Drama surrounding the appointment of a replacement for Federal Reserve Chairman Ben Bernanke shows that suspicion about Wall Street and the power of big money remains a pervasive undercurrent in American politics.
The latest news is that Larry Summers, former treasury secretary and former economic adviser to President Obama, has taken himself out of the running for Fed chief. Obama aides had been telling the press that Summers was Obama’s first choice. In response, key Democrats on the Banking Committee let it be known that they would oppose Summers.
Summers has a reputation for brilliance, abrasiveness and arrogance. He had to step down as president of Harvard following ill-conceived remarks he made about women in the sciences. The question remains: If he is as brilliant as everyone says, why did he get so much so wrong as he laid the groundwork for the financial collapse?
Summers was not alone in promoting an agenda of deregulation that led to the corruption of Wall Street and the havoc of the Great Recession. Other economists of the Clinton era pushed for changes that led to runaway financial abuses. Their continuing influence has led to a widespread belief that the Obama administration has been a captive of Wall Street as it has responded to the crisis.
Now Obama is said to be left with his No. 2 choice, Janet Yellen, who is vice chairwoman under Bernanke. Liberal senators favor Yellen because of her belief that the Fed should continue to take an active role in stimulating the economy and working to alleviate unemployment.
The appointment of personnel at the highest ranks of the government might be considered so much inside-the-beltway maneuvering except for what it says about public attitudes.
One of the most costly decisions of the early Obama administration was not to lead a populist charge to prosecute financial wrongdoing among leaders of the banking industry or to generate sufficient public support for the sweeping changes that were needed. It was Obama’s belief that confidence in the financial industry needed to be restored, and that a crusade of vilification and prosecution would undermine confidence.
One effect of that decision was the rise of tea party conservatism, which attacked government as the handmaiden of corrupt banks.
“Bailout” became shorthand for collusion between Washington and Wall Street, even though the bailout succeeded in stabilizing the economy, and even though taxpayers eventually made money on the bailout. The result of the conservative backlash was the loss of the House in 2010 to tea party conservatives, who have effectively paralyzed government and crippled the Obama administration.
Summers is associated in the public mind with the go-easy-on-Wall-Street approach. Not only did he engineer disastrous deregulatory changes in the 1990s, he helped banks escape the wrath of the public following the crash.
Public disgust with the role of big money remains. That may be why the Democratic Governors Association was so touchy about press coverage of a recent “retreat” it held at the elegant Equinox Resort and Spa in Manchester.
Gov. Peter Shumlin is chairman of the DGA, and he arranged the retreat, along with several other governors. Donors and lobbyists paid $100,000 to rub shoulders with the governors.
Paul Heintz, a columnist for Seven Days, wrote a humorous account of his effort to cover the retreat and the paranoia of the organizers. Eventually, he was escorted from the premises because of his effrontery in seeking to talk with participants at the Equinox.
No one begrudges the Democratic Party its need to raise money to combat the big money of the Republican Party. But the big money and its effect on both parties is what has paralyzed Washington, making it extremely difficult to take on the corruption of Wall Street by writing and enforcing the regulations needed to hold the big banks to account.
Public disgust at this state of affairs forced Summers to remove himself from consideration as Fed chief. It also shadows the doings of all our politicians, who find it convenient to resort to rural hideaways to peddle what is politely called “access.”
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