Poor Lawrence Summers, he doesn't get to be chairman of the Federal Reserve, aka the czar of the world's economic order. It would have been the penultimate reward for a career advanced by a string of stunning failures, but this time around some key senators needed to confirm the president's likely choice had the gumption to say they would not be fooled again.
Summers, who led the wrecking crew destroying the sensible regulation of the banking industry when he served as President Clinton's Treasury secretary, was inexplicably picked by President Obama as his top adviser on salvaging an economy that Summers had done so much to destroy. First off, Summers undermined the ever prescient Brooksley Born, head of the Commodity Futures Trading Commission, who had warned in a "concept release" that the trading in unregulated derivatives during the first five years of the Clinton administration was spiraling dangerously out of control. Not so, Summers said in Senate testimony on July 30,1998, attacking Born:
"In our view, the Release has cast the shadow of regulatory uncertainty over an otherwise thriving market -- raising risks for the stability and competitiveness of American derivative trading. We believe that it is quite important that the doubts be eliminated."
Eliminated they were, when Summers engineered Congress' passage of the Commodity Futures Modernization Act that Clinton signed into law, banning any and all government regulation of the over-the-counter derivatives market including the credit default swaps and collateralized debt obligations trading in housing mortgages that caused the greatest economic crisis since the Great Depression.
Summers' defense of banning regulation by any government agency and through the application of any existing law was:
"First, the parties to these kind of contracts 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. ... Second, given the nature of the underlying assets involved -- namely supplies of financial exchange and other financial interests -- there would seem to be little scope for market manipulation. ..."
Consider the astounding stupidity, or is it mendacity, of that statement and ponder why candidate and then President Obama picked Summers as his key economic adviser. The answer is that Summers had the confidence of Wall Street, where he was "earning" $8 million from consulting and speaking fees when he was recruited into the Obama campaign. It helped in making Obama the preferred choice of Wall Street contributors in the 2008 election campaign.