“In no election in my lifetime has a major-party candidate for president been so dangerous for the economy,” wrote Larry Summers (Washington Post, 6/6/16), whose policies are frequently cited as contributing to the worst economic crisis since the Great Depression.
In “Trump Is a Much Worse Threat Than Brexit” (Washington Post, 6/6/16), Bill Clinton Treasury Secretary Lawrence Summers warned that a Trump presidency could “lead to a recession in 18 months”:
I believe the risks to the US and global economies of Trump’s election as president of the United States are far greater [than Brexit]. Indeed, if he were elected, I would expect a protracted recession to begin within 18 months. The damage would in all likelihood be felt far beyond the United States.
His ominous warning was treated as news by outlets like International Business Times (6/6/16), Vox (6/6/16), Forbes (6/6/16) and CNN (6/6/16). Though they acknowledged Summers was a Democrat, they all relayed his premonition as the dispassionate conclusions of a seasoned economist simply warning us against a disaster waiting to happen.
The only problem is Summers, by many accounts, was instrumental in creating the last recession—an essential piece of context that’s left out of his latest warning and its subsequent coverage. According to Mother Jones (7/30/13):
Summers blocked pre-crash regulation of Wall Street. In the 1990s, Brooksley Born, the former chair of the Commodity Futures Trading Commission (CFTC) under Clinton, noticed that the complex, opaque and as-yet unregulated derivatives market was rapidly expanding, so she proposed bringing the multi-trillion dollar market under CFTC rules. (Derivatives are financial products whose value is derived from underlying numbers like interest rates or fuel prices.) Summers, who was then deputy Treasury secretary, didn’t like that idea. He testified during a 1998 Senate hearing that derivatives regulation wasn’t necessary because Wall Street could be trusted to police itself. His fierce resistance, along with that of then-Fed Chair Alan Greenspan and former Treasury Secretary Robert Rubin, foiled Born’s plans. As New York Times reporter Timothy O’Brien said at the time, “They…shut her up and shut her down.” Partly because of this lack of derivatives oversight, few people saw the 2007 derivatives market meltdown coming.
Summers was also a key player in repealing the Glass-Steagall Act, which limited the involvement of commercial banks in securities trading. This repeal, according to the New York Times (11/12/09):
has been blamed by some for many of the problems that led to last fall’s financial crisis. While the majority of problems that occurred centered mostly on the pure-play investment banks like Lehman Brothers, the huge banks born out of the revocation of Glass-Steagall, especially Citigroup, and the insurance companies that were allowed to deal in securities, like the American International Group, would not have run into trouble had the law still been in place.
The (successful) progressive pushback against Summers when his name was floated to head the Federal Reserve in 2013 was based almost entirely on how his deregulation ethos lead to the recession. As The Atlantic’s Michael Hirsh (9/13/13) wrote in his case against a Summers appointment:
Summers helped midwife a major series of policy errors dating back 20 years that led directly to what many economists now believe was the worst financial crisis ever. In particular, Summers’s opponents—he faces a phalanx of opposition among Democrats on the Hill—point to the Commodities Futures Modernization Act of 2000, which effectively deregulated the global market in over-the-counter derivatives and was Summers’s signal achievement as Treasury secretary. The final report of the Financial Crisis Inquiry Commission convened by Congress in 2009 puts the government’s failure to rein in these derivatives at “the center of the storm.”
Or as Moira Herbst put it in The Guardian (8/12/13):
If you’ve had a history of alienating people, being consistently wrong on the biggest issues in your field and screwing up—say, by helping set the stage for the worst recession since the Great Depression—it’s time to look for a new career.
FAIR has written before about “Trumpwashing”: the use of Trump’s extremism as a way of propping up establishment Democrats’ own history of extreme neoliberal economic policy and military adventurism. Just as Trump’s hypothetical wars are used to distract from the actual wars Hillary Clinton has pushed for, Trump’s theoretical recession is used to gloss over how much damage the Bill Clinton administration’s economic policies of deregulating Wall Street did.
The rub in Summers’ warnings—and the subsequent coverage of them—is how ideological they are. Summers insists that two of the biggest dangers posed by Trump are his pulling out of “free trade” agreements and “scaling back NATO.” There’s much dispute over what caused the 2008 recession, but one thing is clear: Anti–“free trade” policies and scaling back NATO didn’t play a role. While it’s certainly possible Trump’s wackier economic policies (like defaulting on debts, for example) could bring the cataclysm Summers warns about, the smuggling in of pro-TPP and pro-NATO expansion language belies a disinterested motive.
The use of the Trump spectacle, as FAIR has noted before, as a proxy war against either unrelated or tangentially related ideas, causes or countries is one of its more pernicious features. This tactic is made even more cynical when it’s done by one of the architects of the 2008 recession, nominally in an effort to warn us about a future one.
Adam Johnson is a contributing analyst for FAIR.org. Follow him on Twitter at @AdamJohnsonNYC.
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