The week opened nicely with news that Lawrence Summers had taken his name out of the running for the Federal Reserve chairman job. We won't be subjected to the notoriously unpleasant Summers denigrating those who would distinguish between Wall Street's interests and the country's. Still more gratifying is that Democrats, and not just the liberal ones, put the kibosh on President Obama's mystifying desire to put this Wall Street-Washington hybrid in charge of our central banking system.
Sen. Jon Tester, moderate Democrat from Montana, thank you for pulling the plug. Not that President Obama consulted Tester, even though he sits on the Senate Banking Committee. The White House found out on Friday that Tester would not support Summers' nomination after some enterprising staffer thought to call him and ask. Tester apparently felt that as a creature of Wall Street, Summers would be insensitive to the needs of community banks serving Main Street.
Obama issued an inexplicable tribute to Summers' alleged rescue of the U.S. economy. "Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression," Obama's statement read, "and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today."
Another view is that Summers was one of the reasons for the worst economic crisis since the Great Depression.
As an adviser to President Clinton, he helped block regulation of the derivatives market. Fortunes were made in the speculation that ensued. Then the market collapsed and, with it, much of the economy.
In 1996, the Treasury was about to release a report suggesting that Fannie Mae and Freddie Mac be privatized — that is, an end to the implied taxpayer guarantee of the mortgage giants' securities. Then-Deputy Treasury Secretary Summers basically forced the Treasury's economists to rewrite the report. You see, his boss, Robert Rubin, was a pal of Jim Johnson's, the Fannie Mae CEOmaking many millions off the sweet ability to push his risk onto the taxpayers.
"Nobody has bullied me in my adult life the way that Larry did on this one," a Treasury staffer told Gretchen Morgenson, reporting for her book "Reckless Endangerment."
Fannie Mae jumped into the subprime mortgage frenzy. Twelve years later, it had to be saved with a massive taxpayer bailout.
Elevated to Treasury secretary in 1999, Summers cleared the road for the coming economic debacle by helping strike down Glass-Steagall, the Depression-era law forbidding commercial banks to engage in the investment business. He and others celebrated with Champagne and a cake inscribed "Glass-Steagall, R.I.P. 1933-1999."
At the time, an opponent of the change, then-Sen. Byron Dorgan, Democrat of North Dakota, offered this warning: "I think we will look back in 10 years' time and say we should not have done this, but we did because we forgot the lessons of the past and that that which is true in the 1930s is true in 2010."
Dorgan's prediction was off by just two years. "The worst economic crisis since the Great Depression" started in 2007.
Of late, Summers has been busily scooping up millions on Wall Street. He consults for Citigroup and a huge hedge fund and serves on numerous boards. One of them, the Lending Club, links online investors to borrowers, a clever means of evading regulations. He gives speeches at six figures a pop.
His price may fall a bit, now that he won't be Fed chair, but he's doing fine. As for us, let's be glad that Larry Summers is out of the running. Any cake and Champagne left?
(A member of the Providence Journal editorial board, Froma Harrop writes a nationally syndicated column from that city. She has written for such diverse publications as The New York Times, Harper's Bazaar and Institutional Investor.)