The head of the U.S. FED is one of the most powerful jobs in the world. The current head, Ben Bernanke,  is stepping down,  Who will be next? The financial world, led by America’s big banks will want to be sure whoever it is ‘understands’ their needs.

Even before the nomination proceedure gets underway we can already watch the different camps jockey for position, and get a sense of which ideology is in the ascendant in America’s corridors of power and which set of prejudices will be unleashed upon, not just Americans, but the rest of us as well.

So it was with some horror that I read an article in the FT with the headline,

Larry Summers has an edge in the race to head the Federal Reserve

The article was written by Edward Luce. Luce is the Washington bureau chief of the FT. So Luce himself wields a certain clout. The FT along with the Wall Street Journal is where the worlds of finance and politics meet to find out what the other is thinking.

According to Mr Luce, Mr Summers would be the best person to become the head of the FED because,

The most important quality is intellectual leadership – something Mr Summers would offer in greater abundance than the others.

And what kind of intellectual leadership is it that so impresses Mr Luce and which Mr Summers has in such abundance? Well Mr Summers, when he was Secretary of the Treasury,  was one of the architects of the financial deregulation which set the financial world on the road to where it is now. Mr Summers was one of the most powerful proponents of the Gramm-Leach-Bliley Bill which swept away the old Glass Steagal Act and with it much of the financial regulation (including the separation between investment and commercial banks) which had kept banks in check since the Great Depression.

Evidence of  Mr Summers intellectual leadership appears in an official Treasury statement  (See footnote 11) in which he says the financial regulations of Glass Steagal were simply, “Archaic financial restrictions.”

Whereas Mr Summers said of the new Gramm-Leach-Bliley bill,

”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,”

Of course that was in 1999. A lot has happened since then. But nothing apparently to change Mr Summers mind on financial deregulation. Time Magazine in 2011 ran an article on Summers with the title,

Larry Summers: No Regrets on Deregulation

Mr Summers told Time Magazine,

“I’ve been more cautious than many about constraining financial innovation,” he said, adding that he didn’t believe the financial crisis had its roots in “new-fangled financial instruments” but rather in a simple real estate bubble.

Indeed Mr Summers, when he was Deputy Secretary of the Treasury in 1998, was one of those who insisted that some of the most ‘fangled’ , the OTC (Over The Counter) derivatives contracts – what Mr Warren Buffet, in 2003, was to  call Financial Weapons of Mass Destruction – should be entirely deregulated.

In 1998 he testified before Congress that as far as he was concerned,

“the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.”

In 2000 he added,

…it is the private sector, not the public sector, that is in the best position to provide effective supervision and reduce the likelihood that these issues rise to a level that could threaten market stability.

Sadly he was about as wrong on both these points as it is possible to be.

But never a man to underrate himself, he seems to have decided he himself was such a sophisticated financial institution. Accordingly, when he was President of Harvard, he oversaw the university enter in to $3.52 billion in OTC derivative contracts. The contracts lost $1 billion in value and Harvard had to pay termination fees to the banks it had contracted with. The university lost half a billion immediately and agreed to pay another $425 million over 30-40 years.

That was just Harvard. Next was AIG.

The insolvency and epic collapse of AIG was also, in large part, due to its massive trade in OTC derivatives.  Shortly after the destruction of AIG, George Soros came to see OTC derivatives in much the same light as Buffet.

But in 2011, intellectual powerhouse Mr Summers, was still telling Time magazine that he couldn’t  see any problem with either deregulation or new fangled financial instruments. And this is the man Mr Luce in the FT tells us would be the best man to be the next head of the FED.

Of course Mr Luce did at one time work for Mr Summers. He does mention this in the FT  article I quoted. In fact  he was  Mr Summers speech writer when Summers was Treasury Secretary under Clinton. So he more than just ‘worked for him’. He helped Mr Summers craft his message and promote his ideas.

Summers is a true believer in Globalisation and deregulated free markets. He was part of the Clinton administration that negotiated NAFTA. He spearheaded the pressure on Russia to privatize its major industries – which led directly to the collapse of living standards and life expectancy in Russia while at the  same time it created a cadre of massively corrupt and super-wealthy oligarchs. Summers’ role is described by Naomi Klein in her book The Shock Doctrine.

And finally I can’t mention Summers without remembering what he had to say about the logic of international free trade .When Summers was Chief economist of the World Bank (1990-93) he  wrote a now notorious memo which was intended for six of his senior World Bank colleagues. It was leaked.

In a section dealing with “Dirty Industries”, Summers wrote,

Just between you and me shouldn’t the World bank be encouraging more migration of the dirty industries to the LDCs (Less Developed Countries)?  (His emphasis)

He went on to say he could think of three reasons in favour. The first was,

The measurement of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.  ( P. 98 of “Faith and Credit – The world bank’s secular empire” by Susan George and Fabrizio Sabelli)

Or to translate – Dump pollution where workers cost little and thus little is lost when they die of the pollution.

Of course Summers complained, as politicians who have been caught saying something unpleasant always do, that the quote was ‘taken out of context’ and that it was intended as ‘highly ironic’.  Believe that if you wish.

I could believe the ‘irony’ claim if it had been said by a man who did not believe in the logic of the markets. But Mr Summers does believe, with all his wizened heart. So When he says we should face up to the grotesque logic of the market – there is no irony there at all. Why should there be any irony when Mr Summers is entirely correct about the logic of the market?

In 2006 the Dutch firm Trifigura had 500 tonnes of highly toxic waste to dispose of. The cost of treating it in Amsterdam was €1000 per cubic meter. Trifigura, however, felt ‘the logic of the market’ and shipped it all to The Ivory Coast instead. Where they off-loaded it to a local contractor. Who dumped it.

100 000 people sought medical help, 30 000 became unwell and 17 died  as a direct result.

Trifigura denied any toxic waste had been shipped from Amsterdam claiming initially that the shipment was hardly toxic at all – just traces of Hydrogen Sulfide – and that they had no idea that the waste would be disposed of improperly.

30 000 Ivorians didn’t believe them and filed a law suit in London. Trifigura was distainful and outraged that their good name should be questioned. So when the BBC broadcast a news report which claimed Trifigura had known the waste was toxic, that it would be dumped illegally and had actively covered up their role in the whole revolting affair, Trifigura declared they would sue BBC. Until, that is, the Guardian Newspaper obtained Trifigura emails which showed the traders involved had been perfectly aware from the start just how dangerous the chemicals were.

And that is the logic of the market that Mr Summers was NOT being ironic about at all.

Now, just as a thought experiment, look back at  Mr Summers memo, but for toxic waste subsitute toxic debts. And now ask yourself who Mr Summers will feel should be forced to clean it all up.

A quick look at Mr Summers professional life, his decisions, the causes he has championed, the things he has argued and worked for, all show he has personally, in every job he has ever had, forced the logic of the market upon all those unfortunate enough to be subject to his power.

If he should be appointed to be the next head of the FED why would he do any different?

If Mr Summers is appointed to the FED, or anyone like him, then surely that is as clear proof as we could possibly get that neither Wall Street nor the elite of Washington – very much including Mr Obama – have leant anything at all from the banking system collapse or the light touch, self-regulation/deregulation which incubated it.