Washington Post Continues the Beatification Process of Larry Summers

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Wednesday, 04 September 2013 14:10

If one were to list the people most responsible for the country's dismal economic state few people other than Alan Greenspan and Robert Rubin would rank higher than Larry Summers. After all, Summers was a huge proponent of financial deregulation in the 1990s and the last decade. He was a cheerleader for the stock bubble and never expressed any concerns about the housing bubble. He thought the over-valued dollar was good policy (and therefore also the enormous trade deficit that inevitably follows), and he was unconcerned that an inadequate stimulus would lead to a dismal employment picture long into the future.

However President Obama apparently wants to appoint Summers as Fed chair, so the Post is rising to the occasion and busily re-writing history. Today's effort has Summers as a far-sighted oracle whose concerns were unfortunately dismissed by those in positions of power. 

The Post tells us:

"As a young economist, Summers helped shape the idea that it can take many years for jobs to return after a financial crisis. In the White House, that left him deeply skeptical about the swift rebound many of his colleagues were expecting."

Actually the piece cited does not really talk about financial crises at all. It mostly focuses on how the shocks from jumps in energy and food prices led to high unemployment in Europe in the 1980s. If this work left Summers skeptical about the prospects for a swift rebound he was able to conceal this skepticism from the public. He apparently was also unable to convince President Obama to embrace such skepticism since the president was talking about the "green shoots of recovery" just after the stimulus was approved and the need to pivot to deficit reduction. 

Later we are told:

"Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve — a position he had been pushing years before the crisis. Such higher capital requirements can restrain excessive speculation and bubbles — which Obama has said must be an important goal of the next Fed chairman."

The linked column is from February of 2008, well after the financial crisis was underway, not "years before the crisis." Again, if Summers had been overly concerned about undercapitalized financial institutions he managed to largely keep these concerns to himself.

We then get the following insight from "people familiar with Summers’ thinking:"

"maintaining adequate capital would be a key element of his approach to bank oversight as Fed chairman."

This followed by the assessment from "associates" that:

"he’d encourage banks and other financial companies to serve lower- and middle-income workers by more tightly regulating fees and by ensuring that banks are lending to needy communities and deserving borrowers."

On this last topic it probably would have been rude to point out that when he was Treasury Secretary the Treasury Department put out a report on subprime lending that community groups and progressive members of Congress tried to squelch because they thought it would undermine more serious efforts at regulation. Hey, if Summers' "associates" are saying off the record that he would be a vigorous regulator concerned about protecting consumers, why waste time going over his actual record?

So there you have it. This piece should put to rest all those concerns people have raised about Summers' appointment as Fed chair.