Professor William Black does a Freddy Krueger on Larry Summers

No Mr. President, Larry Summers

Did Not Resolve the Financial Crisis

for a Pittance, He Just Papered Over the Problem

Professor William Black
Posted on Huffington Post
10/28/10

I passed up the obvious title: "Heckuva Job Larry!" That was the moment of President Obama's appearance on The Daily Show with Jon Stewart that set all Americans cringing. Yes, he really said that Summers "did a heckuva job." The candidate that was gifted the opportunity to run against the legacy of one of the worst presidents in U.S. history has, as president, used Bush as his role model to continue many disastrous policies. It was strangely fitting that he would channel Bush's infamous praise ("Heckuva job Brownie") for the FEMA chief who failed New Orleans so badly in the hurricane.

President Obama understandably wishes to focus attention on the economic disaster he inherited from President Bush. But Jon Stewart's question to him, which led to the president's gaffe, correctly asked about the message that Summers' appointment sent about the administration's commitment to fundamental change.

Summers had financial red ink on his hands at the time he was appointed. He was Rubin's chief minion in the successful effort to defeat effective financial regulation and supervision. (Yes, the effort was bipartisan and the Republican leadership shares in the guilt.) Summers was not simply wrong, but also arrogant and brutal, in blocking effective regulation at the SEC and the Commodity Futures Trading Commission. Summers was made rich by Wall Street in one of those sordid consulting arrangements designed to buy influence and reward past and future favors.

President Obama's appointment of Summers as his chief economic advisor made the administration's overall response to the crisis predictable. (Robert Kuttner gives a detailed explanation of the policies that Rubin's protégés championed in his new book, A Presidency in Peril.) The response would follow the disastrous Japanese model that has harmed their economy and damaged their integrity. The dominant characteristics can be summarized quickly: (1) the government would act for the benefit of the largest financial firms and their CEOs, even when they directed massive frauds, by (2) engineering a cover up of the banks' losses and the CEO's misconduct; (3) the administration would use the fictional reports generated to conduct the cover up to declare victory (due to their brilliance); and (4) the same strategy would impair the recovery. 

The strategy was also an assault on integrity, the rule of law, and the core precepts of the Obama campaign for president. This is why we warned from the beginning that the cover up could enrage the nation and make him a one-term president.

Creating fictional numbers and hiding losses at the Fed doesn't

reduce losses. Unfortunately, it increases real losses.

First, it leaves the looters in charge, lets them pay themselves enormous bonuses, and lets them cause greater losses.

Second, accounting cover ups prevent markets from clearing. That prolongs the recession. Japan shows how severe this problem can become.

Third, integrity is important. I really shouldn't have to explain this. It depresses me that I have to argue that it is wrong to lie. Our democracy, our economy, our society, and our souls depend on restoring our integrity and the rule of law.

Randy Wray and I have proposed a step that would demonstrate the president's complete repudiation of Summers' strategy and a return to the rule of law: Place Bank of America in receivership for its tens of billions of dollars in fraudulent loans and its multitude of foreclosure frauds. Don't talk about doing the right thing -- do it -- and do it to a major contributor. Don't do it because it's a contributor, but because a bank that commits tens of thousands of frauds should immediately be placed in receivership.  Click here as Professor Black has more to say