For this Obama girl, my Obamania ended when the president appointed his economic team. Obama nominated Tim Geithner as secretary of the treasury, Larry Summers as head of the National Economic Council (NEC), and Mary Schapiro as chairman of the SEC. This is not CHANGE that we can believe in, but recycling that will fail.
Not only do I think that this group is not up to the job, but even worse they caused or, at the very least, did not prevent the economic problems that we are now facing when they were part of the Clinton administration. Summers and Geithner are acolytes of former Treasury Secretary Robert Rubin, whose previously stellar reputation as treasury secretary was shredded by his post-Treasury work at Citigroup. The nation’s largest bank went on life support under his watch. His gospel of Rubinomics, which calls for financial deregulation, has been discredited during this financial crisis.
Many consider Larry Summers a brilliant economist, but it was he as Clinton’s treasury secretary who pushed for passage of the Financial Services Modernization Act, the most sweeping overhaul of the financial industry since the Great Depression. This bill struck down the regulatory barriers between the merger of commercial and investments banks, and insurance companies and stock brokers. Basically, all those banks that are now too big to fail and are failing were created by Larry Summers.
In his unquenchable thirst for deregulation, Summers backed Senator Phil Gramm’s Commodity Future’s Trading Commission Act, which banned the regulation of the nascent credit derivatives market. These are the same financial instruments that Warren Buffett famously described as weapons of mass destruction and have since exploded.
Not everyone in the Clinton administration was enamored with credit derivatives. Brooksley Born, chairman of the Commodity Futures Trading Commission, testifying before Congress in 1997, said, “Credit derivatives threaten our regulated markets or, indeed, our economy without any federal agency knowing about it.” Some speculate that her advice went unheeded by the Three Musketeers — Greenspan, Rubin, and Summers — because she was a woman.
In my book, Summers is batting 0-2, so I am confused at why the man that detonated a financial Pearl Harbor on us should have another chance to wreck havoc. His defenders say that he has reformed and sees the error of his ways. In the same way that I would not put a reformed alcoholic in charge of a bar, I would not put a reformed deregulator like Summers in charge of a government that desperately needs regulation.
I would have preferred to see Nobel Prize winner and New York Times columnist Paul Krugman, New York University economics professor and professional doomsayer Nouriel Roubini, or former Federal Reserve Chairman Paul Volcker installed as head of the NEC. Dr. Roubini was one of the few to correctly predict this financial crisis.
Especially after the Madoff scandal, the general consensus in the financial and political circles is that the SEC needs to be completely overhauled. The SEC chairman nominee, Mary Schapiro, the consummate insider known for her affable, nonaggressive manner, does not have the stomach to be a flame thrower. She already served a six-year term as SEC commissioner and did very little to change the agency from within.
In her tenure as chairman of the Financial Industry Regulatory Authority (FINRA), Mary Schapiro also had the power to regulate Madoff. FINRA also failed to detect the fraud. So why would we put her as head of the SEC?
Ms. Schapiro has spent her entire regulatory career protecting the industry from the consumer instead of helping the consumer. As head of the Financial Industry Regulatory Authority, she administered the arbitration process by which investors are required to redress their grievances with brokerage firms. Evidence abounds that these tribunals are rigged against the consumer and she did nothing to correct this. The secretary of state of Massachusetts, William Galvin, testified before Congress that the arbitration process is “an industry sponsored damage-containment and control program masquerading as a juridical proceeding.”
Having worked with Secretary Galvin’s office on securities investigations and been amazed at the professionalism and thoroughness of his staff, he would have been my preferred candidate. Galvin’s office has aggressively stepped up and filled the void left by the SEC. Harry Markopolos, the hero of the Madoff saga, would be another highly qualified candidate. From 1999 and on, he tried to alert the SEC for no personal gain that Madoff Investments was most likely a Ponzi scheme.
Tim Geithner, president of the New York Federal Reserve, has been nominated as treasury secretary. He is a well respected civil servant who has never worked outside the government. Some are vexed that he has never been a trader, taken risk for a living, or had operational responsibilities at a bank, which limits his understanding of Wall Street. I believe that Larry Summers will be running the economic show from over at the White House, so I can’t get too excited either way about this appointment. His nonpayment of Social Security taxes is only a minor irritant because I do think that the tax law in that area is complicated.
An important responsibility of the treasury secretary is to sell the president’s economic program on Capital Hill and to the American public. Having watched Geithner take a drubbing from senators at a Congressional hearing after the Bear Stearns bailout makes me wonder if he is up to that part of the job.
My first choice for treasury secretary would have been the CEO of JP Morgan, Jamie Dimon. JP Morgan has adeptly dodged most of the bullets of this credit crisis and survived intact. Most of its competitors can not say the same thing. Republican Sheila Bair, chairman of the FDIC, would also have been an excellent choice. She has bucked the Bush administration by championing direct assistance to homeowners.
President Obama, it is time for real CHANGE.