Summers is the former Clinton Treasury Secretary, mentored by Robert Rubin. As such, he was one of the chief architects of the crisis. In addition to believing all of the usual foolishness about efficient markets, he bought into the radical deregulation arguments pushed by the free market absolutists.
Summers was Treasury Secretary when Glass Steagall was repealed. Instead of speaking out against the irresponsible Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999), he actively supported it...
The repeal of Glass Steagall was not a cause of the crisis, but it allowed the net damage to be far far worse than it would have otherwise been..
Even more ruinously, Summers oversaw the passage of Commodities Futures Modernization Act of 2000 that exempted financial derivatives from all regulatory oversight. The CFMA made the AIG collapse not only possible, but likely. It helped to set up both Lehman and Bear Stearns. CFMA allowed AIG FP to write over $3 trillion in derivatives, reserving precisely zero dollars in case an underwritten derivative needed to be paid..
[Summers' appointment] created a dynamic where the new administration was committed to defending the policies that helped to contribute to the crisis in the first place...Summers was incapable of saying, let’s repeal the Glass Steagall Repeal; lets overturn CFMA. Most humans have a hard time saying: “My bad, let’s just reverse the error and start over.” By putting into senior positions the people who helped create the mess, we ended up with a defense of the decision making that proceeded, instead of a fresh approach...
The Obama White House correctly forced the insolvent automakers into bankruptcy reorganization. They should have done the same with the insolvent banks and investment firms. That was impossible with the banker’s boys running the White House economic policy: The Rubin/Summers/Geithner team made sure that did not happen.
...Barry Ritholtz
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