Nowhere is is the art of avoiding responsibility for one's actions so highly developed as in Washington, D.C. And in my 15 years of covering the nation's capital, I have seen no more masterful practitioner of this art than Larry Summers, Barack Obama's former chief economic advisor.
This is Summers' way of absolving himself for his serious misjudgments over the last three years under Obama--his failure to appreciate the dimensions of the economic crisis, to push for a large enough stimulus and a deep enough housing fix--and perhaps as well for the titanic errors he made in his previous incarnation as Bill Clinton's Treasury secretary, when he oversaw financial deregulation that set the stage for the worst collapse since the Great Depression.
We simply couldn't know what was going to happen, Summers is saying. Furthermore, "such recovery as we are enjoying is less a reflection of the natural resilience of the American economy than of the extraordinary steps that both fiscal and monetary policymakers" -- guys like me, that is-- have taken. So I'm good, yo. Summers then draws tightly around him the Olympian robes of a Harvard academic, urging Washington's benighted policymakers not to withdraw the economic medicine he so sagely administered.
Let's yank off those robes and reveal the hypocrite beneath. The one who dominated policy-making in Washington for some 10 years even though his actions often violated the spirit and conclusions of his own considerable body of academic work. As has been the case throughout his career, Summers was surrounded by high-level naysayers who urged him to take more dramatic action, who DID sense that the economy needed deeper fixes. He dismissed them at the time as stupider than him, and then later on pretended their advice didn't exist, as part of the cover-up.
Take housing; the underwater mortgage market is still the biggest drag on a still-deleveraging economy; yet the same administration that shoveled hundreds of billions to the Wall Streeters who had fraudulently sold all those mortgage-backed securities has had little sympathy for the mortgage holders who got shafted. My National Journal colleagues Stacy Kaper and Kristin Roberts, in an exhaustive account of just how timid and inadequate the administration's housing solutions were, write that Summers and Treasury Secretary Tim Geithner avoided what was desperately needed: a "cramdown," which would have allowed federal bankruptcy judges to force banks to reduce mortgage balances, cut interest rates, and lengthen the terms of loans to help borrowers get out of trouble. Even Obama's own housing secretary, Shaun Donovan, called it a "missed opportunity." But "Summers and Geithner didn’t try, according to numerous sources who were involved in the discussions," Kaper and Roberts write. "Instead, they sided and with the financial sector, and the administration went quiet as Wall Street pulled out all the stops to kill cramdown in the Senate."
Then there was the stimulus. As Noam Scheiber records in his new book, because of Summers' underhanded efforts to mute Christina Romer, the chairwoman of the Council of Economic Advisors, in the early debate, Obama was given the option of only a modestly sized stimulus and had "little reason to suspect that this amount was perhaps $1 trillion too small.” And Romer was hardly the only economist who dared to peer into the future and pronounce the stimulus inadequate; among those who did at the time were Joseph Stiglitz and Paul Krugman. Even Harvard's Ken Rogoff was saying well before the 2008 election just how bad things were going to get. And this was a guy who advised John McCain!
Nor has Summers ever owned up to his responsibility for deregulation in the 1990s. In an extraordinary TV interview in January, which Felix Salmon of Reuters and others have written about, Summers maintained precisely the same line he had previously taken with me and others: he couldn't see far enough over the horizon. The future was utterly unknowable. Summers said that when he sponsored the Commodity Futures Modernization Act in 2000 -- creating essentially a global laissez faire market in derivatives--credit default swaps hadn't even been invented yet. How could I have known what was to come? "If you want to assign responsibility, If you take a market that essentially didn’t exist in the 1990s, that grew for eight years from 2001 to 2008, and then brought on a major collapse, if you were looking to hold people responsible, you would look to… officials of the Bush Administration," he said.
In fact credit derivatives did exist, as Salmon writes, and
plenty of people were worried about them. In post-2008 interviews with me and others, Summers sought to recast himself as a pro-regulation man. But in 1998 Summers called then chairwoman of the Commodity Futures Trading Commission, Brooksley Born, and loudly ordered her to desist from a proposal for regulating "over the counter" derivatives. Born was eventually railroaded out of her job, and others, like Arthur Levitt, the chairman of the Securities and Exchange Commission during the Clinton years, felt badly about it. Levitt too had gone alone with the pillorying of Brooksley Born, but after the crash ten years later he told me: "All tragedies in life are always proceeded by warnings. We had a warning. It was Brooksley Born. We didn't listen to that." Levitt told other reporters they had made a mistake by quashing Born's ideas.
When Summers heard about such comments, he got upset with Levitt. Shortly after the November 2008 election, when Summers and Levitt were called into a meeting on the crisis with House Speaker Nancy Pelosi, the two of them were walking out of the conference room together when Summers quietly told him, "I read somewhere you were saying that maybe Brooksley Born was right. ... But you know she was really wrong," he said, according to someone who overheard the conversation, which Levitt later confirmed. "Her plan was no good. And we offered a different plan." In truth there had been no other plan, at least not one that anyone ever tried to enact.In Summers' solipsistic view of the world, he was on the right side, every time. But in the real world, the overwhelming body of evidence is against him. Every time.
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