By Mary Bottari on September 22, 2010

Larry Summers, President Obama's Chief Economic AdviserLarry Summers is confirming rumors that he plans on leaving his job as the President's chief economic adviser at the end of the year. While some may consider this a panicky attempt to hightail it out the door before he is blamed for significant Democratic losses this election cycle, I see it in a more positive light. Just think of the reception he will receive when he returns to Wall Street!

On Wall Street, Summers will be greeted like a conquering hero. Never have so many financiers been made so rich because of the actions of one man. Plus, he can go back to that genius Wall Street salary. When he worked for one world's largest hedge funds, D.E. Shaw, he worked one day a week and earned $5.2 million before being picked by Obama to head the National Economic Council. Ka-ching! There will be plenty of time for him to teach a class Harvard (although you can be sure they won't let him anywhere near that endowment again.)

A Resume Only Wall Street Could Love

Summers has a long resume that makes him an ideal candidate for a job on the Street. For years, he promoted the concept of "a post-industrial age" where manufacturing takes a back seat. An expression he was fond of repeating was, "Financial markets do not just oil the wheels of economic growth. They are the wheels." And has he worked very hard his entire career to grease those wheels.

Between 1992 and 2001, Summers held various positions in the U.S. Treasury Department, including that of Treasury Secretary from 1999 to 2001. Summers has described the 1990's as a time when "important steps" were taken to achieve "deregulation in key sectors of the economy" such as financial services. He has also said that during this period, government officials and private financial interests collaborated in a spirit of cooperation "to provide the right framework for our financial industry to thrive."

Role in the Elimination of Glass-Steagall:

Along with Robert Rubin and Alan Greenspan, Summers brought about elimination of key U.S. financial regulations, including the Glass-Steagall Act. Summers argued for elimination of the Glass-Steagall Act by saying it imposed "archaic financial restrictions." "Our leadership of the world's financial markets would be enhanced. And consumers would see the benefits in the form of greater innovation and lower prices." That "innovation" led directly to the formation of "too big to fail firms" that were allowed to gamble in the securities market like never before, and which were a key contributor to the collapse of the global economy.

Role in Killing Derivatives Reform:

Summers was particularly aggressive in his efforts to block regulations of derivatives, regulations that might have prevented the 2008 economic meltdown. While he was at the Treasury Department, his enthusiasm for financial deregulation conflicted with the views of Brooksley Born, Chair of the Commodities Futures Trading Commission (CTFC). Born had extensive experience working as a lawyer in the derivatives area, and was concerned about the lack of transparency in this multi-trillion dollar financial market. Summers collaborated with Alan Greenspan, Robert Rubin, and Arthur Levitt to block Born's efforts to regulate this burgeoning market.

According to New York Times reporter Timothy O'Brien, "They were all part of a very concerted effort to shut her up and to shut her down. And they did, in fact, shut her up and shut her down. Bob Rubin is not a guy who likes confrontation. He's confrontation-averse. But he understands that you need someone in there who can swing a heavy axe, and that person was Larry Summers. He was the enforcer."

Former CFTC attorney Michael Greenberger has recounted how Summers called Born personally to accuse her of risking a major financial crisis with her proposal to bring transparency to the derivatives market. Summers echoed the concerns of the "13 Bankers" who were in his office at the time he made the call to Born, a conversation that gave birth to the title of Simon Johnson's great book, 13 Bankers, about the history of the financial crisis. Then and now derivatives trading remains the source of those outsized Wall Street bonuses the American people cannot stand.

Role in the Enron Crisis:

When he was about to take office as Treasury Secretary, Summers received a congratulatory letter from Ken Lay, the President of Enron Corporation. The letter was addressed "Dear Larry." In his response addressed to "Ken," Summers promised, "I'll keep my eye on power deregulation and energy-market infrastructure issues." And he did.

During California's energy crisis in 2000, Summers rejected the idea that energy companies like Enron were manipulating the market and gouging consumers. He opposed Governor Gray Davis' plan for government intervention with price controls, claiming "This is classic supply and demand. The only way to fix this is ultimately by allowing retail prices to go wherever they have to go."

Role in Harvard's Financial Losses:

Summers became President of Harvard University in 2001 and resigned under a cloud in 2006, leaving behind a ticking time bomb of interest rate swaps that he helped negotiate in 2004. According to Bloomberg, "the swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them."

Role in the Bailout and Stimulus:

Summers had a key role in determining the size of the federal bailout of the financial services industry ($4.7 trillion) and of the economic stimulus package the Obama administration submitted to Congress ($787 billion). The stimulus package was much smaller than what was being recommended by many economists, and as a result, the U.S. has been stuck at near double digit unemployment for almost two years. Last year, economist Paul Krugman warned that while cutting the size of the stimulus might get more Republican votes, it would fail to significantly reduce unemployment. This failure would then be blamed on the Democrats and be used to argue that government spending does not work. Krugman's prediction has held true.

Today, Wall Street is bouncing back with healthy profit margins and even healthier bonuses, while Main Street is still mired in the Great Recession. Because Obama is seen as doing too little for the middle class, Democrats are likely to suffer steep losses this November.

The sooner Obama replaces Summers with a competent economist, the better. There's a high-speed Acela train leaving for Wall Street at 2:00 p.m. today, perhaps Vice President Biden will be kind enough to show Mr. Summers the way?


This article was based on the original research by the Center for Media and Democracy in our SourceWatch wiki.

Mary Bottari

Mary Bottari, CMD's Deputy Director, is an experienced policy wonk and consumer advocate who has served as a senior analyst on trade.

Comments

Our economy is slowly dying, it is kept alive artificially. No one is proposing a solution because no one has the slightest idea of why it is happening and many have vested interest in the present system. However an objective observation of the phenomenon can help us understand it and provide us with an innovative solution. Of course we can't solve the problem with the tools that brought us there in the first place and we need a new ideology.

- Do you feel that your ideology pushed you to make decisions that you wish you had not made?

- Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.

- You found a flaw in the reality...(!!!???)

- Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

- In other words, you found that your view of the world, your ideology, was not right, it was not working?

- That is -- precisely. No, that's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

How convenient for him to be leaving when everything is about to collapse all around us.
He is one of a group of people who caused many of the economic problems we have today and taking away the Glass-Steagall act was the biggest mistake,leaving the sector wide open to corruption and abuse.

How easy it is for the MSM and Progressives to forget Summers' LEADERSHIP ROLE in LOOTING the Russian economy under BUSH I! The guy was and is a egotistical, Pillaging Hun whose robbed more nations of their sovereign wealth than Bayer has Aspirin!

There's no question Wall Streat and the US Government will have ONE LESS AMORAL THIEF in its ranks. He will NOT be MISSED! More pointedly, because of his past acts and vioilations of Law in the US and International Financial Markets, he should be band from them for the duration of his life...

Here's your Hat, What's your Hurry!
Watch the door knob on the way out.
Get the Hell out of Dodge Before sundown.
Do you get it Now?????