Change We Can Bank On

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 stock brokers. 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 (FDIC), 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 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 Treasury Secretary Henry 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."

Comments

[DeeDelacroix]

Thank you Robert Scheer
I am profoundly disappointed that Obama seems all but certain to pick Geithner to head Treasury. This is NOT the change I worked for in the campaign, and as far as I can see, no one is calling him on it. Same old, same old.

[DMcMillan]

And as far Warren Buffet goes, I have great respect for him, but I doubt he will have a come to jesus with himself and recommend what is right for the American people. God love him, but he does what is right for his investments and I don't want him anywhere near the American tax payer dollar.

[mjc]

Great heads up about Obama's appointments. No way should any of the disciples of Paulson or perhaps any Bush appointment EXCEPT Bair who has her head correctly screwed on and is not going to follow the Bush disasters at Treasury. It is quite clear that the inexperienced Obama is too cautious to add those to his Cabinet and elsewhere who haven't had lots of experience under either Bush or Clinton. Deregulation is largely responsible for the credit crunch and the sub prime mortgage failures and Sommers and Rubin, all disciples of Greenspan. Ayn Rand wrote good novels but they are not prescriptions for running an economy or societal goals. The financial system we have adopted CANNOT govern themselves and protect US from greed. CanuckChompsky..., not sure Krugman would take the job and he is damn good as watchdog, but I can sure see Bair as the choice. I am more than nervous about Obama's choices: disappointed would serve, except I was never sure what to expect from Obama. It sure doesn't look like change we can believe in, though.

[CanuckChomsky]

I promise this'll be my last one for today. Perhaps living in Canada has made be unusually biased and smug, but our public healthcare system is not "evil" or "Communistic" or even "Socialist". Up here it's about peace of mind. True, our taxes are higher, but our costs are lower - 2-3 times lower than in the United States. There are no greedy, middlemen insurance companies. No one has to take out their credit card or be worried that they will go bankrupt to pay for an expensive surgery. Pre-existing conditions don't properly exist either. You are treated based on your need, for example, a heart attack victim before a broken arm. You can choose your own doctor (GP). Doctor's unions negotiate with the federal and provincial governments for fees based on the type and number of treatments given. Doctors are not impoverished. See Sicko for more information, whether you like Michael Moore or not.
We do have waiting lines for SOME procedures and these vary from province to province. This is due to an obssession - a manufactured one in the early 1990's - that Canada needed to tighten its belt and cut back on services or face a loss of foreign investment & a poor credit rating internationally. Healthcare was gutted. Funding has slowly been restored in the past few years, as the issue has been a central one to recent election campaigns. Whew! That's all for now. Ciao, from the Great White North.

[CanuckChomsky]

Oh - and now my main point for posting a comment in the first place...Obama should appoint Paul Krugman as his Treasury Secretary. Why? The free market - for now - has been dealt a harsh blow to its omniscient (even prescient) image. It's time for more "bold experimentation" to reverse an ugly recession on the verge of becoming much worse. Having taught for several years at Princeton University, no senator could argue with his credentials. And, of course, there is the little matter of the Nobel Prize...Barack Obama has an incredible opportunity to reaffirm his commitment to undoing the pervasive trickle-down philosophy and yes, despite John McCain's (and other conservatives') arrogant sneers "spread the wealth". There is another reason (aside from the deplorable institutional racism) the Fifties' are regarded by many Americans as a good place to be - prosperity was widespread. Working two or three jobs to support a family was, if not non-existent, rare. College (university up here in Canada) was not as much of an out of reach place for the middle class.

[CanuckChomsky]

I'm no economist. I have, however, read several tomes concerning the free market and its proponents.
It's assumed in "polite conversation" that there are only two possibilities for governing an economy: either a complete innovation and efficiency-stifling command economy or an unrestrained bust and boom economy with no government "interference" ie. the social safety net. How can we have only TWO CHOICES? - In a democracy? Have we already run out of ideas? Is our creativity sapped? FDR used a third option to bring the United States out of the Great Depression (albeit World War Two was a big help). He used John Maynard keynes' priming the pump philosophy. The idea being that governments AND societies are better off with steady growth than an evaporation of credit for perspective homeowners, for example. Inflation doesn't need to be squashed - just kept at a reasonable level - say 4-5%. People would rather have a job than not!

[JMBrodie]

The man is playing chess. Obama takes the stars from Congress and replaces them with the young up and comers. Overnight, Congress gets younger and more progressive.

Genius.

[knosiswar]

Bob, would you or someone you know take on the unrealistic oversimplification of human nature presented by Ayn Rand and her shallow understanding of the power in politics and how that power has been wielded efficiently since the pharaohs and Etruscans by a small group of families. Ayn Rand presents a 'withdrawn from society' way of rationalizing the individual as the ultimate focus of achievement. But, while some of us may live on islands in our mind, we exist, in reality, in a co-dependent society. Ayn Rand's brand of individualism and cynicism hides behind the high-minded ideals of personal responsibility and individual potential, but it misses reality, in that people do better and achieve greater outcomes as a unit. Individuality is not superior to community for gains in society. If that were the case, we would still be hunters and gatherers, and caring more for the individual in Ayn Rand"s Ultimate Competition, we should summarily kill each other when the other threatens my food supply, so that I may eat and make myself happy, and to hell with anybody else. In Ayn Rand"s Objectivism, there seems to be lacking the root of real value for human life, because it says nothing of 'what can I do for another'. If Human life is valuable, then it is equally valuable in others, and should be understood that our best opportunities are when we create opportunities for others, and that's the foundation on which a successful society will exist.

[ObjectiveRealist]

Informative. I hope he'll choose Brooksley.

[Pendragon2008]

Honestly out of the "short list", Geithner and Summers should be at the bottom, if not on the list at all.

Out of all of those speculated to be in the running, the person I'd most like to see take the job would be Jon Corzine. (http://en.wikipedia.org/wiki/Jon_Corzine) He's the least politicized choice, and doesn't radiate the "I have more money than God, and you don't" vibes that we've been seeing out of Wall Street lately. Short of him being appointed, I'd rather see Paul Volcker called back to duty (http://en.wikipedia.org/wiki/Paul_Volcker).

[Dr Eames]

Great article. I don't suppose it will be read by Obama though. Here's hoping one of his transition team is a fan of your writing.

[JohnFromCensornati]

Could be that Obama knows who is really running the show. When we're handing over $700 billion to the banks, it seems fairly obvious.

[MasterX]

As always, Bob, you are right on the money! As I watch the people Obama is surrounding himself with, I am becoming more and more nervous (I won't yet use the word "disappointed").

Keep up the good work.