Tags: Baker | Summers | Fed | chairman

Dean Baker: Return of Larry Summers Is 'Scariest Horror Movie of the Summer'

Wednesday, 17 Jul 2013 08:08 AM

By Michael Kling

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Former Treasury Secretary Larry Summers is being touted as a possible replacement for Ben Bernanke as the Federal Reserve chairman. In fact, Washington insiders are reportedly campaigning to get Summers named to the all-important post.

Bad idea, warns Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think tank.

"This could end up being the scariest horror movie of the summer," Baker writes in an article for the non-profit group Truthout.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Summers' policies played a central role in setting up the financial crisis, Baker argues.

For one thing, he was a key player in pushing for larger and less-regulated banks under President Clinton. In addition, he worked to repeal the Glass-Steagall barrier between commercial banks and investment banks.

He hectored former Commodity Futures Trading Commission head Brooksley Born who advocated regulating derivatives and called those warning about financial deregulation risks Luddites.

"Even more important than his role in pushing financial deregulation," Baker charges, "is the fact that Summers played a direct role in promoting the imbalances from which the economy continues to suffer."

During the East Asian financial crisis of 1997 the International Monetary Fund, under direction by the Federal Reserve and the Treasury Department, levied harsh bailout conditions on Asian countries, Baker explains, noting that Summers was a top Treasury official at the time. To repay their debts, Asian nations lowered their currencies against their dollar to increase exports. Other Asian countries lowered their currencies to build reserves to protect themselves against future crisis.

That prompted the U.S. trade deficit to balloon from about 1 percent of gross domestic product during Clinton's first term to 6 percent in 2006.

"The need to fill the hole in demand created by the trade deficit has been the economy's central problem over the last 15 years," Baker states. "And this problem has LARRY SUMMERS written all over it."

Also, Summers has taken millions of dollars in fees for speaking and consulting from financial firms, Baker adds. "Would this affect his willingness to put an end to Wall Street's too big to fail subsidy as Fed chair?"

His record on financial regulations and economic reasons are sufficient reasons not to name Summers the new Federal Reserve chairman, agrees the digital news outlet Quartz.

While some top regulators and Treasury officials have admitted that the deregulation may have gone too far, Summers hasn't.

Some pundits say Summers' forceful personality and leadership style are advantages, Quartz notes.

"We’d respectfully suggest that the lesson of [Alan] Greenspan's tenure — when the central bank became something of a personality cult — is that it is a dangerous thing for the Fed to be a one-man show, dominated by a single, dazzling intellect."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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