Treasury Secretary Timothy Geithner took the heat for being the bankers’ friend inside the White House who sought to water down the Dodd-Frank financial services reform bill that President Obama signed in July. It turns out top economics advisor Lawrence Summers was the real culprit – at least according to a new book about the Obama administration.
A key point of contention was the so-called Volcker rule, named after former Federal Reserve Board Chief Paul Volcker, which would limit proprietary trading at U.S. banks and restrict their ability to invest in private equity and hedge funds. The new book by Richard Wolffe, a left-leaning political consultant and talking head on MSNBC, says Geithner pushed for tighter rules during the debate, while Summers sought to deep-six added regulations.
In an excerpt from "Revival: The Struggle for Survival Inside the Obama White House,” which appeared this morning in the Huffington Post, Wolffe writes:
Obama had signaled that he wanted the rule to move forward back in October. . . But as the weeks dragged on, Summers rehashed his same old questions and concerns. At one fall meeting with his economics team in the Oval Office, Obama wanted to know why nothing had moved yet. Summers dug in once again, while Geithner - whose media coverage cast him as a supposed ally of Wall Street - wanted to push ahead.
Summers’s position comes as no surprise. In the late 1990s, while Treasury Secretary, he slapped down efforts by the head of the Commodities Future Trading Commission, Brooksley Born, to regulate derivative trading by banks and other financial institutions. After leaving his controversial tenure as Harvard University’s president, he earned $5.2 million consulting for D.E. Shaw, a hedge fund, and $2.7 million giving speeches to bankers.
The Volcker rule survived Summers’ behind-the-scenes lobbying. Geithner’s Treasury is now considering rules for its implementation. More than 1,400 public comments poured in before the November 5th deadline, many of them coming from bankers and their lobbyists seeking limits on oversight. Treasury’s Financial Services Oversight Committee meets Nov. 23 to discuss that and other matters, with a final ruling due sometime early next year.
Simon Johnson, a professor at MIT’s Sloan School of Management and co-author of “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” is pushing Treasury to use its new authority to put an end to proprietary trading at regulated banks. “We need a real firewall between custodian banks and the funds with which they are connected in any form,” he wrote earlier this month on the Economix blog on the New York Times’ website. “The Volcker Rule, if properly and rigorously applied, can do just that.”
