For several weeks the media has been hinting of a problem within the Obama administration on economic policy. Last Monday, March 23, as Treasury Secretary Tim Geithner unveiled the latest phase of the biggest bailout swindle in history, it was announced that President Obama’s popularity had plummeted from a high of 78%, which he enjoyed in the days following his inauguration, to just under 50%. In fact, during the course of last week alone, the President’s approval rating dropped by more than 13%!
As last week progressed, it became apparent that there was a cataclysmic split inside the administration. While a clearly hoodwinked President Obama was persuaded by Summers and his backers that the way to solve the worst financial and monetary crisis in modern history was to turn over the keys to the banking system — at taxpayers’ expense — to a bunch of hedge fund thieves, saner voices echoed the policies outlined by LaRouche for the past two year.
A group of prominent and accomplished economists, most notably Texas economics professor and noted author James Galbraith (who is the son of Franklin D. Roosevelt’s and John F. Kennedy’s economic adviser, John Kenneth Galbraith) and Nobel Laureate Paul Krugman, insisted that not only would the latest (and worst) of the bailout schemes not work, but that in fact, it would serve to make things much worse. They argued instead for the solution employed by FDR; the same solution that Lyndon LaRouche put on the table almost two years ago – to save the U.S. banking system by reorganizing it under bankruptcy protection.
Former Federal Reserve Chairman Paul Volcker, who heads the President’s Economic Recovery Advisory Board, during a speech in New York City, was even more emphatic on a point he has addressed before: that the current system absolutely had to be reorganized, and reorganized in a Glass-Steagall framework. In the March 27th edition of the New York Times, Krugman wrote that top Obama officials (Larry Summers) “still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic….But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks.”
Apparently, Summers threw a noisy fit and told the President that he wasn’t going to continue to play in the same choir as Volcker. Unfortunately, President Obama has been brainwashed into believing that in order for him to begin to solve the disaster he inherited from the Bush administration, that he needs the support of the very Wall Street thieves who are largely responsible for this latest phase of the collapse, and that Larry Summers is critical to winning that support for him.
So, on March 25th, OMB Director Peter Orszag announced that President Obama was putting Mr. Volcker in charge of a tax-code review aimed at closing loopholes and generating revenue. Orszag said the review, given a deadline of December 4th, was being ordered to make recommendations on steps to simplify the code, built over the last 96 years, in ways that would reduce tax evasion and what he called “corporate welfare.”
There was no mistaking what had occurred. Right after Volcker disagreed with Summers over not only the timing of regulatory reform, but the core question of the necessity of bringing back Glass-Steagall, which Summers personally worked to wreck in 1999, he was being sent off to go work on taxes for the rest of the year. Obama’s choice was not only wrong, but fatal to his presidency. Despite Volcker’s many problems, he is one of the few economic thinkers in the U.S., and the only such person inside the Obama administration, who has the stature to credibly oppose Larry Summers’ economic insanity.
This past Friday President Obama and his economic team led by Larry Summers met with the leading dozen top bankers to discuss the global financial/economic breakdown crisis. After the meeting, Larry Summers asserted that “the country’s major financial institutions have a major role to play” in solving the crisis. Senior advisor Valerie Jarrett was even more to the point: “We’re reliant upon them to help rebuild our economy.” The press reports all emphasize that the participants agreed that “we’re all in this together” and on “the need to update the framework of regulation.”
But the bankers went out of their way to emphasize their hostility to any regulation that even smells of Glass-Steagall. Lloyd Blankfein, the CEO of Goldman Sachs, delivered the message. According to Bloomberg, at the White House meeting there were “different prescriptions for new rules. Proposals to bring back Depression-era regulations separating investment banking from commercial banking would be difficult to resurrect, Blankfein said. `It’s hard to turn back the clock on the rules, known as the Glass-Steagall Act.” The bankers’ threat was clear – whatever the consequences (hyper-inflation), government must continue to “bail us out”. As Galbraith wrote last Thursday, “Once rescued, the banks will just sit there, immune from being declared bankrupt.”
So why is not President Obama putting them under FDIC receivership? Glabraith said, “The political influence of big banks is very great.”
It should be noted that in December 1991, when Summers served as Chief Economist for the World Bank, a memo that he wrote was leaked to the press. In the internal memo, which clearly was not intended for the public, Summers cynically suggested that “I think the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that…I’ve always thought that under-populated countries in Africa are also vastly under-polluted.”
In 1993, Summers was Undersecretary for International Affairs. In that post, he promoted genocidal shock therapy against the Russians, demanded an expansion of the power of the IMF (like his demand today that the IMF be the world’s financial police on behalf of a One World Government), demanded increased deregulation by the Japanese (in 1997), and brags about his role in forcing the Korean government to raise its interest rates and balance its budget in the midst of a horrible economic crisis, a policy sharply criticized at the time by two Nobel Laureates, Paul Krugman and Joseph Stiglitz. At the same time, according to Paul Blustein, Summers, along with Paul Wolfowitz, tried to convince the Clinton administration to effect “a regime change” in Indonesia.
But all of this was nothing in comparison to the pain and damage he inflicted on the United States once he became Treasury Secretary. During the California energy crisis of 2000, the Treasury Secretary Summers teamed up with Federal Reserve Chairman Alan Greenspan and Enron Chief Executive Kenneth Lay to, as they say; let California Governor Gray Davis “get the sense”, lecturing him that the cause of the crisis was excessive government regulation. Summers bullied Davis into further deregulating California’s utilities and relaxing California’s environmental standards in order to “reassure the markets.”
However, nothing was more damaging to the nations of the world and did more to cause this current breakdown crisis than the wrecking operation Summers led against any and all forms of financial regulation. As Treasury Secretary, Summers played the key and decisive role in convincing Congress and the Clinton White House to do what had been attempted (and which fortunately also failed) more than 12 times in 25 years: the repeal of the Glass Steagall Act, which had been enacted in 1933 after the Pecora Commission brought together popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock market crash of 1929. Immediately after taking over as Treasury Secretary, when the administration, and especially the President, was distracted by Monica, Summers launched a relentless lobbying effort to pass the Gramm-Leach-Bileley Act, which repealed key portions of Glass-Steagall and allowed commercial banks to get into the mortgage-backed securities and collateralized debt obligations game. The measure also created an oversight disaster, with supervision of banking conglomerates now split among a host of different government agencies – agencies that more often than not failed to let each other know what they were doing and what they were uncovering.
Another dirty little secret about Summers’ time as Treasury Secretary was the role he played in torpedoing any regulation of derivatives trading and the repeal of the Bucket Shop Act. Just prior to moving up to the post of Treasury Secretary, Summers became a strong advocate inside the Clinton administration for what was nothing less than a time bomb — Phil Gramm’s other measure that let these banking-conglomerates-in-the-making create and trade derivatives without regulation.
According to the New York Times, during a 1998 US Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street! “The parties to these kinds of contract,” he said, “are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws.” He continued to defend over-the-counter derivatives and block all moves to regulate them up through the year 2000, calling them “an important component of the American capital markets and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today.”
Even more damning, though, was an Op-Ed by Summers that appeared in the New York Times on November 19, 2006. In that piece, written upon the death of radical monetarist economist Milton Friedman, Summers makes the startling revelation that Friedman was “his hero.” In the piece, which he entitled “The Great Liberator,” Summers argues that “any honest Democrat will admit that we are now all Friedmanites,” writing that Friedman not only made enormous contributions to monetary policy, but even greater contributions “in convincing people of the importance of allowing free markets to operate unencumbered.”
Is it little wonder, then, that an increasing number of economists and Democrats believe that President Obama is, as Oregon Democratic Representative Peter DeFazio has stated, “ill-advised by Larry Summers?” In late January 2009, as the Obama administration tried to pass their stimulus bill, DeFazio, along with economists including James Galbraith, Paul Krugman, and Joseph Stiglitz, argued that more of the stimulus money should be spent on much needed infrastructure projects. Defazio stated that he wasn’t surprised that Summers favored funding more tax cuts over infrastructure. “Larry Summers HATES infrastructure,” he said. “(He) was very much part of creating the problem, now they’re going to solve the problem? And they don’t like infrastructure. So they want to have a consumer driven recovery. We need an investment and productivity driven recovery for this country – a long term recovery. Instead of borrowing from future generations, we should invest in future generations and Larry is pretty much on record as being anti-infrastructure….”
Yet, it is this man who right now has the ear of a President who campaigned on the need to overhaul and re-regulate the United States’ financial and banking system, who wants to pass a sweeping social agenda, who says he wishes to be known as the President who initiated the construction of a continental high-speed, maglev transportation system and who led the United States out of the greatest economic crisis in its history. For all our sakes we hope and pray that President Obama dumps Larry Summers very quickly.