Summers Skews the Playing Field for the Big Boys, then Blames Skyrocketing Inequality on a "Ruthless Economy"

→ Washington’s Blog

Dan Froomkin notes:

Asked about new Census data showing that the income gap
between the richest and poorest Americans grew last year to its widest
amount on record, Summers said one factor is that "we have a more
ruthless economy. There's breaking down in social norms by people in a
position to take."

Skyrocketing income disparity is something I've repeatedly written about.

But increasing income disparity hasn't just happened like some unforeseen natural disaster which is difficult to forecast, such as an earthquake. It has been the result of certain efforts by the wealthy and their lackeys in government.

As Warren Buffet said in 2006:

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

Indeed, as I pointed out
last year, Summers is more responsible for our economic problems than
just about anyone else (Greenspan and Rubin also played their parts):

Summers is the guy responsible for:

• Allowing the banks to carry extraordinary levels of debt, thirty-to-one fractional reserve banking margins

• Ensuring that derivatives were not regulated, and that AIG could operate as a giant hedge fund

• Repealing New Deal era legislation
  which separated investment banks from commercial banks, insurers and
  stock brokers, and which kept companies from becoming "too big to fail"

As a 1999 New York Times article entitled "Congress Passes Wide-Ranging Bill Easing Bank Laws" quotes Summers as saying:

''Today
Congress voted to update the rules that have governed financial
services since the Great Depression and replace them with a system for
the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This
historic legislation will better enable American companies to compete
in the new economy.''

As I pointed out in April:

On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:

All
crises must end. The “self-equilibrating” nature of the economy will
ultimately prevail, although that may take massive one-off government
actions. Such a crisis happens only ”three or four times” per century,
so taking on huge amounts of government debt is fine; implicitly, we
will grow out of that debt burden.

Um . . . sorry to break it to you there Larry, but a group of economics professors has recently demolished the "self-equilibrating economy" theory:

If
one browses through the academic macroeconomics and finance
literature, “systemic crisis” appears like an otherworldly event that
is absent from economic models. Most models, by design, offer no
immediate handle on how to think about or deal with this recurring
phenomenon. In our hour of greatest need, societies around the world
are left to grope in the dark without a theory. ...

The implicit view
behind standard models is that markets and economies are inherently
stable and that they only temporarily get off track. The majority of
economists thus failed to warn policy makers about the threatening
system crisis and ignored the work of those who did. ...

The
confinement of macroeconomics to models of stable states that are
perturbed by limited external shocks and that neglect the intrinsic
recurrent boom-and-bust dynamics of our economic system is remarkable.
After all, worldwide financial and economic crises are hardly new and
they have had a tremendous impact beyond the immediate economic
consequences of mass unemployment and hyper inflation. This is even
more surprising, given the long academic legacy of earlier economists’
study of crisis phenomena ... This tradition, however, has been
neglected ...

And when economist James Galbraith spoke at a recent panel on the causes of the financial crisis, the first thing he listed as the main cause of the crisis was "The idea that capitalism ... is inherently self-stabilizing" ...

Summers [is] like a guy swearing that the Sun really does revolve
around the Earth and that the current orbit is just a temporary
aberration . . . and that if we just wait a little while, "everything
will return to normal".

As I pointed out in September, Summers has totally misunderstood the multiplier effect.

Indeed, Summers has admitted
that too big to fail banks are a huge roadblock to economic recovery,
yet he has blocked all attempts to break them up or meaningfully rein
them in.

Summers said
in 2000 "a healthy financial system cannot be built on the Expectation
of bailouts", and then has built much of his recovery strategy on the
expectation of bailouts.

A lot of his strategy has also been built on artificially propping up asset prices for things like toxic derivatives, and that strategy has failed miserably.

And
it's not just that Summers has blown it. He has actively promoted a
"more ruthless economy" and the "breaking down in social norms by
people in a position to take" which he is now whining about.

As I wrote in March 2009:

Does a single independent economist buy the Geithner-Summers-Bernanke approach?

On the left, you have:

• Nobel economist Joseph Stiglitz saying
  that they have failed to address the structural and regulatory flaws
  at the heart of the financial crisis that stand in the way of economic
  recovery, and that they have confused saving the banks with saving the
  bankers

• Nobel economist Paul Krugman saying their plan to prop up asset prices "isn't going to fly". He also said:
  

  At
  every stage, Geithner et al have made it clear that they still have
  faith in the people who created the financial crisis — that they believe
  that all we have is a liquidity crisis that can be undone with a bit
  of financial engineering, that “governments do a bad job of running
  banks” (as opposed, presumably, to the wonderful job the private
  bankers have done), that financial bailouts and guarantees should come
  with no strings attached. This was bad analysis, bad policy, and
  terrible politics. This administration, elected on the promise of
  change, has already managed, in an astonishingly short time, to create
  the impression that it’s owned by the wheeler-dealers.

• Prominent economists like Nouriel Roubini, James Galbraith, Robert Kuttner, Dean Baker, Michael Hudson and many others slamming their approach (and Paulson's as well)

On the right, you have:

• Leading monetary economist Anna Schwartz saying that they are fighting the last war and doing it all wrong

• Former Assistant Secretary of the Treasury and former editor of the Wall Street Journal Paul Craig Roberts lambasting their approach

• Economist John Williams saying
  "the federal government is bankrupt ... If the federal government were
  a corporation … the president and senior treasury officers would be in
  federal penitentiary."

• Prominent economist Marc Faber and many others tearing their approach to shreds.

Of course, other Nobel economists, high-level fed officials, former White House economist, and numerous others have slammed their approach as well.

Sure,
the economists for the banks and other financial giants which are
receiving billions at the government trough think that the
Geithner-Summers-Bernanke approach is swell.

And perhaps a couple
of economists for investment funds which use their giant interventions
into the free market to make some quick money.

But other than them, no one seems to be buying it.

As I noted last year:

Economist Dean Baker said
the true purpose of the bank rescue plan is "a massive redistribution
of wealth to the bank shareholders and their top executives".

And Nobel economist Joe Stiglitz says the Geithner plan will rob US taxpayers.

And congressman Grayson puts it succinctly when he demands "Stop stealing our money!"

And as I pointed out this summer:

The bailout money didn't actually go to any productive economic uses:

The
bailout money is just going to line the pockets of the wealthy,
instead of helping to stabilize the economy or even the companies
receiving the bailouts:

• Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes

• A lot of the bailout money is going to the failing companies' shareholders

• Indeed, a leading progressive economist says
  that the true purpose of the bank rescue plans is "a massive
  redistribution of wealth to the bank shareholders and their top
  executives"

• The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws
  which rewards mergers in the banking industry (this has caused a lot
  of companies to bite off more than they can chew, destabilizing the
  acquiring companies)

And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".

***

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG's credit default swaps and is not even really stabilizing AIG.

The super-wealthy have been bailed out, and life is great for them. For everyone else, things are not so good.

The system is rigged to benefit the elites and their sycophants at the expense of the country. See this, this, this, and this.

Comments

[williambanzai7]

GEITHNER SIGN

http://williambanzai7.blogspot.com/2010/09/gimme-geithner.html

[gwar5]

Summers may have gotten into MIT at the age of 16 as a math prodigy, but he must be a savant, because he's a septic tank of morality. And, if he's so smart how come he can't balance the check book -- does he do math like a "woman" these days?

He's part of the cabal that threw out Brooksley Borne at the CFTC when she caught on the derivative markets was printing up their own funny money. He and the cabal covered up the derivatives meltdown at LTCM in 1998. The others?  They were Robert Rubin, Alan Greenspan, and even Tim Geithner made an appearance at the time as well. The same crooks were there before. 

[Problem Is]

Savant: : a person of learning; especially : one with detailed knowledge in some specialized field (as of science or literature)

Summers is an idiot...
Not a savant.

Rubin?
First head in the guillotine after he is found guilty at the show trials...

[lynnybee]

.....just the mere mention of Larry Summers or Robert Rubin make me angry.   how can two people do so much damage & not pay a price.     i feel sick in my heart knowing what is coming, knowing that there will be elderly & innocent who will be hungry.   i vow never to watch CNBC &  my next step is to cancel my cable.   & i'm DELIBERATELY not putting money in banks & purchasing the barest of needs (food & household products).   any $$$ that i can spare goes straight to the coin guy for bullion.  

END THE FEDERAL RESERVE BANK.    I'm ready to lose what I have if it means there is a more sane America tomorrow.  

[Sun Tsu]

Brilliant, not Larry Summers genius, your expose, G.W. The 111th Congress and the Obama Administration's Economic policy are now history. Larry screwed the pooch, the public. What was their motivation, saving the Harvard Alumni power base in the East Coast TBTF Banks, the publicly chartered and privately owned GSEs, or Washington DC's K-Street? This is no conspiracy, follow the money.

[Inspector Bird]

I agree with most of the article, but the concept of income disparity as an "issue" is very odd to me.

If there is a pie with 8 slices and it's 8 inches in diameter, and I have 3 slices while someone else has 5, disparity is 2.

If the pie grows to 10 inches, disparity is still 2.  But it's also the size of the pie...so there is more disparity.  But I also have much more.  So while the other guy "got more", so did I....and we both got more in the percentage.

Now...assuming the other guy did most of the work preparing both pies and I simply gave him some of the ingredients, then why is the disparity a big deal?

The problem, as I see it, isn't ever disparity.  It's whether or not the size of the pie is growing, and whether or not the people with less are benefitting as the pie grows....or whether their share is right and proper.

The issue we've had over the last few years is the top end has simply been taking more of the pie without really growing it.  Some people consider this a problem of "income disparity" and from a certain perspective it is...but the disparity isn't the problem.  It's the unjustified takings.

[michigan independant]

Senate dismissed years ago to local issues only.

Summers lamented flagless elites.

Pay all assholes grunts wage who racket misery on humans.

Yes kill with out delays genocidal monsters.

There assholes educated beyond common sence.

[Bruno the Bear]

Well the good news is he screwed over Harvard finances in a very spectacular fashion.

Don't personally have much use for Ivy League economists.

[RockyRacoon]

Well worth the read, tears up some preconceived notions:

All QE2, All the Time
Why QE Doesn't Work
By Ed Yardeni

BULLET POINTS: (1) Fed study buries textbook money multiplier. (2) The Treasury's lap dog. (3) Kohn's exit speech admits Fed is clueless. (4) In 1988, Bernanke questioned money multiplier model. (5) The fiscal multiplier is also baloney. (6) The administration's stimulators are jumping ship. (7) Profitable companies, not bloated governments, create jobs. (8) No double dips in Earnings Month. (9) Double dip in consumer sentiment. (10) No recovery in housing industry.

"In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found. The argument against the textbook money multiplier is not new. For example, Bernanke and Blinder (1988) and Kashyap and Stein (1995) note that the bank lending channel is not operative if banks have access to external sources of funding. The appendix illustrates these relationships with a simple model. This paper provides institutional and empirical evidence that the money multiplier and the associated narrow bank lending channel are not relevant for analyzing the United States."

Did you catch that? Bernanke knew back in 1988 that quantitative easing doesn't work. Yet, in recent years, he has been one of the biggest proponents of the notion that if all else fails to revive economic growth and avert deflation, QE will work.

http://www.safehaven.com/article/18355/all-qe2-all-the-time

[williambanzai7]

Thanks for making my blood boil first thing in the morning!

GOOD BYE LARRY CARD

http://williambanzai7.blogspot.com/2010/09/good-bye-larry-card.html

[GNandGL]

The “self-equilibrating” nature of the economy will ultimately prevail, although that may take massive one-off government actions.

A fine example of the self-cancelling sentence.

[CulturalEngineer]

Couldn't agree more GW!

Larry Summers, the darling of the elite, the golden Harvard genius, the brightest light in the room...

Will eventually be seen by history as a key player and architect of the disasters that are befalling this country

In addition to all his idiot positions you outline above... he was one of the key players behind an amoral globalization... and a national specialization stupidity that had us move manufacturing overseas, poor nations to move to cash crops till they couldn't feed themselves (see Haiti, Mozambique, etc) and abandoning decent labor rights and conditions... (there was a great comment on a previous post talking about working conditions in Apple's Chinese operations).

He, Greenspan, Geitner, Rubin, Bernanke and all the gang would do us a great service if they'd take the honorable way out... perhaps a dignified Hari Kari ritual performed on Ayn Rand's grave... then they could spend eternity together! 

[George Washington]

CE,

  I'd be grateful if you could provide links re Summers' role in globalization and national specialization...

[zaknick]

Ray Kravis was primarily a tax accountant, and he had invented

a very special tax shelter which allowed oil properties to be "packaged" and sold in such a way as to reduce the tax on profits earned from the normal oil property rate of 81 percent to a mere 15 percent. This meant that the national tax base was eroded, and each individual taxpayer bilked, in order to subsidize the formation of immense private fortunes; this will

be found to be a constant theme among George Bush's business associates down to the present day.

...

Such activity imparted the kind of primitive-accumulation mentality that was later seen to animate Ray Kravis's son Henry. During the 1980s, as we will see, Henry Kravis personally generated some $58 billion in debt for the purpose of acquiring 36 companies and assembling the largest corporate empire, in paper terms, of all time. Henry Kravis would be one of the leaders of the leveraged buyout gang which became a mainstay of the political machine of George Bush....

http://tarpley.net/online-books/george-bush-the-unauthorized-biography/

[New Revolution]

Big Surprise,... seeing that the super wealthy own the Federal Reserve who bailed out the banks they own whose money they have used to buy the Congress and the Presidency.   End the FED which closes the 2B2Fail, 2B2Bail & 2B2Jail which stops the money flowing into Washington that buys the politicians who look the other way.   Then we get nearly half the US debt back now owned by the aforementioned which cuts the budget, lowers the demand for taxes and we use the proceeds to clean up our everyday banks balance sheets in a massive RTC and get the train called America back on the tracks.   Oh,... I almost forgot.   Via Federal RICO laws, indict everyone who was at the NYC Federal Reserve Bank lunchon on March 11, 2008 and anyone who aided and abetted the crime committed against all of America at that meeting.   The charge is fraud and conspiracy to commit fraud as an on going criminal operation and organization.