The American Prospect has another story this week on the next Treasury Secretary. This time, rather than laying out the landscape of potential Treasury picks, Robert Kuttner endorses FDIC chair Sheila Bair. I wholeheartedly agree with the crux of his argument: that the next Treasury Secretary, in the event of an Obama administration, should not be Larry Summers or another minion of Bob Rubin (Timothy Geithner).
Kuttner does not come out and say that in so many words, but that's what I took from the piece. The best case for Bair is the abysmal record of the other potential appointees, and the corrosive influence of the Rubin crowd in particular. Otherwise, the argument is a bit flimsy in places.
The piece proposes two basic criteria for the next Treasury Secretary: that they should not be of Wall Street, and that they not be senior veterans of the Clinton administration (while the ideology was Republican, he says, Clinton Democrats were complicit in deregulation).
Bair *sort of* qualifies. She is not "of" Wall Street - she was a banker from Kansas before going to Washington to work for Bob Dole (she's a Republican). But from 1995 to 2000, after serving as head of the Commodity Futures Trading Commission, she worked as a lobbyist for the New York Stock Exchange, leveraging that clout in Washington for the good of Wall Street.
And she wasn't a Clinton appointee. But she served in the Clinton administration for three years, as head of the CFTC, and in that capacity was complicit in allowing derivatives to go unregulated (in addition to embracing that good old Republican ideology).
Kuttner glosses over Bair's record as CFTC Acting Chair:
Subsequently, she held a number of regulatory posts, including the important position of acting chair of the Commodity Futures Trading Commission. This is another crucial credential, since most of the financially-engineered derivative products, such as bonds back by subprime mortgages and credit default swaps should have been subject to CFTC regulation, and probably will be under reform legislation. Her close understanding of derivatives is essential to remaking our banking and credit system.
CFTC chairs, such as Brooksley Born, who served under Clinton, and James Stone, who served under Carter, have long argued that all derivatives should be subject to CFTC regulation and be traded in publicly supervised exchanges.
Except Bair didn't argue for the regulation of derivatives, as I wrote in this post. Quite the opposite. If Kuttner had evidence that Bair had taken a pro-regulatory stance on this issue (which certainly was an issue during her tenure), I'm guessing that he would have presented it.
Bair's experience as CFTC chair shouldn't be considered a crucial credential. In fact, she should be asked to explain her conduct in that post. Back then, plenty of people saw the problems with an unregulated derivatives market, but she, apparently, did not.
That said, like I said, Bair would be a much better choice than most other potential picks. In my mind, her strongest qualifications are her independence from the Rubin crowd and her evolution into an outspoken consumer advocate as head of FDIC.
Larry has also evolved into an advocate of sorts, but it is that much less believable because his record is so much worse than Bair, and he and Rubin are best buds. The following paragraph, from Kuttner's piece, is a good quick-and-dirty rundown of why he would be such an awful choice.
Larry Summers, for one, joined in the stampede to repeal the Glass-Steagall Act and in the knee-capping of Brooksley Born, testifying to Congress that her proposal would risk "casting a shadow of regulatory uncertainty over an otherwise thriving market." In running hard for a second term as Treasury Secretary, Summers has published several op-eds lately suggesting that he is a born-again regulator. It is possible that he has truly changed his views -- or not. The "Larry has changed" mantra will be familiar to those who followed Robert Rubin's successful effort to install Summers as president of Harvard, an appointment that ended badly. Beyond his ambiguous views on finance, his missteps at Harvard raise continuing questions about Summers' temperament as well.
Really, please: no more Larry.