On Monday Obama named New York Federal Reserve Bank President Timothy Geithner to the post of the Treasury Secretary. Former Treasury Secretary under Clinton Lawrence Summers was named the Director of the National Economic Council in the White House.
Obama said again and again during the campaign that the crisis on Wall Street represented the culmination of an ideology of deregulation and laisse-faire trickle-down economics that had guided the country for the past eight years. The truth is, it was not just eight years, they guided them under Reagan and also under Clinton.
That is where Larry Summers comes in because he was the last treasury secretary under Clinton. He along with Alan Greenspan and Robert Rubin were the key architects of the policies of deregulation that created the crisis that we’re living now. And those key policies are the killing of Glass-Spiegel that allowed a series of very large but mergers that created these institutions that are too big and too intermingled to fail we’re told again and again.
The deliberate decision to keep the derivatives out of the reach of financial regulators- that was also a Summer’s decision. And also allowing the banks to carry these extraordinary levels of debt. 33 to 1 in the case of Bear Sterns.
Larry Summers in the context in which he says it was 1992 and it was when he was making World Bank economic policy as it related to Russia, in the midst of a financial crisis. What he said is truly an ideologue and a follower of the very ideology- not just a follower but a propagator of the very ideology that Obama ran his campaign against. And here’s the qoute. This is Larry Summers in 1992: “Spread the truth. The laws of economics are like the laws of engineering. One set of laws works everywhere.” And then he laid out those laws a little bit later.
He referred to the three “ations”, and those were privatization, stabilization, and liberalization. So he has been preaching the doctrine. He is by no means an innocent bystander. He is a dyed-in-the-wool privatizer, free trader. And he along with Tim Geithner, his deputy play key roles during the very important economic crises in other countries like Russia, Mexico etc, When these countries suffered profound econimic crisis created by the deregulations they preach more deregulations more privatization and economic austerity to disastrous results.
– Naomi Klein
He is not quite as pessimistic as Naomi Klein is because first of all, Obama is the president, and not Summers.
we have reality on our side in the sense there is a very serious crisis. And if Obama follows the advice of the 1990’s version of Larry Summers, he will be politically toast.
– Robert Kuttner
“On Monday, Geithner was busy executing the government’s massive rescue of Citicorp–the very banking behemoth that Geithner and Summers helped to create back in the Clinton years, along with Federal Reserve chairman Alan Greenspan and Robert Rubin, Clinton’s economics guru. Now Rubin is himself a Citicorp executive and his bank is now being saved by his old protégé (Geithner) with the taxpayers’ money. Geithner has been a central player in the deal-making, from Bear Stearns to AIG to Citi. The strategy has not only failed, it has arguably made things worse as savvy market players saw through the contradictions and rushed out to dump more bank stocks.”
– William Greider in The Nation
“Ultimately, Summers was one of the key architects of our financial crisis. Hiring him to fix the economy makes as much sense as appointing Paul Wolfowitz to oversee the Iraq withdrawal.”
– Mark Ames in The Nation
And the question is, whether Geithner and Summers in very different historical moments can turn into different kinds of people under the leadership of a president who knows his own survival depends on pursuing a recovery.
what Larry Summers did in Russia, under privatization that will be ruling Russia for the next hundred years. The key was to use public expenditure that would increase private wealth. What the plan is, from everything Obama has said, is that there is going to be a heavy government expenditure infrastructure here, very much like it was in Chicago, and this infrastructure is going to create huge real estate fortunes for the property along the line that in the vicinity of the location of the infrastructure. It’s going to create huge financial fortune.
Mass-transit and almost every country creates an increase in real estate values along the routes that could actually rental that is increased by this could actually finance the entire transport system. In London when they built the tube extension to their financial district of the loop, they created 13 billion pounds worth of increased in real estate value. The tube itself cost only $8 billion. They left this $13 billion real estate value in the hands of the private landlords. Same thing in Chicago in the US. It can be a very heavy investment in mass transportation here. This is going to create enormous real-estate values. The tax system, leaves these in private hands. All of the tax proposals that Mr. Obama have spoken about, have to do with income tax primarily. The rich people prefer not to earn income. They prefer to make capital gains. So the intention of the economic gain that Mr. Obama brought in is really to create a huge capital gains economy. Even more disparity of wealth while leaving in place the one thing that should address in the last year and that is the enormous debt overhead. Nothing is happening on that. He is adding to debt, not reducing it.
The kicker is when he is talking about, Obama is talking about tax, he is talking about income tax. Most wealth, is not taxed, because most wealth, takes the form of return capital gain, most wealth does not pay, if I see a wage if not others, so what Obama is talking about, well, is taxation at the margin. He is not talking about kind of wealth, and the kind of returns that Wall Street gets, which are not subject to taxation at all, in fact, the give aways, that the treasury put in to the bank available, says that because the banks are bought, affiliates that have cash, they are not even going to be subject of the income taxation. So the whole issue of the devils of detail of the small print and Mr. Obama, thanks to his appointing Summers in this aim, is going to leave it there. The Russian cryptnocrats didn’t have to tax on income, as the phrase went, only the little people pay taxes, I am afraid that’s going to be the case under Mr. Obama also.
– Robert Kuttner
Nancy Pelosi and that others are saying when you bring us the plan, maybe we’ll talk about giving you money. Do the banks have any plans with the money they’re getting?
No, and of course that’s what we should be doing. I think rather than throwing money at them we ought to probably nationalize one or two banks. That with the money taxpayers are putting into the bank’s does what money usually does in capitastic society, it produces ownerships. The amount of money taxpayers are putting into banks at this point is more than the total value of the stocks of these banks as valued by Wall Street.
Well if you’re putting in a majority share of the money, you should get a majority share of the ownership. If banks are too traumatized to resume lending, even with public money then if we had a publicly owned bank or two, we could show them how to do it. We could also have a complete look at their books, which we don’t now have. One question being asked about Tim Geithner is that if the Federal Reserve is the agency charged with examining bank holding companies and it was the strategy of Citigroup as a bank holding company, as shown in Sunday’s Time investigative piece, the strategy of the holding company was to do all of these exotic speculative investments.
Where was Tim Geithner at the Federal Reserve of New York which has the examiners that are supposed to be examining the bank at the holding company level. Why didn’t they get a look at the book? If we do not have tools to allow examiners to get inside to dig deep inside the plumbing and understand what dangerous risks bank speculators are taking, we need to do two things. We need to change the laws so the agency’s can have adequate supervisory power. The agencies need to use that adequate supervisory power. and in the meantime, we need to take this money and just nationalize a couple of banks outright. I completely agree with you that there is a double standard vis-a-vi the banks and vis-a-vi Detroit.
It is a little bit easier a few of the political will to just take over a bank that it is to take over an auto company. Because the question remains, even if we were to require the auto executives to come up with a plan for conversion to fuel efficient cars and fire the auto executives and get people who were competent and get public representatives on the company boards, you still love to come up with products consumers want to buy. And that has so far eluded Detroit. It has not eluded the Japanese competitors of Detroit. But, oddly enough, the recipe of how you fix a bank is somewhat easier than the recipe of how you fix an auto company. Stay away from these exotic financial instruments, get rid of conflicts of interest, have transparency. And we had the political will, it would not be that difficult to get the banking sector back on track. Detroit if anything is even harder. Pelosi is right to say that we don’t want to throw money at Detroit’s until we see the plan, but we ought be doing at least as much for the banking sector.
– Robert Kuttner
We are already seeing hesitation about the commitment to not renew the Bush tax cuts. Then there’s a huge fight over capital gains tax and the kinds of taxes paid by hedge funds.
Larry Summers is coming straight from a hedge fund. He’s managing director of one of the most secretive hedge funds (D.E. Shaw) around . So the real question is not whether they will spend taxpayer money, they will on infrastructure, but the point is will they just just rack up huge debt and deficits or will they actually pay for this with taxes on the wealthy, which is what they promised to do and what we’re seeing Gordon Brown begin to do in Britain. Because if they do not pay for this an equitable way, in a progressive way, then what will happen is this huge investment in infrastructure will create huge economic crisis down the road. It will be blamed on Obama. And then, there will be a wave of privatizations, these new investments in public spending. There will be a whole new bubble.
– Naomi Klein
Most infrastructure is built by states and localities. I do not think there will be privatization of this new infrastructure because right now, the states and localities are broke. here in New York city that have announced they’re cutting back on the Second Avenue subway, raising transport fares. All over the United States, municipalities are broke. The idea of bringing in Summers is to do this from the very beginning, with private funds that will be provided largely by the government itself. And if you look of the bailout money that has been given, yesterday Bloomberg calculated over 7.7 trillion dollars of just the government taking over from the financial sector this year. Of all of the 7.7 trillion dollars, what has not been done? One thing that has not been bailed out has been the pension benefit guaranty corporation They are already $25 billion in deficit. And Congress a few years ago passed a law that this year if they’re not fully funded, they are going to have to suddenly make up the entire shortfall. Which is essentially going to make many corporations insolvent for their pension funds. Forcing a shift away from guaranteed pensions to sort of whatever we have we’ll pay you. Standardize contributions, but not standardized payoffs. So there’s going to be an enormous squeeze on the kind of labor’s that is employed in states and municipalities, unions for infrastructure to essentially privatize from the beginning with government guarantees, government funds and it will be a bonanza for the banks and that’s out there they are going to earn their way out of debt. By lending to private funds instead of government funds.
– Michael Hudson
In 1996 General Motors introduced the EV-1 electric car in California and Arizona. Hundreds of the electric cars were soon on the road, then they all disappeared. The mystery behind their disappearance is the subject of this documentary “Who Killed the Electric Car?”
In this clip,
PETER HORTON: There’s nothing like driving a car when you realize as you are sitting in traffic there’s no pollution coming out of your tailpipe.
DAVID LETTERMAN: By driving an electric car, what are you sparing us from?
TOM HANKS: I’m saving America, Dave. That’s what I am doing, I am saving America by driving electric cars.
AMY GOODMAN: That was Tom Hanks speaking on the David Letterman Show. Despite the praise from drivers, General Motors stopped manufacturing the cars and forced all drivers to return their EV-1’s. GM was able to do this because none of the cars had actually been sold, only leased. After the electric cars were removed from the road they were sent to Arizona where they were crushed.
CHRIS PAINE: We flew over at General Motors and looking down, we could see right next to the racetrack where the EV-1 was first tested, we saw maybe 50 EV-1’s, crushed and put on top of semi flatbeds right next to the yellow crusher. General motors is almost finished off I think. I don’t imagine there’s many EV-1’s left that haven’t been crushed out. It’s pretty sad.
DAVE BARTHMUSS: There’s one of four things that will happen with the EV-1s. They will go to colleges and universities, engineering schools. They’ll go to museums and other displays across the country. Other EV-1 vehicles are being driven by our engineers and the other option for EV-1’s at the end of their life is recycling. But know that every part of the EV-1 is going to be recycled, dismantled through a third party and then reused. Everything is going to be recycled, we are not just going to crush it and send it off to a landfill.
JIM BOYD: When I saw the picture of the pile of crushed cars, it hurt and I, you know, I thought it was pretty spiteful.
IRIS OVSHINSKY: To see on the computer, on the internet, that the crushed EV-1s that GM did—it was tragic.
– Who Killed the Electric Car
That film is one of the most profound documentary’s of our time. GM was actually ahead of Toyota, and now working our way back towards a plug an electric car via modified hybrid, but they had the technology 12,14 years ago, you can’t make this stuff up. The patent for the battery that made possible the EV1 was bought by Exxonmobil just so it would never be utilized again. I think that is why in restructuring the auto industry, you have to get rid of the executives.
Its not just enough throw money at them. It gives you a sense of how profound the challenge is—just analogizing Bob Rubin for a second, in a country where market capitalism has as much power as it does in the U.S., whether the villain of the piece is GM or Robert Rubin and Citigroup, it is bigger than any one person, its a system you have to fight. It’s the mark of their power—residual power of the system. Even when the system as come to a crisis of its own making, and your president as attractive and intelligent as Barack Obama, the institutional practice to reappoint the same standards are overwhelming. It is only when Obama looks over the cliff of the failure of his own administration because he has not thought boldly enough, that he may change his plans and move in a more radical direction.
So far the direction whether its taxing rich people, he has moved and is disappointing. The same thing was true of the Roosevelt administration in the beginning. All you can do is hope the pressure from folks like us, ordinary people and social movements, and from the dire circumstances we face ,will push the ministration in a more progressive direction.
– Robert Kuttner
The point that Robert Kuttner made, the bottom line for that is the fatal alliance between the American auto industry and the oil industry. It was the auto industry that bought up public transportation in Los Angeles and other cities after the World War II, and tore it down some people would not have public transportation and would have to have oils to drive cars.
– Michael Hudson
when anybody comes looking for a long, whoever has the money has the leverage. We know that from the International Monetary Fund and you know that from your local bank. They set the conditions for that loan. When you look at deals that have been negotiated, not just by Henry Paulson, but also by Tim Geithner, you know hes the one that negotiated, really the key person on the JP Morgan-Bear Sterns deal. He was also central in the AIG deal. And what we see again and again, taxpayers have taken on enormous risks from these companies. But they have not been exerting control in terms of reregulating the sector as a whole. Because the sector as whole lining up for these equity deals, emergency loan.
When exactly is the Re-regulation going to happen? is there any conditions attached to these loans. This is the moment of high leverage. It is not just about firing the boss and seats on the board, it is about we re-regulating exactly what Larry Summers and Tim Geithner de-regulated under the Clinton administration. The real question is do these people have the humility to fix their own mistakes? My question is his Larry Summers’ ego too big to fail? These guys should not be promoted at this point. Their reputations should really be destroyed by their own track records.
All these people are constantly talking about how brilliant the art despite the dismal track record in this country and other countries in which they have meddled including South Korea and Russia.
The key issue here is Obama is coming to these decisions because he is under enormous pressure from above, Wall Street, how do you transition from a pro Obama campaign movement to an independent social movement that puts will counter-pressure on him from below? Those are the conditions under which Roosevelt sold the new deal as a compromise to elite. We do not have those dynamics right now. We have a situation where we have super-fans for Obama, constantly apologizing for every decision that he makes versus a gloves-off elite who are putting real pressure on him behind the scenes. And we are seeing the result.
– Naomi Klein
Discussion: Naomi Klein, Robert Kuttner, Michael Hudson
Naomi Klein, Investigative journalist and author of “The Shock Doctrine: The Rise of Disaster Capitalism.”
Robert Kuttner, Veteran economic journalist and the cofounder and coeditor of The American Prospect magazine. His latest book is called “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”
Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of “Super-Imperialism: The Economic Strategy of American Empire.” He is the chief economic adviser to Rep. Dennis Kucinich.
– from democracynow. 25 Nov 2008