"Every dog deserves two bites" - Admiral Chester W. Nimitz
Has Larry Summers already had his "two bites"? I would argue that yes, he has, and that he doesn't deserve any more. First bite is his role in the economic crisis that began with the collapse of the housing bubble in late 2007:
Not only did Summers work tirelessly during his years in the Clinton Administration to undermine regulatory and prudential controls in our financial markets, but he joined Fed Chairman Alan Greenspan and his political sponsor, former Treasury Secretary Robert Rubin, and public-paragon Arthur Levitt, in smearing CFTC Chairman Brooksley Born so as to make the world safe for OTC derivatives.
"The moratorium was a huge victory for Wall Street," Robert Stowe England writes in his new book, Black Box Casino. "And a big win for Rubin, Summers, and Greenspan," though he rightly notes that Levitt later expressed regrets over his actions.
And as the economist Dean Baker puts it:
"Summers played a major role in creating the economic imbalances that fostered the housing bubble and explain the weakness of the economy right up to the present. This is the problem of the huge US trade deficit, which was in turn caused by the over-valued dollar."
Second bite was his taking part on the Obama Administration to try and correct his earlier errors. In December 2009, Summers was interviewed and:
Summers cheerfully explained to George Stephanopoulos that the U.S. has "walked back from the brink" following the 2008 economic collapse, and that "everyone agrees the recession is over and the question is what the pace of the [job and economic] expansion is going to be."
Summers' cheerful diagnosis was grossly premature as there was still, as of July 2013, an unemployment rate of 7.4%, a rate that the current Chairman of the Federal Reserve described as "far from satisfactory."
The case that Christina Romer made for a stimulus larger than the $787 billion that was ultimately passed was missing from the proposal that made its way to the President's desk.
At first, Summers gave her every indication that all three figures would appear in the memo he was sending the president-elect. But with less than twenty-four hours before the memo needed to be in Obama's hands, Summers informed her that he was inclined to strike the $1.2-trillion figure.
Summers' attitude was based on political calculations that may very well have been correct, but submitting the under-estimated proposal certainly robbed the proposal of much of the urgency that Romer quite properly felt that the President should feel. As we later saw, under-bidding was a poor political choice as the Obama Administration never got a second chance to go back and get more stimulus.
So, having made two failed bites, does Summers present any further problems as the nominee for Chairman of the Federal Reserve? Yes, as a matter of fact, he does. To begin with:
Summers is even less popular with Wall Street than he is with liberal bloggers and Democratic senators.
Former President Bill Clinton said about Summers and his advice on derivatives:
"On derivatives, yeah I think they were wrong and I think I was wrong to take [their advice] because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don't need any extra protection, and any extra transparency. The money they're putting up guarantees them transparency," Clinton told me.
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