Time to End the Reign of the Quartet: Yellen for Fed Chairman
I guess the case against Lawrence Summers to be Fed Chairman is pretty obvious. Today’s lead editorial in The New York Times endorses Janet Yellen to be the next Fed Chairman and uses many of the same arguments I have against elevating Mr. Summers to the position. If I hadn’t drafted the post a few days I might have just recommended that you read today’s Times editorial.
Some time during the tenure of the next Chairman, we are likely to have another financial crisis. Although our banking system has replenished its capital, thanks to taxpayers and the Fed, the big players in the industry are more concentrated than ever. The new regulatory framework being constructed out of the Dodd-Frank legislation is replete with exceptions and loopholes. At some point, the next Fed Chairman is going to confront some kind of crisis brought on by our failure to institute true reform.
Lawrence Summers comes from a long line of Democrats who planted the seeds of the credit bubble in the 1990s and then made sure that Wall Street and the banks were spared from fundamental change when the financial crisis hit. Mr. Summers is a member of a quartet of Democratic policymakers that includes Robert Rubin, Timothy Geithner, and Gene Sperling. After pushing financial deregulation in the Clinton Administration as Treasury Secretary, Mr. Rubin headed to Citicorp where he helped drive the bank to the brink of failure. Mr. Geithner learned his craft from Robert Rubin, went on to be President of the New York Fed as the bubble inflated, and presided over TARP, which saved Citicorp. Mr. Sperling is Executive Director of the National Economic Council, Mr. Summers’ position before he left the Obama Administration. Mr. Sperling, along with Mr. Summers, was the principal negotiator for the Clinton Administration of financial deregulation, known as Gramm-Leach-Bliley.
Mr. Summers is the fourth member of the quartet. In my mind, one of the best reasons for opposing his candidacy for Fed Chairman occurred back in 1998, when Brooksley Borne, President Clinton’s chairwoman of the Commodities Futures Trading Commission, proposed the regulation of the over-the-counter derivatives market. Messrs.’ Rubin and Summers were joined by Fed Chairman Alan Greenspan and SEC Chairman Arthur Levitt in eviscerating her proposal. We’d have been spared a great deal of financial pain if Ms. Borne’s proposal had been implemented. Instead, the quartet helped to push through legislation making it impossible for the CFTC to regulate a large portion of the derivatives market.
While Messrs.’ Greenspan and Levitt have expressed some regret over their role in turning Wall Street into a casino, Mr. Summers has largely stuck to his position. Given his shoddy treatment of Ms. Borne, it’s not surprising that he treated former FDIC Chairman Sheila Bair with disdain as she tried to reign in the banks in the aftermath of the financial crisis. We know what we’ll get with Mr. Summers, and I think we’ve had enough of it.
We’ve had twenty years of the policies and conduct orchestrated by the Rubin, Summers, Geithner, Sperling quartet. It is time to put this era completely in our past.