Posted on Evans Politics, April 14, 2009. Visit Evans Politics today!
This is a republication revised from earlier today, with a better title as well. I hope it receives some consideration this time. I am a lifelong Democrat and still an Obama supporter, but, in short, I think Geithner, and in particular, Larry Summers, are the problem, not the solution, for America.
Today, President Obama made another major address on the economy, at Georgetown University, at 11:35 a.m. EDT. Recently the President has been sounding upbeat about the economy, saying yesterday that "we're heading in the right direction." Last Friday he stated that "what you're starting to see is glimmers of hope across the economy."
National Public Radio on April 10th broadcast a short segment of an address to the Economic Club of Washington by Obama's financial chief, Larry Summers, in which Summers said that the period of "free fall" (Summers' words) will end soon but that job losses will be likely to continue. This is nothing new, really, financial analysts have been saying that for well over a week now.
However I'm sure that today's economic news hit the administration hard, and everyone else as well.
In an article at The Huffington Post (March 14, 2009, by Martin Crut Singer), titled "Retail sales fall unexpectedly in March," here, the news is grim: "The Commerce Department said Tuesday that retail sales dipped 1.1 percent in March. It was the biggest decline in three months and a much weaker showing than the 0.3 percent increase that analysts expected. ...Meanwhile the Labor Department reported that wholesale prices plunged 1.2 percent in March as the cost of gasoline, other energy products and food fell sharply." (I'm sure not seeing that in my grocery store!) At the end of the article, significantly, Singer wrote that, "analysts believe any significant rebound in sales will require an end to the thousands of weekly layoffs battering the labor market. The economy lost a net total of 663,000 jobs last month, pushing the unemployment rate to 8.5 percent, the highest level in 25 years."
Does this sound like the right direction to you? Nonetheless, the whole Obama team is just about unanimous in being signed on to Summers' economic ideas. The President made a major speech today on the economy. Here we present a couple segments of that speech and comment on it. The first segment is called 'Irresponsibility Caused Recession':
There are just a couple of problems with this speech. While it is a good summary of how we got here, there are some inaccuracies. The main one is that the President said, "no one knew the risks" of trading these derivatives, of classifying these packages of mortgage investments as AAA investments and of hyping the whole subprime mortgage industry and using it to drive the housing industry. This is just laughable, on the face of it. Wall Street and these investment banks, the upper level business community, as well as the regulators in the Bush administration and the Clinton administration before it, knew perfectly well that is was a huge crapshoot, but all they were interested in was the huge profits involved, so long as the bubble lasted. Everyone who was anyone knew the risks. The burden for this recession and the suffering of the American people lies in the unlimited greed of Wall Street and the greed of the whole higher banking and investment industry, and the government that let it happen.
Here's some good stuff, though. In this second segment, President Obama says that we must not build our economy (again) "on a foundation of sand." Called "A New Foundation," he speaks of a five point strategy for America's economic future. It sounds great. I truly hope he's going to get us there, but I am skeptical of Summer's and Geithner's direction, particularly Summers. Anyway, here's the video:
Getting back to solutions and the people who are supposed to solve this mess, Glenn Greenwald at Salon, on April 4th, had a great expose on Larry Summers and Tim Geithner, Obama's chief economists, titled "Larry Summers, Tim Geithner and Wall Street's ownership of government," a must-read, here:
"White House officials yesterday released their personal financial disclosure forms, and included in the millions of dollars which top Obama economics adviser Larry Summers made from Wall Street in 2008 is this detail:
Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. . . .
Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form.
"That's $135,000 paid by Goldman Sachs to Summers -- for a one-day visit. And the payment was made at a time -- in April, 2008 -- when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government (and the $45,000 Merrill Lynch payment came 8 days after Obama's election)."
In other words, Larry Summers gets his bread and butter from the same Wall Street firms he is now supposed to be working to rescue in a "fair and unbiased" way, while properly developing a plan to regulate Wall Street and rescue the American economy. Larry Summers could no more be fair and unbiased than Fox News. His policies will inevitiably favor Wall Street, and in particular one can expect no significant teeth to any regulatory plan coming from his direction.
A couple of days after the Salon piece, the Minnesota Post on April 7th, ran a devastating and overlooked article titled, "Larry Summers' greatest hits," by Steve Perry, here:
"Let's review a few of the high points on the CV of the man who is calling most of the shots in the president's plan to save the economy by rescuing the people most responsible for its collapse:" (Five points are presented, with evidence, the headings of these we present with some content, to whet your appetite.):
* Poor countries should be the world's dumpster. Back in December 1991, when he was the World Bank's chief economist, Summers sent out a memo extolling the virtues of treating less-developed countries (LDC) as global dumping grounds. (there's more on this)
* Looting Russia. (This is quite informative as to why Putin now hates market based capitalism and us, too.)
* Regulate derivatives? Never! Back in 1997, the chair of the Commodity Futures Trading Commission, Brooksley Born, began to agitate for government regulation of the mushrooming derivatives market. That effort was quickly nipped in the bud by a blustery phone call from Clinton administration Depty Treasury Secretary Larry Summers. Afterward, according to Newsweek, "'She was ashen,' recalls Born's deputy Michael Greenberger, who walked in as the call was ending. 'She said, That was Larry Summers. He was shouting at me.'... Summers's phone call was the first sign that her humble plan had riled America's reigning economic elite. Rubin, Fed chairman Alan Greenspan and Summers were concerned that even a hint of regulation would send all the derivatives trading overseas, costing America business."
* Deregulating banks. In 1999, President Bill Clinton signed the Financial Services Modernization Act, which repealed the Depression-era Glass-Steagall Act that had prohibited commercial banks from taking the sorts of risks that investment banks routinely took. The financial chicanery of the bubble years was already an advanced art by this time, but the FSMA spread the contagion to a lot of very large institutions that otherwise couldn't have played. At the time, Summers had this to say: "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy."
* A woman's place. As president of Harvard, Summers told a January 2005 academic conference that "innate ability," or words to that effect, might be the reason that women were underrepresented in math and science jobs.
The last word. In the Newsweek profile of Summers quoted above, the old presidential adviser/Beltway hack David Gergen -- who toiled in the vineyards of Nixon, Ford, Reagan, and Clinton -- said this about his pal Larry: "He's very much a market man. He'll come out more on the side of lighter regulation."
Robert Kuttner of The Huffington Post had a fine piece on April 12th, "Obama's Loyal Opposition," here, which describes progressives "awkward position" of supporting President Obama generally while feeling opposed to quite a few of his policies, "most notably the banking bailout." I'm sure everyone but the Republicans are worried that "a failure to revive the banking system would be Obama's Vietnam. It would wreck everything else" that liberals and progressives are hoping for and working towards.
In the article, Kuttner draws a comparison to the position Democrats were in during the administration of Lyndon Johnson with regard to Vietnam. But the point I am making in this article about relying on Summers being a bad idea for President Obama can be summarized in one sentence of Kuttner's article: "The economists whom I most respect, such as Joseph Stiglitz, Jeff Sachs, Simon Johnson, and Paul Krugman, all have grave doubts about whether the Geithner-Summers plan can work."
It's a simple as that. Personally, I find Summers distasteful and I distrust everything about him, but it's because economists such as Krugman, Stiglitz, Sach and Johnson have strong doubts or, like Krugman, definite opposition to, Summers and Geithner's plan, that I think a total rethink is necessary. Moreover I think the information readily available about Larry Summers, as given above, speaks for itself. I don't really think any real progress on the economy will be made so long as Summers is the main filter providing President Obama with economic advice and direction.
Probably there will be some kind of upturn, but a situation where job losses continue and increase for a year is unacceptable. The American economic engine, assuming one supports a model in which growth is the goal, will not truly resume growth, and the American economy will not be healthy, until our workers face a reasonable employment scenario. The situation for ordinary Americans, as well as municipal and state governments and their social services, is scary.
It's time to regulate Wall Street and re-direct the American economy so that it functions for ordinary citizens, and not for the rich. Based on their record, and even upon what they were doing in 2008, are Summers and Geithner going to get us there? Let's hope for the best, but the progressive economists are skeptical.
For possible answers, see Kuttner's article at AlterNet today, April 14, 2009, "Obama's Bad Bank Plan Could Destroy His Promising Presidency: How Do We Push Him In the Right Direction?" here.