This is not change we can believe in. Not if Robert Rubin or his protégé, Lawrence Summers, get to call the shots on the economy in President-elect Barack Obama’s incoming administration. Both Clinton-era treasury secretaries deserve a great deal of the blame for the radical deregulation of the financial industry that has derailed the world economy. They both should, along with former Federal Reserve chief Alan Greenspan, perform rites of contrition and be kept at a safe distance from the leadership of our nation.
Yet Rubin and Summers are highly visible in the Obama transition team, with Summers widely touted as Obama’s pick for secretary of the treasury. New York Federal Reserve President Timothy Geithner, who also worked in the Treasury Department under Rubin and Summers, is the other leading candidate. But it was Summers who most vehemently pushed for congressional passage of that drastic deregulation measure, the Financial Services Modernization Act, which eliminated the New Deal barriers against mergers of commercial and investment banks as well as insurance companies and stockbrokers. Standing at his side as President Bill Clinton signed the legislation, Summers heralded it as “a major step forward to the 21st century”—and what a wonderful century it’s proving to be.
It was also Summers who worked in cahoots with Enron and banking lobbyists, and who backed Republican Sen. Phil Gramm’s Commodity Futures Modernization Act, which banned any effective government regulation of the newly unleashed derivatives market. The result was not only a temporary boon to Enron, which soon collapsed under its unbridled greed, but also to the entire Wall Street financial community.
The only opposition from within the Clinton administration came from Brooksley E. Born who, as head of the Commodity Futures Trading Commission, dared defy Summers and Rubin, as well as Greenspan. In frequent appearances before Congress, she warned that the burgeoning derivatives trading “threatens our economy without any federal agency knowing about it.” In reward for her prescience, Born, a highly regarded legal expert on derivatives, was treated to scornful attacks from the old boys’ network, led (again) by Rubin, Greenspan and Summers, who questioned her competency and insisted it was she who threatened the stability of the market.
That sexism, as well as stupidity and greed, might have played a role in the dismissal of Born’s concerns has been raised by some of Summers’ critics, who were still smarting even after his subsequent forced departure from Harvard University after disparaging women’s innate ability to grasp mathematics and science. “It was Larry Summers who called her up and screamed at her,” Amy Siskind, co-founder of the New Agenda, a women’s rights group that grew out of the Hillary Rodham Clinton presidential campaign, told the Boston Globe to support her view that Summers is a “known misogynist.”
Whatever the motives, Born was painfully right in her warnings and Summers was totally wrong in overseeing the passage of legislation that summarily prevented any government regulation of the debt instruments that have proved so disastrous. I don’t know if Born, now retired at 68, would be interested in the treasury secretary position, but she is certainly far more qualified than the other candidates under consideration.
Barring that possibility, why not go with Sheila Bair, the chair of the Federal Deposit Insurance Corporation, who has distinguished herself by proposing a sterling alternative example of how to deal with the banking collapse? It is Bair who has most forcefully advanced the goal, advocated by Obama in his recent “60 Minutes” interview, of putting homeowners before banks. Under her leadership, the FDIC has made sure that the insured banks, which it supervises and occasionally takes over, act to prevent foreclosures rather than using government handouts to finance new bank mergers.
On Tuesday, House Democrats led by Rep. Barney Frank, D-Mass, accused Treasury Secretary Henry Paulson of betraying congressional language authorizing the $700 billion bailout that specifically called for “mortgage foreclosure diminution.” Rep. Carolyn Maloney, D-N.Y., charged, “We’re basically funding mergers and acquisitions, not lending.” On Friday, Bair introduced a proposal to allocate $24.4 billion of the bailout specifically to modify loans to prevent 1.5 million foreclosures, but was opposed by Paulson.
Because Geithner and Summers support Paulson’s approach, Obama should reject them and pick Bair to give us the kind of change he’s been promising.
Robert Scheer is the author of a new book, “The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.”
AP photo / J. Scott Applewhite
Treasury Secretary Henry Paulson, center, addresses a gathering of corporate CEOs at an economic conference sponsored by The Wall Street Journal in Washington, D.C., on Monday. With him is Robert Thomson, left, editor in chief of Dow Jones & Co., and former Treasury Secretary Robert Rubin.