Saturday, April 4, 2009

Larry Summers Should Be Fired. Now.

The escalating official unemployment rate made the front page of both the Wall Street Journal and the New York Times. Above the fold. It went from 7.6% in January 2009 to 8.5% in March 2009. Many economists predict the jobless rate to rise above 10% by later this year.

The Wall Street Journal article modifies the official rate further:

A broader gauge of unemployment--which counts Americans who want work but quit searching and people who want full-time jobs but settled for part-time work--climbed to 15.6%.

But Larry Summers, the director of the White House's National Economic Council, isn't worried. The stock market has improved. He can see spring coming:

"You couldn't find any sprouts of green. Now while the statistics remain very mixed, you can find some sprouts of green.

But we must be realistic, says he:

Mr. Summers said he expects several more months of payroll declines, noting, "it now appears fairly clear that the economy is going to be losing jobs at a substantial rate for some months to come."

One reason Summers may not be too concerned about unemployment woes, particularly his own, is that also according to today'sNew York Times, he earned more than $5 million last year from the hedge fund D.E. Shaw and $2.7 million in speaking fees to Wall Street firms that received government bailout money:

Last year, he reported making 40 paid appearances, including a $135,000 speech to the investment firm Goldman Sachs, in addition to his earnings from the hedge fund, a sector the administration is trying to regulate.

Mr. Summers's role at the White House includes advising Mr. Obama on whether--or how--to tighten regulation of hedge funds, which engage in highly sophisticated financial trading that many analysts have said contributed to the economic collapse.

It is a sick joke to pretend that the Obama economic team is concerned with Main Street. Summers, despite anything that comes out of his mouth, has worked very hard to preserve the bailiwick of Wall Street.

Back in the waning days of the Clinton Administration, Larry Summers fiercely opposed the regulation of derivatives such as credit default swaps, which are at the center of this man-made economic debacle, according to the blog of The Sunlight Foundation, which is dedicated to transparency/

The chairman of the Commodity Futures Trade Commission (CFTC) Brooksley Born issued a first call for her regulatory commission to have power to oversee financial derivatives.

Her credo was, "An unregulated derivatives market could “pose grave dangers to our economy.”

While previous legislative attempts had been made earlier, Born’s efforts were the most direct and threatening to the financial industry. During an April 1998 meeting of the President’s Working Group on Financial Markets, Federal Reserve chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin (and later Secretary Larry Summers), and Securities and Exchange Commission (SEC) chairman Arthur Levitt opposed Born’s efforts and attempted to derail her.

Not only did Summers object to the regulation of financial derivatives and credit default swaps, he worked hard with Phil Gramm as the driving force on the Commodities Futures Modernization Act, which exempted swaps and derivatives from regulation by both the CFTC, which had already implemented rules that it would not regulate swaps and derivatives, and the SEC. The final version passed in December 2000, barely a whisper amid the tumult of the 2000 election.

This is the fox guarding the hen house. Unless the U.S. economy gets help from the bottom up instead of the top down, we are in for a long fall. We need someone like a special prosecutor to investigate the causes of this calamity that is only deepening. We don't need the architects of destruction to be in charge.

1 comment:

Snowponies said...

There has been positive news lately that at a minimum the rate of deterioration in the economy is slowing down. Unemployment however is a lagging statistic both for a downturn and an upturn when it comes. That said, many economists expect the nominal unemployment rate to go as high as 10.5% this year.

As for Summers, he is in the same situation of culpability as over 90% of the economic and financial policy establishment. They either advocated derivatives deregulation and/or voiced muted concern but not enough to threaten their day jobs.

I don't love this guy but I think the president has the right to the counselors of his own choosing. Obama must have some use for him