The choice of the next Fed chairman will have a big impact on the U.S. and world economies. But President Obama appears tempted to pick a safe retread like former Treasury Secretary Larry Summers though some progressives hope his choice will be less beholden to Wall Street, as William Greider told Dennis J Bernstein.
By Dennis J Bernstein
Some news reports suggest that President Obama is eyeing former Treasury Secretary Lawrence Summers as his nominee to replace Federal Reserve Board Chairman Ben Bernanke, but some progressives view Summers as just one more Wall Street insider.
William Greider, a reporter, editor, author and columnist over a 40-year career, wrote the landmark book, Secrets of the Temple: How the Federal Reserve Runs the Country,recently wrote, “Summers is a toxic retread from the old boys’ network and a nettlesome egotist who offended just about everyone during his previous tours in government. More to the point, Summers was a central player in the grave governing errors that led to the financial collapse and a ruined economy.”
In a recent interview with Dennis J Bernstein Greider said he was shocked and outraged that the Obama administration was now floating Summers as the possible next Fed chairman.
DB: Were you surprised that Lawrence Summers is [President] Obama;s first choice to replace the current Fed Chair?
WG: To put it mildly, yes. I mean his name has been ﬂoating around on everybody’s list of who might be the chairman. And it was well known, years back, that he had that desire to wind up as Fed chairman. I think everybody, starting with my wife, when I told them, that “Hey, I’m getting a feed from a source that says that they were actually going to do this.” She was aghast. My daughter-in-law was aghast. My various colleagues have all expressed the same kind of “Oh, no that can’t be true!” And so I clearly got the feed so that people like me, and you would spread the word. I don’t know that it’s a done deal. I think probably not. But as soon as people start talking seriously about what that would mean, I think that, that can kill it.
DB: Well, I want to see if I can get you to talk seriously about what that might mean. And maybe you can put it in the context of his recent history. Remind us of from where Summers comes, and something about the impact his policy and advising has had on the U.S.
WG: And I go back a long, long way with Larry Summers. We’re not friends or anything at all, but I’ve interviewed him, etc., etc. He started life as one of these sort of wizardly boy-genius types and has that reputation. I have no doubt that he is very, very smart, and bright, etc. But he started as part of the Democratic Party and then over time he evolved into something different. I won’t say he’s a Republican, but he’s taken the side of ﬁnance, and so forth and so on. Most spectacularly, during the Clinton administration, where he was post White House economic type and then went to Treasury where he was ﬁrst number two guy to Robert Rubin and then later became Treasury Secretary himself.
Over a period of years, he and that group, including President Clinton and Robert Ruben, did real damage to the country by all of the things they did for deregulating the ﬁnancial system, destroying Glass-Steagall which was a prudent barrier between commercial banks and investment banks, opening the door wide for derivatives which turned into the great scandal ﬁve years ago that was driving the collapse. I can go on and on. I think I wrote this piece in the Nation mainly to just sound the warning bell. And I feel conﬁdent that if the word gets around there will be a very spirited opposition, not just Republicans but from Democrats.
DB: There really does seem to be an extraordinary disconnect here because we also just saw Obama appoint Penney Pritzker, the Hyatt Regency [heiress], and you have to say, subprime banking queen, who herself crashed an S & L, after she bought it, once all the S&L’s went down. Now you’ve got this move towards Lawrence Summers. Is this a progressive president?
WG: Well, now let me give you a plausible way to understand what’s going on.
Roughly 20 years ago when there was a new type circling the political system, known as New Democrats, and Bill Clinton was one of their putative leaders. And they were going to be different. They weren’t going to be knee-jerk liberals, blah, blah, blah. And he got elected promising to do lots of things for the folks, but immediately did a right turn, both on trade and pushed NAFTA, which he got through the Congress on Republican votes, one remembers, and the deregulation sort of following the lead of Alan Greenspan, the Chairman of the Federal Reserve. Summers was very much a part of that.
But what I wanted to make clear, that was a battle that progressives lost 20 years ago, and it made all the difference in the world about what followed in politics and government. And I think one of the reasons why Summers’ friends and former associates are daring to push his name for Fed chairman is they recognize that that job could turn this whole situation in a very different direction. So, put it this way, to be a little too crude, but I will be, the Rubin-Clinton establishment is desperate to keep control of the government. It’s not about Larry Summers’ personality which is nasty, or his brilliance which is clear, it’s that he has been quite incompetent and wrong, over the years, it’s about that establishment, elite grip on the Democratic Party.
DB: People do not understand. You have gone a long way to try and help the community, Americans understand what happens at the Federal Reserve and why it’s important. What would be the difference if there really was, instead of a go-go banker, a real, peoples-oriented Federal Reserve Chairman? What could the difference be?
WG: Yeah. I think it would be absolutely fundamental. And it would require ﬁrst frankly, a kind of awakening of people at large, and a very serious effort to say, as long as people are excluded in the decision making surrounding monetary policy and the large economic policy and especially bank regulation and the ﬁnancial system – as long as that’s the case the people are going to lose. They might win a few little battles here and there, but that’s just the nature that I think is consistent over time.
A lot of people I know are absolutely determinist, you know, their pessimism is unyielding. I, on the other hand, believe if people can get a foothold on the subject, and that requires a lot of education, they can actually change things, for lots of reasons. But the principal reason is what has happened and been revealed in the last ﬁve years is profoundly illegitimate government. And people abroad know that. Some of them know it in detail, most of them just know it in their guts. But that’s an opportunity for political change.
What it would require is, ﬁrst of all, some people in the U.S. Senate, among other places, who have the courage to stand up and be critics, and to educate. And, I’m more than a little optimistic that we are heading back into a reform era, ﬁrst because the system has failed utterly to solve their problem, that is the stagnant economy. But, secondly because we’ve got some new faces coming in, and rising on the ladder. I’m not counting on the U.S. Senate to change things. I’m counting on those senators to listen to what they are hearing from people and act on it.
And I’ll mention two names which are obvious, one of them is Senator Sherrod Brown of Ohio, and he’s now a ranking subcommittee chairman of the Senate Finance Committee. He is having hearings on stuff that nobody would touch for years and years. And he’s a really smart guy, and serious, honest, tough, brave, etc. And meanwhile so is Elizabeth Warren, who has her own expertise after years of being a critic of the banks and how their predatory practices, and what that does to the country.
I have to say there’s not a long list of these people but there’s some. And if you go to the House side, the House Democratic Caucus has a pretty deep squad of genuinely progressive and aggressive people. And they’ve been blocked out for the reasons everybody knows. But you see what I mean? If I thought the ground was hopeless I wouldn’t be so enthusiastic and so eager to say “Folks, wake up, stop this thing, before it gets worse.”
And one other element, which needs to be mentioned, especially to your audience, Janet Yellen, who for some years was President of the San Francisco Federal Reserve Bank, and is now Vice-Chair of the Federal Reserve Board, was appointed by Obama, is the leading candidate to become chairman of the Fed when Bernanke’s term ends in January. And she would be the ﬁrst woman to hold that job, in a hundred years. So you see what I’m getting at? There’s a real, political momentum, ﬁrst of all not to settle for old boy retreads like Larry Summers, but secondly, Obama could make yet another historic choice here that will have deeply, positive results all the way through the system.
I would say, and people can disagree about this, I’ve never met her and I’ve read some of her stuff over the years. My sense is that she is moderately liberal, only moderately so, and she like others, associated with the Federal Reserve over many years has, I think, been wrong about things, particularly in the direction of the economy. I don’t want to be unfair to her because I need to get my head deeper into her record. But she’s from California, taught at Berkeley. She’s really good stuff is what the people tell me. So, you see what I’m getting at. I think we can work up a politics around this question that will be quite positive.
DB: Now, I’m not asking you to recount your very big book that could hold back a stadium door, Secrets of the Temple, but just say one or two things about the power of the Federal Reserve to change everyday lives.
WG: This is an ancient political struggle that goes back, not just in the life of this country, but in other countries before us: It is the about monetary policy and about access to credit. Who can get it, and who can’t. And it’s essentially a kind of perpetual contest between capital and labor. And what we have seen in the last 30 plus years is how capital got the controls, and capital, through the agency, especially of the Federal Reserve, but also the Congress and the White House, pounded labor and rewarded capital.
Now, I could go on and on, but I don’t want to try to teach a course here on the radio, but what I think is present now in this society that wasn’t there when I wrote that book 25 years ago, is the knowledge. People have seen the most extraordinary things they could imagine in the last ﬁve years. And a lot of it, not all of it, but a lot of it emanated from the Federal Reserve. It pumped out, it literally created trillions of dollars. How does it do that? That’s what central banks can do, they create money. And it created, didn’t print it. That’s a wrong word. It created money and used it to bail out the banks and other ﬁnancial institutions, and so on.
A lot of people, you heard it I’m sure, more than once as they witnessed that “Where the hell did this come from? I didn’t know the Federal Reserve did that. I thought they were Fort Knox or something.” So the people are getting educated and shocked. And rather quickly they began to ask the question, somewhat sarcastically “Where’s our bailout?” The experts and the bankers and people like Larry Summers all rolled their eyes “Oh, you don’t understand, this is too complicated for you, go back to sleep.”
And I have been writing, in the Nation, for the last couple of years, really for the last three or four years with some focus. I urge people to check out these pieces. That the people, in their guts, asked exactly the right question. Why do we have a government structure in which the bankers are intimately involved, they participate in the regional banks, etc., etc.? And, of course, they have enormous inﬂuence, how could they not, with regulators who regulate them. But the essential thing is the doctrine that said “We can do that for banks, because if the banks go down oh woe is us, we won’t survive.” And people like me come around and say “Well, why don’t you do something similar for the real economy?” For like job creation and some of the other obvious ailments, which the Fed has the power to do. And they say “Well, that would be wrong. That would be illegal.” Whatever, whatever. I mean this is the argument I want to get started. I’m doing everything I can to encourage it because I feel sure that people with even just a glimmer of democratic thought in their heads will see how wrong this is.
The government system steps in to rescue the biggest boys in town, those ﬁve, six mega-banks, who we recall caused this problem with their derivatives blowing up, and other adventures. But it would be inappropriate to do the same thing for the people. And I just think that is so outrageous … beyond description. But secondly, it’s wrong for the economy of the country. And we are seeing the results of that now. The last 30 years was an orchestration of shifting the rewards away from ordinary folks, the middle-class, etc., to capital. Capital ownership is concentrated, and always has been. But, you know, you could live with that if the government is refereeing between those forces, and enforcing labor laws, and other things.
But that’s all been stripped away, starting with Paul Volker at the Fed and then Bill Clinton, and then the right-wingers got into it. It’ll take us ten or 20 years to restore something resembling an equitable economy. And, we’ll have to simultaneously deal with the fact that it’s not free and easy anymore for the U.S. in the world. And one of the largest reasons is the unsustainability of our economy. People know that. I don’t want to go on…you can see how I get started and I can’t stop.
DB: Well, it’s incredibly important
WG: That’s what I’m trying to emphasize. Yeah, and what you know when I ﬁrst published the book, it was weird because I did actually get on NBC’s television morning show and other places. I think it was the curiosity and the fact that the book had been serialized in The New Yorker which gave me a certain weird status at the time, before they found out who I really was. And now I get on Paciﬁca. But I was on with, what was her name? Jane, morning show, aren’t you a good person? And she said well, I am, and she said what many of the reviewers have said to me. Well, how does he expect anybody to understand all this mumbo, jumbo about monetary policy? And just out of my wit I said “If Americans can understand defensive strategies in pro football, they can understand the Federal Reserve.”
And she was taken aback by that, but it’s true. What they can’t understand is when monetary economists and political leaders explain it as a kind of mystical mumbo jumbo which only those few, really, really, really educated, sophisticated people can handle. That’s a lie, of course, but that’s a way of shielding the system from political action. I wrote recently, “public ignorance is a very useful tool of the governing classes.” I mean, this isn’t new, but the Federal Reserve has been a very powerful symbol of that fact. In other words, it’s not an accident that people are clueless. If you go back to the Nineteenth Century, especially in the West, the argument about money was the central ﬁght of American politics, for generations. And that’s because people in those days, of course most of them were farmers and farmers have a sensitivity to prices and interest rates and railroad gouging and all the rest.
But, in any case, the general public in the late Nineteenth Century talked about monetary policy all the time. And the populist movement had a very interesting reform idea that actually would have worked if they hadn’t been crushed by the money class. But, so, I ask the question when I was writing that book “How did it happen that our ancestors, who after all most of them didn’t go to college and many of them never went to school at all, how did they know things, which current, modern, sophisticated Americans do not know?” It’s a good question for people to explore.
DB: Well, we’re just about out of time but I have to tell you that I sort of became a real journalist, I cut my teeth on the deregulation of the savings and loans. And we saw from Reagan on, the destruction of all the protections that came out of the crash of the Thirties, from Reagan to Clinton and all the way through. We are now at the sort of the culmination and they are still saying “The problem is we just need to free the banks.” Deregulation. That’s another word people don’t quite get.
WG: Well, it’s not easy, but it’s a very well-practiced mask for the powerful to sort of take the subject into complexities that are really not the point of the system, and befog people with those complications. And people, not surprisingly, kind of shrug and walk away. “Okay, I don’t understand what they are talking about here. I still don’t like it. I’m still suspicious, but I don’t get it.” What we’re talking about is the capacity of a political system, one party or another, or brave senators and representatives to stand up and talk about this stuff in a language and clarity that ordinary people can understand. And that once you get people doing that, it expresses respect for the citizenry that does not now exist in the government, especially at the federal level. … We’ll see where this thing goes. I’m hoping that the idea of Larry Summers gets snuffed out rather quickly, but who knows?
DB: Well, we’re going to certainly watch that very closely. I’ve been waiting to talk to you for many years. Delighted to have this moment with you William Greider.