No sooner had President Obama declared last month that Ben Bernanke has “already stayed a lot longer than he wanted or he was supposed to," then the handicapping began over who will be the next Fed chairman.
This week, much of the chattering class has been focusing its attention on Larry Summers, a former Treasury Secretary and senior adviser to the President during his first term.
Politico, The Wall Street Journal, Bloomberg and other outlets have done ‘Summers for Fed chair’ pieces this week, generally citing the following rationales for his candidacy: Summers is a “brilliant” economist with extensive international experience who’s respected by the financial markets and has close ties to the President.
Please let this blog and the accompanying video serve as an antidote to the idea Summers for Fed chair is a good idea. Or, more specifically, a reminder about how this “brilliant” man has been wrong, so often, on so many major issues. For example:
- Bank Deregulation: A protégé of Bob Rubin’s, Summers helped spearhead the deregulation movement of the 1990s, featuring the repeal of Glass-Steagall in 1999. (Shortly thereafter, Rubin left Treasury to join Citigroup, the biggest beneficiary of that legislation.)
- Derivatives Reform: Summers was among the “wise men” of Washington who helped torpedo Brooksley Born’s efforts to regulate over-the-counter derivatives in the late 1990s, as detailed in The Frontline documentary The Warning.
- Crisis Management: When the ‘Asian Flu’ hit in 1997, Summers was among the U.S. experts urging Asian countries to break up the banks, punish shareholders and generally take a hard line. In 2008, his advice to President Obama – who reportedly wanted to break up Citigroup – was much more industry friendly. (Could it be that Summers, who made millions at DE Shaw and from speeches after leaving government service, learned the lesson from Rubin and didn’t want to bite the hands that would soon feed him?)
- Alan Greenspan: At Greenspan’s final Jackson Hole confab in 2005, Summers famously – and aggressively – denounced Greenspan’s critics as “Luddites.” As the 2008 crisis clearly proved, critics like Raghu Rajan were absolutely right about the risks in the system and Summers was absolutely wrong about the benefits of “financial innovation” that he – and Greenspan – so proudly supported.
Ironically, Summers looks a lot like Alan Greenspan: another economist who blinded politicians with his much-ballyhooed “brilliance” and yet was pretty much wrong at every major step of the way.
“In short, Summers’ record as an economic adviser has provided a trail of disasters that few can match,” the CEPR wrote in 2012. “Does it make sense to give him yet another opportunity to do even more damage?”
At that time, Summers was reportedly in the running to lead the World Bank; as Fed chairman, his opportunities to do “even more damage” would be orders of magnitude larger. The fact that financial markets and the banking sector would welcome Summers as Fed Chair should give the rest of us pause, not comfort.
Memo to President Obama: Just say ‘no’ to the idea of Summers as Fed chair.
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