Posts Tagged ‘robert rubin’

Big swinging deregulators

30 May 2009

timegreenspanetal

” ‘As Treasury secretary starting in 1999, [Larry Summers] shepherded a couple of bills that helped deregulate financial markets, and he has made it clear that he doesn’t buy the notion that these laws caused the financial crisis.” — David Leonhardt, New York Times, 25 November 2008 (more here)

In this weekend’s NYT Magazine, Summers’ old boss, Bill Clinton, takes full responsibility for the failure to regulate credit derivatives, those most opaque and easily abused of financial instruments.  We already knew that Summers, his predecessor Robert Rubin, and Fed Chairman Alan Greenspan backed the blanket exemption of credit derivatives from regulation.  What we did not know until this week, however, was just how much they regarded financial deregulation as a holy sacrament.  (OK, so we did know that about “Alan Shrugged” Greenspan.)

A Washington Post feature on Brooksley Born, the head of the Commodity Futures Trading Commission at the time, makes this plain.  In 1998 Born wrote a “concept paper” pondering the possible merits of derivatives regulation, prompting a circling of the wagons by Summers, Rubin, Greenspan, and Securities and Exchange Commission chairman Arthur Levitt:

‘In early 1998, Born’s plan to release her concept paper was turning into a showdown. Financial industry executives howled, streaming into her office to try to talk her out of it. Summers, then the deputy Treasury secretary, mounted a campaign against it, CFTC officials recalled.

‘”Larry Summers expressed himself several times, very strongly, that this was something we should back down from,” [Born aide Daniel] Waldman recalled.

‘In one call, Summers said, “I have 13 bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II,” recounted [Michael] Greenberger, a University of Maryland law school professor who was Born’s director of the Division of Trading and Markets.’

Cognitive capture, anyone?

The paper was released, and it didn’t cause a crisis.  Unregulated credit default swaps, on the other hand . . .

Mark Thoma has a synopsis of the Post story on Economist’s View.  (Hat tip: Baseline Scenario.)

(For a helpful primer on the rise and fall of the original BSDs, see Daniel Gross’s Slate column of 25 September 2008.)

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Obama’s economists, Part I

10 February 2009

This is a topic I’m sure I’ll be returning to many times.  Among my greatest post-election disappointments was Larry Summers’s comment that it was a misconception that deregulation was somehow responsible for the financial crisis.  Hello?  And I still don’t know what to think about Tim Geithner — New York Fed experience a big plus, accomplice role in flawed Paulson bank bailout and AIG handout a red flag (though the “just following orders” defense may apply here).  Clearly Geithner and the overall economic policy of the Obama Administration will be much more of a known quantity after 11 a.m. this morning when Geithner gets his “moment in the sun” to announce the new bailout plan.

In Sunday’s New York Times, Frank Rich, not for the first time, rips Obama’s economic team as pretty much the same Summers-Robert Rubin crew that rubber-stamped every major deregulatory initiative in sight, giving rise to behemoth too-big-to-fail banking conglomerates and unregulated credit default swaps.  A lot of it is familiar, but I’d missed this news item from last week.   Reports are that the great Paul Volcker, the former Federal Reserve chair who conquered double-digit inflation in the early ’80s and has been a voice of sanity in financial policy ever since, is being frozen out of policy discussions by Summers.  (This brings to mind Willem Buiter’s line that “adding Larry to a team is like putting a whale in an aquarium.”)  Now, the Economic Recovery Advisory Board that Obama set up and tapped Volcker to head is officially supposed to be an  independent voice, separate from the cabinet and Summers’s National Economic Council, so maybe the idea is to keep them separate and avoid a groupthink mentality.   But the word is that Volcker isn’t happy with his current treatment.   We’ll see what happens now that the Economic Recovery Advisory Board is finally up and running.

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