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I Really Do Not Think the New York Times Editorial Board Understands the World We Live in...


The Federal Reserve Nomination: [Summers] is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful…

Michael Grunwald's New New Deal reports that when people much less powerful than Summers in the Obama administration said "this [Recovery Act] thing is much too small. It needs to be bigger, at least $800 billion", Summers replied "I agree", and that he then "took that as license to run. Our feeling was: We’ve got to hit this with everything we’ve got…"

Perhaps the New York Times editorial board could go read Michael Grunwald's The New New Deal?

Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction.

Has the New York Times editorial board never heard the word "Greenspan"? Or "Volcker"? Or "Burns"? Or "Martin"? Or "Eccles"? Its editorial board's shock at the prospect of a strong personality not known for the utmost in collegiality at the head of the Fed is a true Captain Renault moment.

His record on financial regulation is abysmal, and he has not acknowledged the errors. In the late 1990s, Mr. Summers was instrumental in deregulating derivatives and in repealing the Glass-Steagall banking law.

Note that this is, at best, misleading.[1] Repealing Glass-Steagall was not the big problem in 2008-9. The big problem was unregulated shadow and investment banks. Because the repeal of Glass-Steagall had brought the investment-banking arms of Citigroup, JPMC, BofQ, CSFB, and so forth under the banking regulatory umbrella, the repeal actually made us better rather than worse off when the s--- hit the fan.

He has said that the resulting financial crisis was unforeseeable, which is wrong.

If they are referring to what I think they are referring to, that is grossly, grossly out of context.

He… disparaged the comments of a prominent economist who early on identified risks in the too-big-to-fail banking system.

He also stated at the time that changes in the banking system that allowed it to more easily bear risk cheaply in normal times in all likelihood increased its vulnerability to large shocks.

Under the law, the next Fed leader is supposed to work with other regulators to dismantle big banks on the verge of failure, rather than prop them up. Given his background, Mr. Summers would be more likely to use the implicit and explicit powers of the Fed to shield and preserve the too-big-to-fail system.

Strange. Whenever I have talked to Summers about this, he has focused on how too-big-to-fail was a result of the holes in resolution authority which have been closed by Dodd-Frank, and how that is the biggest accomplishment to Dodd-Frank.

Mr. Summers has also shown an indifference to the effects of economic decisions on ordinary people.

That is just what we technically call a "lie".

He advised the president to support a stimulus that other economists correctly warned was too small.

Everyone--everyone--says Summers was all about trying to make the Recovery Act as large as possible. The most favorable construction I can put on this is that the New York Times editorial board has just failed to do its homework.

He resisted bankruptcy relief for underwater homeowners that would have forced banks into mortgage modifications — even as the administration spared no expense to bail out the banks.

Does the New York Times editorial board know what those expenses of the government of bailing out the banks that the government spared not were? Could it have been… zero?

Senators who have endorsed Ms. Yellen would do well to let Mr. Obama know, either publicly or through back channels, that their endorsement translates into a no vote for Mr. Summers.

Look: If the New York Times editorial board wants to say that Janet Yellen is their top choice--either because Yellen could bring more harmony to the FOMC and that should be decisive given the similarity of Summers's and Yellen's policy positions, or because a fight within the Democratic caucus would be a stupid thing to have right now--fine.

But they should do their homework. They should say who their second choice is, and their third. Suppose they did their homework, and were honest with themselves and their preferences over top candidates who have been mentioned: Yellen, Kohn, Fischer, Bernanke again, Ferguson, and so forth. They would then find that Summers is certainly in their top five, and quite possibly their second choice, for what worries Summers had about, say, mortgage cramdown were held much more sternly by those waiting in the wings behind Summers and Yellen.

Have they done such an exercise, and so considered the wisdom of adopting their current position--that they would rather have a potted ficus tree at the head of the Fed than Summers? They give no signs of having done so.

[1] Considerable--justified--complaint from down the hall about this paragraph. Let me note that I accept that financial deregulation was unwise, and that it is fine to tax Summers with the fact that he was one of its architects. But I do think I am on very solid ground in believing that Glass-Steagall repeal was more of a plus than a minus in the 2008-9 we actually had. G-SR turned out to do more to bring universal banks under the regulatory umbrella than to lead shadow and investment banks to gamble with government-insured money, and so was a (small) factor helping rather than hurting when the crisis came.