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Get Ready for Larry Summers as Next Fed Chair

Posted by Larry Doyle on August 27, 2013 11:53 AM |

Has there ever really been a doubt that Larry Summers would be the next chairman of the Federal Reserve?

Not in these parts.

Remember, President Obama — just like his predecessors — will announce who the chairman of the Federal Reserve will be, but that does not mean that he actually makes the selection.

Who do I believe really makes the selection or has veto power over the president’s choice?

Those running the large banks whom the Fed chair oversees. So who would be in this camp, aka, The Club? Certainly Jamie Dimon, Lloyd Blankfein, John Stumpf (Wells Fargo CEO), and former Treasury Secretary Tim Geithner. Junior members Brian Moynihan (Bank America CEO), Mike Corbat (Citigroup CEO), and James Gorman (Morgan Stanley CEO) probably get half votes given their lack of experience in The Club.

And who is the real power broker that delivers the message to Washington as to who Wall Street wants as the next Fed chair? Most assuredly, Robert Rubin.

With this backdrop, get ready for the sleep-deprived, bored, and/or arrogant Larry Summers — a longstanding member of the Wall Street-Washington Club — to be our next Fed chair. Why do I say this with stronger conviction now than I projected a few weeks back? The proverbial leak conveniently provided to Obama’s friends at CNBC.

A source from Team Obama told CNBC that Larry Summers will likely be named chairman of the Federal Reserve in a few weeks though he is “still being vetted” so it might take a little longer.

Repeat after me: Wall Street owns Washington. The pols from both sides of the aisle and regulators are in bed with the industry. There is little doubt of this.

Actually, a Summers appointment only adds further confirmation of this reality that I address in detail in my book, In Bed with Wall Street, being released in January.

As was then, is now, and likely forever shall be, hence we should all . . . navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved. 

  • LD

    Why should we be so concerned about a Summers chairmanship of the Fed? As Simon Johnson writes at Project Syndicate:

    What’s wrong with an omnipotent Fed chairman? Start by considering the lasting impact of Greenspan, who believed deeply that financial deregulation would contribute to more stable economic growth. As he put it in 1997, “As we move into a new century, the market-stabilizing private regulatory forces should gradually displace many cumbersome, increasingly ineffective government structures.”

    Greenspan left office in 2006, but the crisis that soon followed can be attributed in large part to the kind of financial innovation that he encouraged. By 2008, in congressional testimony, Greenspan was willing to concede a fatal flaw in his thinking – deregulated financial markets can indeed go badly wrong.

    In a situation that demands fast and bold decision-making, someone has to be in charge. The Continental Congress did well when, in 1775, it asked George Washington to lead the forces then gathering in rebellion against the British. But Washington, in turn, was wise to decline authoritarian powers following independence – and again when he resigned after eight years as the new country’s first president.

    The modern financial world is fast-moving and complex. The next chairman will have to move decisively to persuade colleagues when needed; but, first and foremost, he or she will need a heavy dose of humility and respect for the views of his or her peers.

    Monetary policy involves a significant amount of art, as well as some science. And our understanding of “macro-prudential regulation” and how that affects financial stability is still at a very early stage. The consequences of poorly understood interconnections among countries have repeatedly blind-sided the world’s major central banks – consider the euro crisis or European banks’ heavy reliance on financing from US-based money-market funds.

    The next Fed chairman should be someone with an open mind, a willingness to engage the staff, and a desire to cultivate expertise throughout the Federal Reserve System. The worst possible outcome would be to pick someone who shares Greenspan’s inclinations – holding data tightly, monopolizing decision-making, and attempting to overawe colleagues.

    A 20-year tenure for such a person would be a recipe for economic disaster, which would no doubt begin with some form of financial crisis. But that would not be the worst of the danger. There would also be insistent calls for curtailing the Federal Reserve’s powers or limiting its independence from Congress.

    The Greenspan Temptation by Simon Johnson

  • fred

    LD,

    I trust your intuition in these matters and I apologize for my ignorance in advance; let me pose a few questions.

    That Wall St-DC incest exists, there is no doubt.

    Is the “great facilitator” of this incest none other than the Federal Reserve and ultimately the Chairperson?

    If so, how do you suggest the Fed’s role be changed (the apt of chairperson) to ensure policy initiatives that support and defend the greater good?

    When the money supply is increased via primary dealer network initiative, why doesn’t the Fed encourage front line lending rather than asset bubble creation? Surely a manipulated CPI is no more reflective of true inflation than a computation that excludes asset values or commodity prices.

    How does the Fed’s balance sheet expand if it’s charter limits it’s lending facility to temporary collateralized “overnight” loans?

    And finally, why doesn’t the debt service element of the Fed’s balance sheet require continuing Congressional spending approval?

    • LD

      Is the “great facilitator” of this incest none other than the Federal Reserve and ultimately the Chairperson?

      Yes indeed. The Fed is T-H-E ultimate link between Wall Street and Washington and as such the Fed’s chair is the great enabler or facilitator as you describe it of the incestuous dynamic corrupting our nation.

      If so, how do you suggest the Fed’s role be changed (the apt of chairperson) to ensure policy initiatives that support and defend the greater good?

      The Fed answers to Congress. Our Congressmen and women have shown themselves most interested in feeding from the trough while pretending to serve the public interest.

      I personally think we should implement a privately staffed Federal Regulatory Review Board that reports to Congress but oversees our financial regulators, including the Fed.

      When the money supply is increased via primary dealer network initiative, why doesn’t the Fed encourage front line lending rather than asset bubble creation? Surely a manipulated CPI is no more reflective of true inflation than a computation that excludes asset values or commodity prices.

      This goes directly to the question as to what institution(s) really have the power and who is really calling the shots. All too much evidence indicates that the banks themselves wield the ultimate power and are fixated on their own bottom line.

      And finally, why doesn’t the debt service element of the Fed’s balance sheet require continuing Congressional spending approval?

      Because Congress is little more than a pack of patsys for Wall Street that works hand in hand with the Fed. As such, the banks and the Fed effectively tell Congress what they can and cannot ask and expect to learn.

      GREAT QUESTIONS!!

  • http://www.deadlyclear.com DeadlyClear

    Someone said to me last week, ” Oh, Obama wouldn’t be that dumb to appoint Summers.” I should’ve given him odds and taken the bet.

  • fred

    LD,

    You missed my last question (point) about the Fed’s overnight lending facility.

    Now I’m not certain what, if any, limitations there are on the Feds ability to influence markets with open market operations but why don’t we let markets decide interest rates and tell the Fed to provide liquidity to member banks, when necessary, via overnight collateralized loans.

    Maybe we could allow the Fed to do short term purchases of securities during times of emergency (high systematic risk, exceptionally wide credit spreads) but ongoing/unlimited QE would not be an option.

    As it stands now, one could argue that it is Fed policy through the manipulation of the yield curve, that is deciding elections, determining winners and losers in the marketplace and determining our nations future.

    LD, what are your thoughts?

  • LD

    They do not call it the All Powerful Federal Reserve for nothing.

    Who needs a charter when an institution answers to nobody but itself and its cronies?

  • RH

    Larry:

    You should do some research on what Summers and Rubin did during “Privatization” (or rather piratization) in Russia under the Harvard Institute of International Development (HIID) immediately after the fall of Communism.

    Briefly, under the advice of Harvard “experts” Rubin and Summers when they were in the HIID, policies were installed that created massive inflation (2,500%) which ruined the buying power and savings of the Russian people. Then, deals were made with former communists to buy the assets from the government for a song, all financed by western banks. It was very sad and detrimental to the Russian people.

    I had first read about this in a conservative Christian newspaper in 2000 in an article by Paul Likoudis called the Plunder of Russia. You can find it on the internet. Anne Williamson, a reporter for the Wall Street Journal and the New York Times wrote a book about it and testified before congress about the doings of Summers and Rubin and the HIID in Russia after the Fall. Their programs where a betrayal of the common good, and a spectacular windfall for a few private individuals. You can find Williamson’s testimony on-line, too.

    When the Financial crisis hit in the US, and President Obama took over, I thought he might actually crack down on Wall Street. Instead, Rubin and Summers were some of his first appointments. I thought back to the 2000 article, and I knew immediately that the foxes had been assigned guard duty of the hen house.

    Dodd Frank is completely phony. My guess is that massive governmental assets will be sold to hedge funds using borrowed (printed) money, I fear the proceeds will be used to make good on government employee pensions and salaries, and the Americans will have to pay the oligarchs to use the assets that they had already bought and paid for. Think toll roads, the sale of public lands, mineral rights etc, etc, etc. Both political parties will co-operate on this because each party’s main constituents will be the beneficiaries.

    We seem to have a feral government.

  • Jeff D

    Good prediction Larry. Summers was just a distraction, a false target who was never, ever going to be nominated and was intended to deflect attention from the words and record of Janet Yellen. See wants free money (for the government) forever. Let’s see in 4 years where that gets us.

    Jeff






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