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Obama’s Treasury Secretary? Let’s Hope Not
Posted on Nov 6, 2008
Barack Obama is rumored to favor Lawrence Summers as his treasury secretary. That’s a terrible choice, says Robert Scheer, if the president-elect is at all concerned about the financial meltdown.
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Truthdig: Today on the Truthdig podcast, Truthdig editor Robert Scheer explains why the man rumored to be Barack Obama’s choice for treasury secretary would be a huge mistake. The frontrunner who has emerged for Barack Obama’s treasury secretary is rumored to be a man named Larry Summers, who was the treasury secretary under Bill Clinton. Tell us why you think that would be a terrible mistake?
Robert Scheer: Lawrence Summers is as responsible as anyone for the current economic meltdown. He was Robert Rubin’s protege in the Treasury Department, and he became secretary of treasury after Rubin, who had come from Goldman Sachs to be Clinton’s secretary of treasury, went off to CitiGroup—which was the first company from the kind of deregulation pushed through under Clinton. Summers was the secretary of treasury that got Clinton to sign off onto the two most egregious pieces of legislation that permitted the financial meltdown. This was legislation carried by Phil Gramm, the Republican senator who was head of the Banking Committee, and his name is one of them, it’s called the Gramm-Leach-Bliley Act, or otherwise known as the Financial Services Modernization Act—that was in 1999. And in 2000, as a lame duck, the Clinton administration approved after Congress passed again at Graham’s insistence, something called the Commodity Futures Modernization Act. These two pieces of legislation allowed the current meltdown. They allowed the commercial banks, investment banks, stockbrokers and insurance companies to merge. That’s why you have this problem of AIG buying these phony toxic securities and everything. And it did not have any degree of transparency, it allowed them to merge their data, it allowed them to merge their activities. And the Commodity Futures Modernization Act said that all these new-fangled financial instruments that they developed, the hybrid instruments, the credit swaps and so forth, were automatically freed form any government regulation or any… were not covered by any pre-existing regulatory legislation. It’s those instruments that have gotten us into this problem. We don’t know what they’re worth. Taxpayers are now being forced to buy them. And that’s the heart of the whole thing. And it was Lawrence Summers who was secretary of the treasury, who in 1999-2000, urged Clinton successfully to sign off on those two pieces of legislation. It’s now admitted that they didn’t even known what was in them. That it had not been vetted, there had not been hearings in Congress on the Commodity Futures Modernization Act, and so Lawrence Summers has got his fingerprints all over these things. He assured the president, he assured everyone else, that this was a very good thing to do, but what in effect did, was end the regulatory regime that had been put place under Franklin Deleano Roosevelt during the Great Depression to prevent such a meltdown. So the idea that you would now reward Lawrence Summers for having gotten us into this mess by making him secretary of the treasury, and in an administration that has been elected to promise change and go back to this retread, go back to this guy who helped get us into this mess, is mind-boggling.
Truthdig: So what responsibility ultimately does the Bush administration have to bare for this economic meltdown if so much of the deregulation that took place that enabled it happened under the Clinton administration?
Scheer: I mean, deregulation was the Republican siren, this was the Reagan revolution, the Republicans have been pushing this forever. And certainly it was the Republican Party, as I mentioned Phil Gramm was certainly key to it, who pushed through the deregulation that passed under Clinton. Clinton’s problem was that he was an opportunist, and he went for this triangulation. And he signed off on it because people like Robert Rubin and Lawrence Summers told him it was an OK thing, that it was a good thing to do. I don’t think Bill Clinton himself was a big advocate of it, I don’t think he understood it, but he signed off on it because Wall Street wanted it. What happened with the incoming Bush administration is that then there were attempts during that time to rewrite some of those laws, to soften them up to extend regulation. But the Bush administration embraced this deregulatory opportunity and went to town with it. So they do have major responsibility. And as this meltdown was clearly emerging, they did not respond in any real way. So I don’t want to get Bush off the hook, he certainly was the one who brought us to this mess. I don’t want to get the Republican Party off the hook. The Reagan revolution and the mantra of deregulation is certainly their baby. But, I’m trying to address your initial question about picking Lawrence Summers. And I think we should recognize there are plenty of Democrats who bear responsibility for this. Wall Street are into Democrats like Lawrence Summers who do bear responsibility. And certainly Robert Rubin, who was his mentor. Robert Rubin, in January of this year, gave a speech at Cooper Union in New York saying we weren’t really experiencing a serious crisis—this is just the normal fluctuation of the business market. And Barack Obama, on the other hand, two months later very clearly spelled out that we are in a crisis—and he did point to this very legislation that Clinton signed off on as being central to it. So, I for the life of me cannot understand why Barack Obama would now turn to Lawrence Summers who certainly among the Democrats was a leader in pushing or that legislation.
Truthdig: So is there anyone you can think of who would be a better candidate?
Scheer: Well, I think that there’s a war on Barack Obama’s economic soul going on now. So I think that if he listens to Paul Volcker, he listens to Warren Buffet, if he could listen to George Soros, Paul Krugman, I think he’d be in a lot better shape. I think he should turn to those people who like Buffet and Paul Volcker, formal head of the Fed, who did warn us about these dangers. Who was against, Warren Buffet, certainly a big capitalist, called these new financial instruments financial weapons of mass destruction. He predicted this nightmare. So I would certainly feel more comfortable is he was relying on them rather than on Robert Rubin or Lawrence Summers for his key picks.
Truthdig: Well we should say for the record, that this is a rumor; we are not certain who he’s going to pick.
Scheer: Yeah we’re not, and after all Barack Obama has stressed in this historic victory, and I do think this is historic, and should be applauded in every way, has said that he is going to be accountable o the people who put him in office and he’s going to be a real agent of change. Well it’s not change in any kind of positive direction to turn to the same cynics who got us into this mess. And certainly summers and Rubin are right in there.
Truthdig: Well we hope he doesn’t. Thank you.
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