just in in-tray
jeremy grantham gmo.com w/i self explanatory and lucid read on obama's men
3. Obama and the Tefl on Men
I am naturally a contrarian and a nitpicker, so I found myself becoming a Republican in the Clinton era and a real pinko in the Bush era. But after exulting in Obama’s election, I couldn't even reach his inauguration before finding fault! As an environmentalist, I am delighted that he has surrounded himself with the very top talent. I, for one, find Hillary Clinton an exciting choice to head the State Department. But in the critical financial arena, he appears to have brought in Rubinesque retreads, “yes men,” or both, none of whom appeared to have seen the most obvious developing bubbles in the history of finance.
One can only admire Bob Rubin’s ability to retain influence and have his protégés in powerful positions. Rubin is the guy who was last seen exhorting Citibank to take more leverage and keep swinging. No, come to think of it, he was last seen paying a visit to Hank Paulson, his relatively recent underling at Goldman Sachs. He pleaded with his old chum, with brilliant success, for an unprecedented bailout. He was part of the establishment that failed to express early, loud concerns over slipping financial standards, and in fact helped to create an environment where prudence was a career risk and CEOs felt obliged to keep dancing.
His man Summers has proven he has some bite. Because he has written often for the Financial Times we at least know his public stance on matters financial. Well, let’s put it this way: he runs no risk of being on any of the many lists of people who gave clear warnings of potential financial disaster. And dozens did. Summers was emphatically not a whistleblower. He did not rail against falling financial standards. What he did, with his allies Greenspan and Rubin, was beat back a heroic attempt in late 1998 by Brooksley Born, then boss of the CFTC in Chicago, to supervise OTC derivatives. They held her off, presumably in the Greenspanian spirit of “the less regulation, the better.”
Obama appointed Gary Gensler to lead the CFTC. Gensler has a good reputation, but was hired into Treasury by … you’ve guessed it … Robert Rubin.
And as for Tim Geithner! The FOMC minutes are available, so at least we know what he added to Greenspan’s and Bernanke’s meetings. Over the Greenspan years, there were a few cautionary words from other members – a very, very few from a rather spineless group – and we know from the records how they were greeted. A typically precise response from Greenspan was: “So, this seems like a good time to break for coffee,” or words to that effect. And we can study Geithner’s objections to the Fed’s long journey down the primrose path, but our study period will not be a long one, for he questioned nothing!He was, if anything, a cheerleader, and wrote in support of the new era of “Great Moderation.” He, however, was not picked by Rubin. No, he was picked by Summers, who was picked by Rubin. These guys are very, very loyal!
Mary Schapiro, appointed to head the SEC, has been greeted with great enthusiasm by the fi nancial industry precisely because she has been a great supporter of the industry’s financial well-being during her career, which has included positions at the SEC and the CFTC. She is seen as one who poses no threat by way of introducing nasty, inconvenient new regulations. Where is Brooksley Born when we need her? (In the interest of space, this anti-Schapiro section is brief. To help out, on January 15, there was a detailed criticism of her for being a softy in The Wall Street Journal, of all newspapers. Bush would have been proud to hire her!)
What a missed opportunity this all is. Obama was given a mandate that could have included some serious bottom kicking. We could have quickly taken quite a few steps down the long road leading to a credible fi nancial system deserving of respect. The time to do that was now. Many readers will object that these are all bright – even very bright – people. And so they are. But our fi nancial ship is not doing a passable imitation of sinking because of a lack of intelligence. What was lacking was the backbone to publicly resist the establishment's greedy joyride of risk-taking and sloppy standards. Even more important, perhaps, was the breadth of vision that was missing. There was plenty of intelligence, just not too much wisdom. So it would be very encouraging if there were someone included in Obama's appointments who had actually blown the whistle on the spiraling Ponzi scheme that our leveraged financial system had become (which is why the Madoff fiasco is such a fitting capstone to our troubles). If only there were someone with real toughness who could do unpopular things. Someone, say, like Volcker. Oh, wait a minute. Didn't he get a job? Or was that only a game to get obstreperous characters like me on board with the program?Unfortunately, I have a sneaking misgiving that Volcker was indeed window dressing for the Presidential campaign.
Dollars to donuts he has not been pestered around the clock for advice so far. And I'll tell you one thing. You don't have to know him well to know that he'll resign within a year if they don't get serious. Since he is the only person on the team proven to have the right credentials – a preference for high standards of financial integrity and the backbone to push through unpopular but necessary actions – it would be a real shame to lose him entirely. |
