It’s only fitting that it was on the five-year anniversary of the fall of Lehman Bros., the hinge of the 2008 financial crisis, that Larry Summers ended his campaign to be Federal Reserve chairman, which hopefully will prove his final exit from public life.
No, Summers wasn’t the sole cause of the banking collapse, but he was among its chief culprits — serving up policies that misshaped our banking system and that laid the groundwork for the disaster of ’08.
The myth promoted by President Obama and his minions in the media is, of course, that economic deregulation pushed by Republicans and President George Bush caused the meltdown. The president tried to underscore that myth yesterday in a speech allegedly marking the five-year anniversary of the financial crisis that became one of Obama’s patented and at times delusional economic lectures.
In the president’s world, the deficit is shrinking rapidly, at the fastest rate “since the end of World War II.” ObamaCare is a great thing, not the drag on business that most businesses say it is. The banking system is safer than ever. His policies have the economy humming — and we’d be doing even better if Republicans would agree to do away with the automatic budget cuts of the sequester (which he signed it into law).
And if only the Republicans would give him everything he wants, namely higher taxes on small business and a free rein to spend, we’d be booming and at no risk of another meltdown.
In fact, economic growth is barely existent on his watch; millions of Americans have stopped looking for work and the country lost its Triple-A bond rating because debt isn’t the settled matter Obama pretends it is.
And banks are still too big to fail — indeed, bigger than ever — which means if and when there is a problem, the taxpayer will again be footing the bill.
Same story with his account of why we had the 2008 crisis: The truth doesn’t fit the president’s tidy and false “nasty Republicans” narrative about how things went down five years ago.
The meltdown had two distinct root causes. One was policies to extend homeownership beyond those who could actually afford to take out loans and make downpayments. This push began and grew under President Bill Clinton; Obama supports it to this day.
The other was the deregulation of the financial markets, including the repeal of the sensible law that once separated risk-taking investment banks from government-insured bank deposits. This was an economic hallmark of the Clinton presidency — and supported by some of Obama’s top economic advisers today.
Deregulation let the nation’s big banks grow even bigger, more leveraged with risk and less manageable, spawning time bombs like Citigroup and Bank of America. And the “loan to anybody” mortgage policies gave the banks something to take those risks with, minting money until it all blew up.
Yes, it blew up on Bush’s watch, but make no mistake: The die was cast in the Clinton years by folks who returned to power with Obama.
One of those minions was Larry Summers, who served in various positions in the Clinton administration, including Treasury secretary. Obama made him a senior economic adviser, and until this weekend he was was apparently the president’s choice to run the Fed — an agency that is both a steward of the economy, via its control of the nation’s money supply, and a main regulator of the big banks.
Summers dropped out mostly because the left wing of the Democratic Party felt he was both too close to Wall Street and too responsible for the policies that gave us the meltdown. For a change, the lefties have a point. Summers was right there with Robert Rubin, his mentor and another Clinton Treasury chief, in enacting those policies.
Then Summers managed to gain some private-sector experience— if you call being president of Harvard University and a consultant to companies like Citigroup real-world experience.
Yes, that’s the same Citigroup where Rubin held a senior post and that received gazillions in bailout money from the feds in 2008.
Another Rubinite inside the Clinton administration was Timothy Geithner, who then became president of the New York Federal Reserve Bank, perhaps the second-most powerful position at the Fed. Its main job is to regulate the big New York banks — the ones that eventually blew up.
You’d think this wouldn’t be a track record to brag about, since Geithner was at the New York Fed from 2003 to 2008 — when the banks’ risk-taking first went wild, then exploded. But that didn’t stop Obama from making Geithner his first Treasury chief and now taking his advice about who to make the next Fed chairman.
President Obama likes to say he has the best team in place to grow the economy and protect the banking system from another meltdown. Here, the reality is scarily different: This is the gang who couldn’t shoot straight.
Charles Gasparino is a Fox Business Network senior correspondent.