tisdag 12 oktober 2010

The Wall Street - vita huset-nexus: exemplet Summers

"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 Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector.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.)"
Charles Ferguson, "Larry Summers and the Subversion of Economics", Chronicle of Higher Education, 3 oktober

Mer ekonomdebatt - med Brad DeLong, Justin Fox med flera - om Summers som exempel på ekonomer, deras kopplingar och incitament: Felix Salmon, "Summers's incentives", 2 november.

DeLong kritiserar begreppet "intellectually captured" som beskrivning av Summers: "Neoliberal Economists Agonistes", 12 november.

Raghuram Rajan intervjuas 2 nov av FT om hans policyförslag för att fixa ekonomin, och han förespråkar bland annat generösare arbetslöshets- och socialförsäkringar, och att "end the 'cognitive capture' of US government by the private financial sector, by recruiting talent from outside of Wall Street and Washington."
Andrew Hill, "The optimistic doomsayer", FT 2 november

UPPDATERING 18 mars 2011
FT konstaterar i förrgår sarkastiskt att vi fått ett nytt exempel på den "revolving door"-koppling mellan Washingtons reglerare och de branscher som reglerarna ska reglera, som Obama i retoriken motsatte sig innan han blev vald. Nu är det David Stevens som avgått från Federal Housing Administration och nu ska börja jobba som chef för lobbyistgruppen Mortgage Bankers Association.
Suzanne Kapner och Stephanie Kirchgaessner, "MBA recruits Obama official", FT 16 mars

Uppdatering 30 november 2011
Bloomberg Markets Magazine publicerar nu hux flux resultatet av en intervju med en hedgefond-trader som berättar om ett möte mellan dåvarande finansminister Hank Paulson och tolv traders, varav fem hade arbetat för Goldman Sachs som Paulson varit VD för, 28 juli 2008, där Paulson enligt den intervjuade delade med sig av icke-offentlig information om vad regeringen skulle göra med Fannie Mae och Freddie Mac. Alltså i praktiken öppnade för en form av insider trading. Fannie och Freddies aktier föll till under $1 styck från nivåer på $14,13 för Fannie och $8,73 för Freddie den 28 juli, när staten tog över dem den 6 september. Bloomberg hävdar dock att det inte går att utreda huruvida de privilegierade handlarna som fick informationen av Paulson agerade utifrån den. En Chicagobaserad finansanalytiker säger i alla fall till Bloomberg: "What is this but crony capitalism? Most people have had their fill of it."
Richard Teitelbaum, "How Paulson Gave Hedge Funds Advance Word", Bloomberg 29 november 2011

Reuters-bloggaren Felix Salmon plockar upp Bloombergstoryn och drar stora växlar på den:
"I think [Paulson] was downright pathological in giving inside information to his old Wall Street buddies. And the crazy thing is that we have no idea how many of these meetings there were, or how long they went on for — the only way that we ever find out about them is when reporters like Sorkin or Bloomberg’s Richard Teitelbaum manage to find a source who was in the meeting and is willing to talk about what happened.

Given that it’s taken two years since the release of Sorkin’s book for the Eton Park meeting to be made public, it’s fair to assume that there were other meetings, too — possibly many others. Paulson was giving inside tips to Wall Street in general, and to Goldman types in particular: exactly the kind of behavior that 'Government Sachs' conspiracy theorists have been speculating about for years. Turns out, they were right."
Felix Salmon, "Hank Paulson's inside jobs", 29 november