The Banksters’ Master Irony: The Push for Summers and Geithner

The big banks are
desperate to prevent Janet Yellen from being appointed as Bernanke’s successor
to run the Fed.  Their sexist attacks have backfired.  On August 1,
2013, Deutsche Bank launched the single most absurd assertion to block Yellen’s
appointment.  Deutsche Bank wants Larry Summers, or better yet Timothy Geithner,
to (not) regulate them because not being regulated effectively is its highest
priority.
“To the extent that the
job has become much more international and with more regulation and supervision
within the new financial world order, that makes people such as Summers and
former Treasury Secretary Tim Geithner compelling candidates,” says Deutsche
Bank economist Joseph
Lavorgna.
Yellen vs.
Summers? Depends on Risks of New Financial Crisis
Deutsche Bank’s story is
that because President Obama has (purportedly) finally figured out that the
“international” aspects of “regulation and supervision” are important to the
“financial world order” he should appoint Summers or Geithner to Chair the
Fed.  It was at this juncture that I checked to see whether I had missed
the inauguration of a new tradition of outrageous “August Fool’s” jokes. 
I expected the next paragraph of the article to propose Bill Clinton’s as Chair
of the Marriage Fidelity Task Force and Todd Akin to head the “legitimate rape”
counseling center.  Summers and Geithner are among the greatest enemies of
effective regulation, supervision, and prosecutions of banksters in the world.
Deutsche Bank is a
systemically dangerous institution (SDI).  The SDIs’ only fear is
effective regulation and prosecution and they know that effective prosecution
will be vanishingly rare in the absence of effective regulation.  The
SDIs’ highest priority is to maximize the three “de’s”: deregulation,
desupervision, and de factodecriminalization. 
The SDIs have organized the effort to block Yellen from becoming Fed
Chairman.  They favor Summers and Geithner to run the Fed because they are
the leading proponents of the three “de’s.”
The Financial Crisis
Inquiry Commission (FCIC 2011: 199) documented that even within the
anti-regulatory travesty that was the overall Fed system the N.Y. Fed under
Timothy Geithner stood out for its recurrent regulatory failures at the SDIs it
was supposed to regulate.  Geithner infamously testified to Congress that
he was never a financial regulator.  I first learned of this while being
interviewed on Bill Moyers on
April 3, 2009.
WILLIAM K. BLACK: These are all people who
have failed. Paulson failed, Geithner failed. They were all promoted because
they failed, not because…
BILL MOYERS: What do you mean?
WILLIAM K. BLACK: Well, Geithner has, was one
of our nation’s top regulators, during the entire subprime scandal, that I just
described. He took absolutely no effective action. He gave no warning. He did
nothing in response to the FBI warning that there was an epidemic of fraud. All
this pig in the poke stuff happened under him. So, in his phrase about legacy
assets. Well he’s a failed legacy regulator.
BILL MOYERS: But he denies that he was a
regulator. Let me show you some of his testimony before Congress. Take a look
at this.
TIMOTHY GEITHNER: I’ve
never been a regulator, for better or worse. And I think you’re right to say
that we have to be very skeptical that regulation can solve all of these
problems. We have parts of our system that are overwhelmed by regulation.
Overwhelmed by
regulation! It wasn’t the absence of regulation that was the problem, it was
despite the presence of regulation you’ve got huge risks that build up.
WILLIAM K. BLACK: Well, he may be right that
he never regulated, but his job was to regulate. That was his mission
statement.
BILL MOYERS: As?
WILLIAM K. BLACK: As president of the Federal
Reserve Bank of New York, which is responsible for regulating most of the
largest bank holding companies in America. And he’s completely wrong that we
had too much regulation in some of these areas. I mean, he gives no details,
obviously. But that’s just plain wrong.
Geithner spoke the truth
when he said he had never been a regulator – but you’re not supposed to admit
it!  Geithner was such a failure as a regulator that he thought that the
fact that he had ignored his regulatory responsibilities when he was head of
the N.Y. Fed as the crisis was growing massively excused him from
responsibility for the crisis.  When I saw Geithner’s testimony I recalled
the words of a prominent director of an S&L that we (the regulators) sued
alleging that he had breached his fiduciary duties.  He told the press he
could not understand why we were suing him because he had not attended a single
meeting of the board of directors.
Geithner and Summers
shared a belief in “winning” the international regulatory “race to the bottom.”
 Like Geithner, Summers claimed that
the problem in finance was excessive regulation.
“Mr. Summers, as a senior
Treasury official in the late 1990s, played a leading role in the suppression
of an effort by the head of the Commodity Futures Trading Commission to
establish oversight of these customized derivatives [CDS], whose misuse already
had contributed to financial catastrophes, including the bankruptcy of Orange
County, Calif., and the collapse of a ballyhooed hedge fund, Long-Term Capital
Management.
At the time, Mr. Summers
emphasized that he wanted to maintain the status quo to preserve the stability
of domestic markets, and to avoid pushing the business overseas.”
Summers is one of the
most culpable officials in the world for the global crisis.  His
disastrous attempt to “win” the regulatory race to the bottom “to avoid pushing
the business overseas” created the regulatory black hole for financial
derivatives that helped create the criminogenic environment that drove the
crisis.  Summers was blasé about shipping American jobs overseas in every
industry except big finance.  When it came to the SDIs it was suddenly
essential that the SDIs remain located on Wall Street – where the U.S. Treasury
rather than the UK Treasury would have to bail them out when they failed.
Summers was a strong
proponent of repealing the Glass-Steagall Act that had helped prevent banking
crises for over 50 years.  Summers was a strong opponent of some of SEC
Chairman Levitt’s efforts to create effective regulation and helped to block
those vital reforms that helped lead to the epidemic of accounting control
fraud during the Enron-era.
Summers and Geithner were
frenzied supporters of the Basel II insanity that tried to eviscerate U.S.
banking capital requirements on the largely fraudulent mortgage assets that
drove the crisis.  If the FDIC’s tenacious rearguard battle against that
insanity had not prevailed our crisis would have been vastly worse. 
European banks, which operated under the fully eviscerated capital requirements
of Basel II, had roughly twice the leverage of the already vastly excessive
leverage of U.S. banks.  This is why the European banking crisis was often
markedly worse than our terrible crisis.
Summers was also a strong
proponent of the disastrous “reinventing
government” movement under Clinton and Al Gore that maximized the three
“de’s.”  I have explained in prior
columns how this movement maximized the three “de’s” and sowed the
seeds of the Enron-era crisis and the ongoing crisis.
The purported “savings”
that Gore attributed to “reinventing government” came overwhelmingly from
cutting the number of federal employees.  The financial regulatory
agencies suffered some of the deepest cuts under Gore.  The Bush
administration compounded that disastrous mistake.  Together, the Clinton
and Bush administrations cut the FDIC staff by more than three-quarters and
OTS’ staff by more than half.  This “saves” money in a manner similar to
not changing the oil in your car.  You cut your short-term expenses
modestly but you vastly increase your longer-term expenses when you blow out
the engine.  Summers (and Gore and Clinton) were lucky in their timing for
they epitomized the phrase that became infamous during the current crisis:
“I’ll be gone, you’ll be gone” (IBGYBG) (FCIC 2011: 8).  Summers was gone
before the Enron-era crisis exploded or the current crisis was generally
recognized as a crisis.  Summers was, however, Treasury Secretary when he
was warned in 2000 by the coalition of honest appraisers about the emerging
epidemic of appraisal fraud led by lenders who blacklisted honest appraisers in
order to extort appraisers to inflate their appraisals.  No honest lender
would ever inflate an appraisal.  The appraisers’ petition was the perfect
warning flag of “accounting control fraud,” but Summers and other senior
Clinton administration officials ignored the warning.
“From 2007 to 2007, a
coalition of appraisal organizations circulated and ultimately delivered to
Washington officials a public petition; signed by 11,000 appraisers and
including the name and address of each, it charged that lenders were pressuring
appraisers to place artificially high prices on properties. According to the
petition, lenders were “blacklisting honest appraisers” and instead assigning
business only to appraisers who would hit the desired price targets” (FCIC
2011: 18).
George Akerlof and Paul
Romer were consciously speaking to their fellow economists like Larry Summers
when they explained the critical link between the three “de’s,” epidemics of
accounting control fraud, and financial crises.  (Akerlof is Yellen’s
spouse.)
Neither the public nor
economists foresaw that the regulations of the 1980s were bound to produce
looting. Nor, unaware of the concept, could they have known how serious it
would be. Thus the regulators in the field who understood what was happening
from the beginning found lukewarm support, at best, for their cause. Now we
know better. If we learn from experience, history need not repeat itself” (p.
60).
Summers, however, ignored
the warnings and refused to learn from experience.  He maintained his
blind spots about regulation and elite fraud.  It was Harvard’s
disgraceful refusal to act under Summers’ leadership against one of the
university’s top economists that caused the faculty to revolt against his leadership
to become overwhelming.
Summers and Geithner
remained the SDI’s closest allies even after the current financial crisis began
and it was clear that their controlling officers’ frauds drove the crisis and
made them wealthy.  Summers and Geithner fought tenaciously to prevent the
elimination of the SDIs.  They remain too big to manage, too big to be
efficient, too big to regulate, too big to prosecute, and too big to
fail.  The SDIs received the largest bailouts and special grants of credit
from the Fed in world history.  Indeed, the U.S. bailouts and special
deals are so large that they exceed all previous bailouts in our history –
combined.  Summers and Geithner ensured that crony capitalism would
continue to reign after the crisis.  They fought against the re-adoption
of Glass-Steagall and the repeal of the Commodities Futures Modernization Act
in its entirety.  Summers and Geithner were bitter opponents of Sheila
Bair’s (none too radical) efforts to restore a modicum of financial regulation
when she was Chair of the FDIC.  In particular, Geithner blocked Bair’s
effort to force Citi’s CEO accountable for his myriad failures.
The most scathing peer
criticisms of the FRBNY’s abject failure as a supervisor under Geithner’s (non)
leadership were that the NY Fed consistently failed to take vigorous actions to
rein in Citi’s frauds, violations of the rules, and unsafe and unsound
practices (FCIC 2011: 199).
Many people make the
error of believing that the banksters are dull, humorless stiffs in gray
suits.  Many banksters have a finely developed sense of irony and utter
contempt for financial reporters’ intelligence and independence.  They
find it hilarious that they can tell the WSJ that the President should make Summers or
Geithner the next head of the Fed because the agency needs zealous supervisors
who are tougher than junk yard dogs – and the reporter will dutifully put the
farce into the paper as if it were a fact.
What the banksters reveal
is that their highest priority is to block Yellen so they can get a financial
high priest like Summers who will continue to venerate the “Greenspanke” creed
that has caused such harm to this Nation since Greenspan was appointed in 1987. 
That creed proclaims that banksters cannot exist because financial markets
automatically exclude fraud and that the great evil that must be eradicated
from the world is regulation.
This piece is
cross-posted from New Economic Perspectives with permission.

http://www.economonitor.com/blog/2013/08/the-banksters-master-irony-the-push-for-summers-and-geithner/