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March 01, 2010


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I'm prone to a bit of conversational gassiness when talking about history's counterfactuals. What if Gore had prevailed in 2000? What if Clinton had exercised greater discretion? What if liberalism had been muscular enough to stop the Iraqi misadventure?

Looking backward, everything that happens can seem inevitable. But that's not true, of course. It's why our national character needed to be a bulwark against demogoguery and quixotic crusades. What did happen, tragic as much of it was, suggests our character had grown tight and anxious. Clearly, we needed a major enemy in order to define ourselves. After the Soviet collapse, the enemy became liberalism.

For a nation that is riven by race and class, apocalyptic outcomes would now become more enticing. Once the sorcerers of the hard right captured the media, the die was cast. There was no barrier separating the underground enthusiasm of race baiting from real power. Our worst instincts were quickly mainstreamed.

If character is destiny. then there's no reason to lament the inevitable. We had a good run and did many good things. But at crucial junctures we shrank instead of grew. When modest health-care reform becomes Armageddon, something has clearly gone wrong. We know it, too. Sadly, this is awareness without the balm of mercy.

Phil Gramm is the actual author of many of our current economic problems. Clinton just acquiesced when he should have vetoed; Gramm was the one that authored the bills deregulating most everything (Gramm-Leach-Bliley and the bills that legalized some of Enron's legal shenanigans and removed oversight from the rest), and then personally benefitted from them.

Clinton was an enormous disappointment, basically a Republican who played saxophone.

Gramm was the devil.

OK, you guys started it. So, here goes. First there was Jon's last sentence. Then there was Joel's comment about the devil. Therefore, I claim limited license to post this note. Whenever I have tried to "follow the money" or find any trace of a "shadow" power pulling strings to cause all our current ills, I keep reaching dead ends. I keep finding inept people, incapable of carrying out such a diabolical scheme. Also, I am at a loss to think of who would gain by killing the Golden Goose which laid the golden egg, "The American Middle class". What would be the gain of killing the machine that provides the money for the scamsters to steal? Even if a foreign power were behind all this, they would end up with a very, very cranky America with 50,000 nukes. Not a good idea. What is happening in this country is without reason. All that is left is "Biblical Prophecy". I'm just hoping that when I'm standing in line at the Pearly Gates, Glenn Beck is not in line ahead of me with his chalk board. Eternity is a long time, but it ain't that long. But, short of a Biblical explanation, how else are we supposed to explain what is going on in this country??

Presidents, with rare exceptions, are generally figureheads, chosen to represent their party because of marketable attributes such as oratorical skills and good looks, as well as ambition, a demonstrated history of submission to the requirements of the party's leadership, and enough private connections and support to make fundraising practicable.

Presidents depend on their cabinet and staff advisors, their party leadership, and the supposed legislative specialists who chair relevant congressional committees, to assist them in evaluating policies that they, personally, have no knowledge of or experience with, much less expertise in. So far as I know, banking regulation is not a field which young Clinton studied at Yale Law School, or even at Oxford.

Clinton was surrounded by many of The Usual Suspects who have been since been implicated in the recent crisis: Robert Rubin (of Goldman Sachs and Citigroup) first served as Assistant to the President and Economic Policy Advisor, and later as Treasury Secretary. His successor as Treasury Secretary was Lawrence Summers (who earlier served Clinton as Undersecretary for International Affairs -- also a role influencing policy on international economic issues). Summers had been Chief Economist for the World Bank. With their backgrounds, experience, and expert knowledge, as well as advisory and cabinet positions, they had Clinton's ear where such matters as the Gramm-Leach-Bliley Act and the Commodity Futures Modernization Act were concerned (both passed while Summers was Treasury Secretary).

When the Commodity Futures Trading Commission (CTFC) issued a Concept Release soliciting input from regulators, academics, and practitioners to determine "how best to maintain adequate regulatory safeguards without impairing the ability of the OTC derivatives market to grow and the ability of U.S. entities to remain competitive in the global financial marketplace", the release was opposed by Summers (along with Rubin and Greenspan, another key economic adviser as Fed Chairman, and Securities & Exchange Commission Chair Arthur Levitt, as well as CFTC Chair Brooksley Born).

It was Summers who urged Congress to move forward, when the Act was bogged down in the Senate due to Gramm's insistence on adding provisions to prevent the SEC from regulating swaps and to block CFTC regulation of "bank products".

The Gramm-Leach-Bliley Act (allowing a single financial institution to function as both a commercial bank and an investment bank and/or insurance company), was passed in the Senate 90-8, and in the House 362-57; more than sufficient margin to overcome a Presidential veto.

The Commodity Futures Modernization Act (which prevented all but the loosest regulation of most over-the-counter financial derivatives, and contained what came to be known as the Enron Loophole) was passed by the House 292-60, and by the Senate without a recorded vote under "unanimous consent" rules. The Chairs and Ranking members of each of the five Congressional Committees that considered the bill supported it. The Presidential Working Group on Financial Markets (a body established by Executive Order under Reagan and consisting under Clinton of Summers, Greenspan, Levitt, and Born) issued letters expressing the unanimous support of each of its four members for the bill.

You have to consider who the kingmakers are to understand how the system really works. A lot of these names keep popping up under various administrations, independent of political differences.

For example, Summers was a staff member on Reagan's Council of Economic Advisers. He served as an economic adviser to the Dukakis campaign. Then he was in the Clinton administration, first as special economic adviser to the president and then as Treasury Secretary. Henry Kissinger said in 2006 (when George Bush was president) that Larry Summers should "be given a White House post in which he was charged with shooting down or fixing bad ideas." Now he's Director of the White House National Economic Council under Obama.

In a 2006 New York Times op-ed eulogizing Milton Friedman, Summers wrote that "any honest Democrat will admit that we are now all Friedmanites", also opining that Friedman's "great popular contribution" was "in convincing people of the importance of allowing free markets to operate".


Yet, another NYT story describes Summers as a "centrist". The same story remarks:

"Over the last two years, Mr. Summers has carved out a role unlike anyone else’s in the Democratic Party. He has been something of a shadow economic minister, laying out in real time how a Democratic administration would have responded to the financial crisis. When other economists and policy makers have questions, they often call Mr. Summers."


Now, the question becomes, who put Summers into all of these influential and critical positions? Who pushed him, to those who would approve him, in widely varying Democratic and Republican administrations? Did Reagan, Dukakis, Clinton, Obama, and Bush (to the extent that Henry Kissinger had his ear) all wake up one morning and, out of the blue, decide, on the basis of their own knowledge of such matters, that Lawrence Summers highly qualified?

Who had interests going beyond party affiliation, beyond legislative identities, beyond anything except what Lawrence Summers would have the power to influence, once placed in these positions and comfortably ensconced in the establishment hierarchy?

Who do presidents of the United States, important congressional chairs, and party leadership consult, in deciding who gets on the short list of nominees to a highly important and practical post involving financial matters? The milkman? Joe the Plumber? Academia? No. They go to the group that knows financial affairs and the experienced players in the financial sector: obviously these are the financial interests that Summers, in his private career, represented. He was THEIR man. Something similar can be said for Rubin, Greenspan, Levitt, and Born; and others besides. You don't get to be SEC Chairman, for example, by union senority.

Money talks. Money understands the concept of leverage, not only in finance but in politics. You get your men into the important positions: the bottlenecks of democracy where a few individuals have inordinate influence and power. That way you get the most bang for your buck. Get control of party leadership. Get control of important congressional committee chairs. Get control of the regulatory agencies that govern you, by getting your men into their chairmanships.

Presidents and congressmen can't operate without staff, researching and advising them on legislation, because they generally don't know anything about the subjects they are legislating: they stand for broad political philosophies, not expert professional knowledge. Even after years of specialized committee experience, they remain dilettantes, yet they're expected to legislate the framework of action for whole industries of professionals. Who can provide staff members to research and advise for them on such arcane subjects as professional finance? Professional financiers, of course. Get your men on political advisory staffs. They understand where their loyalties lie and what the rewards will be when they leave public service positions to have private careers.

The problem has increased over time, because the more expensive political campaigns become, the more politicians rely on wealthy special interests for campaign financing. You don't want input from the finance sector on your legislation, despite the fact that you want to regulate the finance sector? Fine, we'll support your opponent. You'll accept our input? Fine, we want to be represented on your advisory bodies. It's only fair.

Of course, these are also the most motivated interests that simultaneously possess expertise. They're motivated by their professional livelihoods and their greed (both of which coincide since they chose finance as their profession or field of ownership). So, they have plenty of money, plenty of human resources, and plenty of motivation to spend both, and the time, in constantly trying to subvert the political system. The same is true of big medicine and insurance, and other large private economic interests.

It used to be true for unions, but their power continues to dwindle, as the percentage of private workers unionized has decreased from nearly 40 percent in the 1950s to only 7.2 percent today. Union dues pay for union political lobbying and contributions. The most massive decline of unionization began in 1979 and ended in 1984, corresponding with Reagan's union-busting (executive orders, labor laws, neutering of labor oversight and funding), and has continued a steady decline since. See the Political Calculations chart in the following hyperlink:


As campaign finance funding dried up from the left's biggest powerhouse, Congress (specifically the Democratic Party leadership) moved to the right. Surprise, surprise!

P.S. I may have the date of that Kissinger quote wrong. The fact that Summers functioned as a "shadow economic minister" (see the NYT story) to the Bush administration shows his influence there regardless.

Emil, this is what makes me sad. The downfall of America is all because of unchecked GREED. All the other great aspects of our country get trumped by that single human failing? The hopes and dreams of 308,802,000 Americans die at the hands of about 500 greedy persons?

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