Finally Some Good Economic News

Lawrence Summers has left the Council of Economic Advisers. That, dear reader, is great news. If you were to come up with a caricature of all of the worst ideas that led to the current crisis, it would look like this clown.

The crowning glory of his idiotic ideas was his support for the Commodity Futures Modernization Act. This allowed credit default swaps – among other derivatives – to be traded without regulation. Those items, in turn, had a big role in the recent economic meltdown.

My personal theory is that the big money boys at Goldman use people like Summers and Timothy Geithner, Alan Greenspan and Phil Gramm to give their obviously self serving ideas intellectual cover. What do I mean by that? If you’ve ever seen the documentation associated with a publicly traded stock, you know that there is a regulatory scheme in place that is based on disclosure and regulation that works pretty well, and has done so for decades. So if someone said, “hey, let’s introduce a huge new class of securities without regulation,” the common sense response would be to laugh them out of the room.

Everyone knows that if you let Wall Street firms issue securities without loads of disclosure and regulation, they’d instantly be selling all sorts of trumped up bullshit as reliable securities. And of course, that’s exactly what they did. So how did they ever get the authority to do this? They let fools like Greenspan and Gramm go on and on with their ideas that the markets are perfect and the participants have a self interest in seeing to it that there is full disclosure and transparency. Phil Gramm and Summers pushed the Commodity Futures Modernization Act (who could be against modernization) and Greenspan pushed the idea that players in a market have a self interest in transparency.

These ideas are so childishly wrong as to be suspect from the very start. But when Treasury Secretaries like Robert Rubin and Henry Paulsen can rely on the research and theories of the Chicago school of economics, Alan Greenspan, Lawrence Summers and Senator Gramm (himself a PhD), to say that such non-regulation isn’t really an example of the fox guarding the henhouse, then all of a sudden these naive ideas get taken seriously.

I think it goes like this:

Goldman Banker #1: “If we could get a couple of academic types to go along with the idea that the market self regulates, then maybe we can pass some legislation that let’s us issue securities without regulation.”

Goldman Banker #2: “Sure, but that’s such a preposterous idea, no one would EVER go along with it.”

GB #1: “I’ll bet they would if we put them on our board and paid them a little.”

GB #2: “You’ve got a point there.”

Anyway, as Johnny Rotten once said, good riddance to bad rubbish.

btw: for the readers with daughters, Summers is the same asshole who once said women are genetically incapable of being good at science.

originally posted 9-22-2010