Archive for August 5th, 2013

The answer to the above question is a resounding, “No.”

The job of the Federal Reserve Bank under Ben Bernanke has simply been to rescue rich investors from their bad investment decisions. These include individuals, banks such as Goldman Sachs and JP Morgan, and hedge funds (which are unregulated investment banks worth trillions of dollars). The Fed under Bernanke has given $26 trillion and more to save these folks from their own stupidity. They invested in derivatives, credit default swaps, and stuff like this.

According to Wikipedia, “During Summers’s presidency at Harvard, the University entered into a series totaling US $3.52 billion of interest rate swaps, financial derivatives that can be used for either hedging or speculation.[49] Summers approved the decision to enter into the swap contracts as president of the university and as a member of Harvard Corporation, which bears “the school’s ultimate fiduciary responsibility.”[50] By late 2008, those positions had lost approximately $1 billion in value, a setback which forced Harvard to borrow significant sums in distressed market conditions to meet margin calls on the swaps.[51] In the end Harvard paid $497.6 million in termination fees to investment banks and has agreed to pay another $425 million over 30–40 years.[50] The decision to enter into the swap positions has been attributed to Summers and has been termed a “massive interest-rate gamble” that ended badly.”

In 1998, during congressional testimony, then Deputy Secretary of Treasury Lawrence Summers supported government policy decisions to not regulate the derivatives markets because, “the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counter-party insolvencies.” In his testimony, Summers offered no proof that he was right. He was wrong again. There’s been massive fraud in the derivatives markets, especially among the big investment banks, such as Goldman Sachs. And this has led in large part to the weakening of the economy and the melting down of the middle class since his testimony. There is nothing to indicate that he has changed his mind.

In 1999 Summers endorsed the Gramm-Leach-Bliley Act. This bill rendered moot the highly successful Glass-Steagal Act, which had separated investment and commercial banks. In supporting Wall Street, Summers stated, “With this bill, the American financial system takes a major step forward towards the 21st Century. The bill has proven to be a disaster for the US economy, and its a principle reason for the redistribution of massive amounts of income from the 99 to the 1 percent.

In hindsight, we can see that Summers has always been a servant of Wall Street and the 1 percent, and a vocal supporter of the war against the middle class. He’s largely clueless or doesn’t give a damn that good wages and benefits spur demand for goods and services, creating a sound economy in the process.

Summers is the wrong person at the wrong time in US history to be head of the Federal Reserve, which is a private, not government, bank. The US economy needs something more than a Wall Street drone to get its financial house in order and to strengthen the middle class and the economy in the process.

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