly wrong about Enron’s role in California. Over-the-top wrong. Disaster movie wrong, like the guy in the disaster movie who poo-poos the hero’s warnings only to get a come-uppance. Only the great thing about being someone like Larry Summers is never having to admit you are wrong. And this is who President Obama wants to put in charge of the Fed? Seriously?
And Larry’s been wrong about derivatives too. Spectacularly wrong. So very, very wrong, that even after he left Treasury and became President of Harvard, he managed to lose almost two billion dollars of Harvard’s endowment. Then he went back into government so he could give yet another President really bad economic advice. As one group of prominent economists said of Larry:
Summers’ record as an economic adviser has provided a trail of disasters that few can match. Does it make sense to give him yet another opportunity to do even more damage?
Sigh. Of course not. But we are talking about Washington, D.C. here.
So then all the silliness with the lack of regulation over banks, especially in regards to derivatives, led to the big economic meltdown of 2008, which we are still feeling (and by we I especially mean Kelly and I). And that is such a big can of worms I don’t even want to open it up just yet. I’m too tired.
Anyway, maybe I will continue later, if I haven’t cause my blood pressure to spike too much.