Knocking down firewalls
The return of James Carville
“Not to be absolutely certain is, I think, one of the essential things in rationality."
Bertrand Russell, “Am I An Atheist Or An Agnostic?”
This is just too good
“Fed policy specifically has created the biggest wealth gap in the history of our country, and the haves continue to do extraordinarily well, and the have-nots continue to get f*****, which is a word I'm choosing to use, and I have said it repeatedly, that this chasm just continues to get wider, and to a large extent the Fed has been the problem. When you lower rates - you know who wins? The people that own shit, not the people that are basically trying to play by the book. Who gets screwed when inflation starts to get out of control? Not the people that own shit. They think it's a joke. It's the people again on the lower end. They get it on the way in and they get it on the way out.”
A very prescient warning about the repeal of Glass-Steagall, 1999:
Americans are unaware that Congress and the president have just agreed to put us all at extraordinary financial and personal risk.
Senate Banking Chairman Phil Gramm has struck a deal with Clinton Treasury Secretary Lawrence Summers to knock down all fire walls between banks, insurance companies and brokerage houses. Global financiers are given the green light for ever-greater concentrations of power.
Few remember the reason for those fire walls: to curtail the spread of the sort of panic from one financial segment to another that helped lead to the Great Depression. But today's lust for global giantism has swept aside the voices of prudence; generous financial lobbies have persuaded our leaders that in enormous size there is strength…
Senate Banking Chairman Phil Gramm has struck a deal with Clinton Treasury Secretary Lawrence Summers to knock down all fire walls between banks, insurance companies and brokerage houses. Global financiers are given the green light for ever-greater concentrations of power.
Getting the band back together I see:
Larry Summers is a Systemic Risk
“Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.
After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department—where he championed the law that made Citigroup’s creation legal—became both vice chairman of Citigroup and a powerful member of Harvard’s governing board.
Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency.
During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)
Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings.
In 2005, at the annual Jackson Hole, Wyo., conference of the world’s leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people’s money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a “full-blown financial crisis” and a “catastrophic meltdown.”
When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a “Luddite,” dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)
Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work.”
The Gramms became a wholly owned subsidiary of Enron Corp.
Dangerous or not, [Wendy] Gramm had done what Enron wanted. And on March 1, 1993, Gramm joined the Enron board, a job that would eventually pay her a total of about $1 million in salary, attendance fees, stock option sales, and dividends.
When asked by the Dallas Morning News about Wendy Gramm's dash for cash between government and the plush carpets of Enron's fiftieth-floor board room, Lay answered a question with a question: "These people that raise these issues, what do they expect these people to do, leave government and go in a monastery or something?"
Wendy Gramm definitely didn't go into a monastery. Instead, she and her husband, Republican U.S. senator Phil Gramm, began feeding at the Enron trough. In the 1993 election cycle, after Wendy Gramm began serving on Enron's board, the company gave more than $25,000 to Phil Gramm's political campaign, and within a few years, Enron had become the arch-conservative's top corporate contributor. Ken Lay would even go on to serve as regional chair of Gramm's failed 1996 bid for the White House.
The Gramms became a wholly owned subsidiary of Enron Corp.
"The certainties of one age are the problems of the next."
- Richard H. Tawney, Religion and the Rise of Capitalism, 1926
Fed Dependence
Quite a Murderer's Row here, including Ben's future employer Ken Griffin, whom Bernanke was interning with at the time:
"...it is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions."
Citadel Intern Ben Bernanke, October 15, 2007
"I love how the rest of us are expected to stop taking airplanes and start eating insect brownies and imitation meat, but these guys are free to melt 50 glaciers just to check out the views from space." - Demetri Kofinas
Keep reading with a 7-day free trial
Subscribe to A Havenstein Moment. to keep reading this post and get 7 days of free access to the full post archives.