MONEY AND WORK

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March 26, 2009

CRASH REPORT

Ralph Brauer, Progressive Historians - Geithner and Summers along with Rubin are why this financial crisis will not be satisfactorily resolved, for in order to take the necessary steps to alleviate it all would have to admit their part in causing it and even more pointedly admit that their boss at the time, William Jefferson Clinton, also played a role. . .

If one parceled out blame the way they do in auto accidents, the GOP would bear the majority of it for they supplied the Congressional majority--and even put their names on the bill that caused this mess, the Gramm-Leach Bliley Act. But Rubin and his two sidekicks convinced Bill Clinton that the bill would be a good idea. So on Rubin's advice, Clinton looked the other way while Citi put its considerable lobbying forces into motion to make Gramm-Leach-Bliley possible, which is why one of the pens Bill Clinton used to sign the bill hangs in a prominent place in the office of former Citi CEO Sandy Weill--the man who created what was once America's largest financial institution out of a loan-sharking business.

Both Geithner and Summers played a role in this fiasco. Summers was the more prominent for he served as Rubin's assistant Treasury Secretary before succeeding his mentor, who for his role in making Citi's mergers legal received a cushy job at Citi as his reward. Geithner at the time was serving as Under Secretary of the Treasury for International Affairs under both Rubin and Summers. Several commentators have noted the closeness of the three.

Where Rubin's fortunes fell as Citi plunged into one of the greatest bubble implosions in economic history, one that rivals the collapse of the East India Company or the Tulip Bulb fiasco, Summers and Geithner were fortunate to remain some distance from ground zero. . .

Summers was chased from the Presidency of Harvard only to reemerge as one of Barack Obama's chief economic advisors. Geithner became head of the New York federal reserve where his chief accomplishment was to sign off on the Bush Administration's bailout plan, a plan that was supposed to rescue companies at the center of this mess--one of which was Citi. . .
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The Glass-Steagall Act, as it became known, was one of the most important pieces of economic legislation in American history. Essentially it prohibited banks from entering into the securities market, which Glass felt was one of the root causes of the Great Depression. Sixty years later this history was ruled irrelevant for the "new economy" of the 1990s as Rubin openly campaigned for the repeal of Glass-Steagall.

If Glass-Steagall was one of America's greatest pieces of economic legislation, the bill which repealed it--Gramm-Leach-Bliley--is surely one of the worst. . . What is still not generally understood about GLB is that it not only allowed banks to play with the likes of derivatives and subprime mortgages, it spurred the economic concentration and interlocking institutions that lie at the center of this crisis. . .

The presence of Geithner and Summers in the administration of Barack Obama merely testifies that as long as they have the President's ear, the roots of this crisis--and hence its long term resolution--will be ignored, for to do otherwise would be to admit they helped to cause it. Yet we also should remember had Barack Obama not won in November, waiting in the wings was the man whose name is on the bill that repealed Glass-Steagall--Phil Gramm. . .

Geithner, Summers and Rubin ultimately were part of a fascinating convergence that took place at the end of the last century. For the first time since Grover Cleveland's Democrats and William McKinley's Republicans agreed on economic fundamentals, in the 1980s and 90s the two parties occupied the same economic common ground.

Gramm-Leach Bliley is not the result of some conspiracy or even a bald-faced attempt by Wall Street to buy off Congress and the Executive branch--although record amounts of lobbying funds were spent to be sure it passed. In the end GLB is about the power of shared ideas, an economic orthodoxy that made the likes of Rubin, Summers and Geithner indistinguishable from their Republican counterparts. . .

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