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November 9, 2017

Financial Reform Newsletter: Larry Summers is Right and Has a Duty to Continue to Speak Out

Larry Summers is Right and Has a Duty to Continue to Speak Out: The Treasury Department is Compromising its Integrity, Credibility and Authority

As anyone with passing familiarity of Better Markets knows, we have had our disagreements with Larry Summers.  While he is indisputably intelligent and thought provoking, we have also found him to be dead wrong on a number of the most consequential economic issues facing our country.  Worst of all, we remain disappointed in his ongoing failure to fully, deeply and publicly reflect on and account for the key role he played in some of the critical financial policy mistakes of the last 20-plus years.  In our view, anyone aspiring to be a financial statesman or stateswoman owes that to the country.


However, we also believe that we should commend those we criticize when they are right and Mr. Summers is right in his recent, very important criticism of the Treasury Department.  Those disparaging him for breaking the “unwritten rule” that Treasury Secretaries are not supposed to criticize their successors miss the point entirely: the rule (however questionable) is aimed at not undermining the credibility, integrity and authority of the Treasury Department.  The rule is not meant to protect any particular individual from criticism, particularly one that is in fact undermining the Department and its mission.


When someone at Treasury is breaking the norms by a wide, if not historic margin and damaging the Treasury Department (particularly for short term political gain), then predecessors have, we would argue, a duty to speak up and speak out.  That duty is not only to the Department, but also to the country.  That is what Mr. Summers is doing.  He is also mostly doing it with substantive arguments about specific proposals, actions and statements (sure, not always, but perfection can’t be the standard in Washington policy debates or no one would ever be allowed to speak). 


While the media and too many others love conflict and personalizing policy disputes, people should not rely on quotes unavoidably pulled out of context.  Everyone should read Mr. Summers’ Op Ed in the Washington Post and listen to Mr. Summers in Ben White’s Politico podcast and judge for themselves.

Importantly, the policy debates Mr. Summers is speaking out on relate to some of the most important issues facing our country and will impact every single American, their standard of living and whether or not the American Dream is available to them.  Their economic security, opportunity and prosperity is at stake.  The duty to speak out under those circumstances is clear and compelling and decidedly more important than adhering to an unwritten rule.


One final point:  speaking truth to power is always important, but it is especially critical when those in power are making up “alternative” facts and attack those who disagree with them.  Under those circumstances, speaking up is simply not an option for many people and, unfortunately, too many others lack the courage to speak up.  That’s why it is all the more important that those who have sufficiently secure positions and/or reputations, those in positions of unique authority or otherwise insulated from retribution, and those who aspire to being statesman/women speak up clearly, forcefully and often.


House Republicans Want Our Support So Bad They Are Willing to Mislead People

House Republicans on the Financial Services Committee are so desperate to make people think a new bill they filed was in the best interest of America’s hardworking families, consumers and investors that they decided to claim that Better Markets supported their bill.  After all, what better way to let the world know you had a good bill than to trumpet support from a fearless Wall Street watchdog? 


While it is somewhat of a backhanded compliment, it’s also simply not true.  In fact, Better Markets didn’t support their bill, directly or indirectly.  They just misleadingly used an old quote from 2015 to make people think we did support it.


The quote attributed to Better Markets was taken from a release we issued in 2015 when a bill by Senators Warren and Vitter was introduced.  The House Republican bill is significantly different than the Warren-Vitter bill.  For example, the Republican bill would require all Federal Reserve emergency lending programs to be approved by a supermajority of the Fed Open Market Committee and, within 30 days, by expedited majority votes in both the House and the Senate.  Requiring such action in the context of a fast-moving, catastrophic financial crisis in the future where information will be incomplete, ambiguous and continually changing will almost certainly result in political paralysis and cripple the Fed’s ability to respond to emergencies.


In contrast, the 2015 Warren-Vitter bill was designed to limit the Fed’s use of its unfettered emergency lending authority to bail out one or a few institutions like AIG or Bear Stearns or provide that assistance at non-penalty rates.  That bill would have required extraordinary Congressional action only if fewer than five institutions were eligible for an emergency lending program or if the required penalty rate was not imposed.  Since then, the Fed limited its emergency lending authority in a final rule, adopting key provisions from the Warren-Vitter bill.


Also, we didn’t even support the Warren-Vitter bill.  We said in 2015 that the “legislation was a good way to start [a] discussion” about what “more needs to be done if taxpayers are to be protected, bailouts are to be limited, too big to fail is to be ended, and market discipline is to apply to Wall Street like the rest of America’s banks and businesses.”  Unsurprisingly, the House Republicans on the Financial Services Committee did not mention any of that when they misleadingly suggested we supported their bill.


SEC Stands up for Protecting Whistleblowers

The SEC understands that whistleblowers play a vital role in uncovering illegal conduct and bringing lawbreakers to justice.  That’s what’s at stake in a case pending before the U.S. Supreme Court (Digital Realty Trust v. Somers, No. 16-1276), and why it’s so important that the SEC filed an amicus brief it filed in support of whistleblower protections.


In their brief, the SEC correctly argued that the Dodd-Frank Act was written and intended to protect all whistleblowers from retaliation, regardless of whether they report only internally or also to the SEC.  The SEC’s legal analysis was also right when it pointed out that a narrow interpretation of the law would undermine Congress’s purposes to strengthen protections for whistleblowers, toughen corporate compliance programs, and combat fraud and other violations of the securities laws. 


The SEC simply cannot be everywhere, but whistleblowers are and they can serve an important role as additional eyes and ears for the agency.  But that requires encouraging whistleblowers to come forward with vital evidence and protecting them from retaliation when they do.  The SEC brief is an important step in making sure that happens.


What are the Most Pressing Problems in Economics?

Better Markets’ President and CEO, Dennis Kelleher, was asked just that at the recent Institute for New Economic Thinking’s (INET) annual conference.  His short video answers can be viewed below:




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