Larry Summers: Goldman Sacked
18 September 13
oseph
Stiglitz couldn't believe his ears. Here they were in the White House,
with President Bill Clinton asking the chiefs of the US Treasury for
guidance on the life and death of America's economy, when the Deputy
Secretary of the Treasury Larry Summers turns to his boss, Secretary
Robert Rubin, and says, "What would Goldman think of that?"
Huh?
Then, at another meeting, Summers said it again: What would Goldman think?
A shocked Stiglitz, then Chairman of the President's
Council of Economic Advisors, told me he'd turned to Summers, and asked
if Summers thought it appropriate to decide US economic policy based on
"what Goldman thought." As opposed to say, the facts, or say, the needs
of the American public, you know, all that stuff that we heard in
Cabinet meetings on The West Wing.
Summers looked at Stiglitz like Stiglitz was some kind of naive fool who'd read too many civics books.
R.I.P. Larry Summers
On Sunday afternoon, facing a revolt by his own
party's senators, Obama dumped Larry as likely replacement for Ben
Bernanke as Chairman of the Federal Reserve Board.
Until news came that Summers' torch had been snuffed, I
was going to write another column about Larry, the Typhoid Mary of
Economics. (My first, in The Guardian, 15 years ago, warned that
"Summers is, in fact, a colony of aliens sent to Earth to turn humans
into a cheap source of protein.")
But the fact that Obama even tried to shove Summers
down the planet's throat tells us more about Obama than Summers-and whom
Obama works for. Hint: You aren't one of them.
All these Cabinet discussions back in the 1990s
requiring the blessing of Goldman Sachs revolved around the
Rubin-Summers idea of ending regulation of the US banking system. To
free the US economy, Summers argued, all you'd have to do is allow
commercial banks to bet government-guaranteed savings on new
"derivatives products," let banks sell high-risk sub-prime mortgage
securities and cut their reserves against losses.
What could possibly go wrong?
Stiglitz, who would go on to win the Nobel Prize in
Economics, tried to tell them exactly what would go wrong. But when he
tried, he was replaced and exiled.
Summers did more than ask Rubin to channel the spirit
of Goldman: Summers secretly called and met with Goldman's new CEO at
the time, Jon Corzine, to plan out the planet's financial deregulation.
I'm not guessing: I have the confidential memo to Summers reminding him
to call Corzine.
[For the complete story of that memo and a copy of it, read "The Confidential Memo at the Heart of the Global Financial Crisis".]
Summers, as Treasury official, can call any banker he
damn well pleases. But not secretly. And absolutely not to scheme over
details of policies that could make a bank billions. And Goldman did
make billions on those plans.
Example: Goldman and clients pocketed $4 billion on
the collapse of "synthetic collateralized debt obligations"-flim-flam
feathers sold to suckers and dimwits i.e. the bankers at RBS.
Goldman also cashed in big on the implosion of
Greece's debt via secret derivatives trades permitted by Summers'
decriminalization of such cross-border financial gaming.
The collapse of the euro-zone and the US mortgage
market caused by Bankers Gone Wild was made possible only by Treasury
Secretary Summers lobbying for the Commodities Futures Modernization Act
which banned regulators from controlling the 100,000% increase in
derivatives assets, especially super-risky "naked" credit-default swaps.
The CMFA was the financial equivalent of a fire department banning smoke alarms.
Summers took over the Treasury's reins from Rubin
who'd left to become director of a strange new financial behemoth: The
combine of Citibank with and an investment bank, Travelers. The new bank
beast went bankrupt and required $50 billion in bail-out funds.
(Goldman did not require any bail-out funds–but took $10 billion
anyway.)
Other banks-turned-casinos followed Citi into
insolvency. Most got bail-outs ... and got Larry Summers–or, at least,
Larry's lips for "consulting" or for gold-plated speaking gigs.
Derivatives trader D.E. Shaw paid Summers $5 million
for a couple of years of "part-time" work. This added to payments from
Citigroup, Goldman and other finance houses, raising the net worth of
this once penurious professor to more than $31 million.
Foreclosure fills the Golden Sacks
When Summers left Treasury in 2000, The New York Times
reports that a grateful Rubin got Summers the post of President of
Harvard University-from which Summers was fired. He gambled away over
half a billion dollars of the university's endowment on those crazy
derivatives he'd legalized. (Given Summers' almost pathological
inability to understand finance, it was most odd that, while President
of the university, he suggested that humans with vaginas aren't very
good with numbers.)
In 2009, Summers, Daddy of the Deregulation Disaster,
returned to the Cabinet in triumph. Barack Obama crowned him "Economics
Tsar," allowing Summers to run the Treasury without having to be
questioned by Congress in a formal confirmation hearing.
As Economics Tsar in Obama's first term, did Summers redeem himself?
Not a chance.
In 2008, both Democrat Hillary Clinton and Republican
John McCain called for using the $300 billion remaining in the
"bail-out' fund for a foreclosure-blocking program identical to the one
Franklin Roosevelt had used to pull the US out of the Great Depression.
But Tsar Larry would have none of it, although banks had been given
$400 billion from the same fund.
Indeed, on the advice of Summers and his wee assistant, Treasury Secretary Tim Geithner, Obama spent only $7 billon of the $300 billion available to save US homeowners.
What would Goldman think?
As noted, Goldman and clients pocketed billions as a
result of Obama's abandonment of 3.9 million families whose homes were
repossessed during his first term. While American homeowners were
drowning, Tsar Summers torpedoed their lifeboat: a plan to prevent
foreclosures by forcing banks to write-off the overcharges in predatory
sub-prime mortgages. Notably, Summers' action (and Obama's inaction)
saved Citibank billions.
Loan Shark Larry
The deregulation disaster machinery is not done with
mangling Americans. While not-for-profit credit unions, lenders of last
resort for working people and the poor in the US, have been under legal
and political attack, a new kind of banking operation has bubbled out
of the minds of the grifters looking for a way to make loan-sharking
legit.
One new outfit, for example, called "Lending Club,"
has figured out a way to collect fees for arranging loans charging as
much as 29%. Lending Club claims it cannot and should not be regulated
by the Federal Reserve or other banking police. The recent addition to
its Board of Directors: Larry Summers.
If you want to know why Obama would choose such a
grifter and gamer to head the Fed, you have to ask, Who picked Obama?
Ten years ago, Barry Obama was a nothing, a State Senator from the South
Side of Chicago.
But then, he got lucky. A local bank, Superior, was
shut down by regulators for mortgage shenanigans ripping off Black folk.
The bank's Chairwoman, Penny Pritzker was so angry at regulators, she
decided to eliminate them: and that required a new President.
The billionaires connected Obama to Jamie Dimon of
J.P. Morgan, but most importantly to Robert Rubin, former Treasury
Secretary, but most important, former CEO of Goldman Sachs and mentor of
Larry Summers. Without Rubin's blessing and overwhelming fundraising
power, Obama would still be arguing over zoning on Halsted Street.
Rubin picked Obama and Obama picks whom Rubin picks for him.
Because, in the end, Obama knows he must choose a Fed chief based on the answer to one question: What would Goldman think?
