Hands-Off Attitude Towards Financial Regulation - Cause & Effect?
By David Sirota
April 6, 2009 - 12:21pm ET
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The real-world effects of corruption can feel distant and hard to understand. But this week via White House aide Larry Summers, we got a very concrete, easy-to-understand example of how our pay-to-play political system really works.
Here was a snippet of news reported at the end of the week:
Lawrence H. Summers, the top economic adviser to President Obama, earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money, the White House disclosed Friday in releasing financial information about top officials...
Here was one of the results (or lack thereof) of the G-20 meeting:
Hedge funds that are “systemically important” will be subjected to greater oversight as will all key financial instruments, markets and instruments, the G-20 said. That signals a setback for German Chancellor Angela Merkel and French President Nicolas Sarkozy, who wanted all of the investment funds to brought under the spotlight.
The Christian Science Monitor went on to note that "the pledges of new regulations were also somewhat vague" and the new international financial "stability board won’t have any actual powers."
Certainly, any regulatory action - even weak ones - are a good step. But let's remember: the Obama administration has been resisting European proposals for tougher regulation for weeks now. Though, as I told CNN, Europe won a big victory for progressivism by getting the G-20 to adopt any regulatory step in the right direction, the Obama administration clearly limited the scope and strength of that success. And while it's fair to say that Summers alone didn't do this, it's also fair to assume he (and Michael Froman, a former top Cigitroup exec now serving as deputy national security adviser for international economic affairs) had a hand in this outcome.
Was there a quid pro quo whereby Summers took cash from Wall Street and then entered the administration and did Wall Street's bidding? Not explicitly, no. Bribery in our country most often operates in the world of the implicit - Summers got the cash because he was a solid Wall Street investment, a guy who could be counted on to continue championing deregulation in crucial government and public policy spheres. It was likely both a reward for his longtime deregulation advocacy, and an encouragement for him to continue in that advocacy - a signal that he will continue to be rewarded for his extremism.
And we now see the consequences. With the global community ready to embrace very strong financial regulations, our government - whose economic policy is steered by Summers - worked to water down those regulations.
There's a cause and effect there - it may not be overt, it may be subtle, the news media may be more interested in reporting on the trivialities of Barack and Michelle's European travels, and the Summers case may be a microcosm of a larger systemic probem, but it's there. You can avert your eyes from it, stomp your feet and pretend beyond a reasonable doubt that it's not true, but it's right there.
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