Last month, Bill Clinton told ABC News that his former Treasury Secretaries, Robert Rubin and Larry Summers, gave him wrong advice on derivatives, and that he was wrong to take it. Though Clinton quickly walked back the remark, it continues to reverberate around Washington. Today, on CNN, Fareed Zakaria asked Summers about Clinton's comment and whether he'd changed his mind about derivatives.
Summers responded by saying that, like Keynes, "when conditions change, I change my views," and he defended his record during the Clinton administration:
Credit default swaps were in their infancy in the 1990s. There was no large market in them, and yet we see how much damage they did. It's a very different kind of need that's been pointed out and why we've worked so hard to strengthen derivatives regulation.
To take just one example, we've seen what damage can be done by leveraging. In the 90s, as secretary of the Treasury, I warned about the dangers of the leverage associated with Fannie Mae and Freddie Mac. Those dangers have become more pervasive over the last 10 years. So I think there has always been a case, and one I have always tried to make, for regulation, but that case has certainly gotten stronger, given what has happened.