AP / Charles Dharapak
When will the president give Lawrence Summers his pink slip? He can thank him for his years of service and use the excuse that his top economic adviser wants to spend more time with his family. I don't care how he sugarcoats it. But Summers deserves the same fate as the millions of workers laid off because of the banking debacle he helped cause, the dire consequences of which he has done precious little to mitigate.
It was Summers who, as treasury secretary in the Clinton administration, pushed through the Commodity Futures Modernization Act, which opened the floodgates to the toxic mortgage-backed derivatives that still haunt the economy. The Federal Reserve now holds $2 trillion in junk securities it took off the books of banks. But the financiers who packed those devilish derivatives still hold a huge amount, and the houses they unload every time the housing market shows faint signs of stabilizing keep the economy in the doldrums.
The bane of our economic security now and well into the future is those collections of mortgages--the nest eggs and castles of 14 million families--now underwater or already foreclosed. Newfangled derivatives that were exempted from any regulation, and removed from the purview of any regulatory agency, by the law that Summers got President Bill Clinton to sign off on. Summers claimed that the suggestion of the prescient Brooksley Born, who headed the futures regulatory agency, to rein in those scams would have killed the golden goose of a derivatives market which, thanks to Summers, was allowed to run wild. He offered the following reasoning in congressional testimony supporting a ban on derivatives regulation:
"First, the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counter-party insolvencies." Second, given the nature of the underlying assets involved--namely supplies of financial exchange and other financial instruments--there would seem to be little scope for market manipulation."
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