With the recent news that the U.S. economy grew at a “tepid” 1.7 percent in the second quarter, it appears that the Fed’s $85 billion-a-month bond buying program will not follow Mr. Bernanke out the door when his current term expires next year. Rather, it seems that his successor, most likely Vice Chairman of the Board of Governors for the Federal Reserve Janet Yellen or Washington veteran and Harvard good ol’ boy Larry Summers will continue Bernanke’s policies of quantitative easing accompanied by historically low interest rates.
We should wait with bated breath, however, and hope that Mr. Summers is not tapped for the job. Mr. Summers is by no means incompetent; the issue at hand is his track record regarding his ardent and effusive lobbying against the regulation of derivatives contracts. In 1998, when the Commodity Futures Trading Commission (CFTC) asked for input from regulators and academics regarding how best to regulate the burgeoning over-the-counter derivatives market without strangling it, Mr. Summers, along with fellow titans of economic academia Alan Greenspan and Arthur Levitt, vociferously spoke out against regulation. As we all know, the lack of proper derivative oversight proved to have disastrous consequences for the country and the globe.
To be clear, I am playing Monday morning quarterback here and Mr. Summers, along with Mr. Greenspan have admitted they were mistaken—not an easy thing to do and something that should be recognized and applauded.
However, recent news involving rate-rigging, which impacts trillions of dollars worth of securities and derivatives contracts, would cause average citizens across this country and the world to vomit if they only knew how these extremely complicated financial products operate and impact them. And, a man who once stood for a deregulated derivatives environment, even though it was pre-crisis and he has since revised his opinion, is an uncomfortable choice to hold the most influential economic position in the country and, quite possibly, the world, even though the position is not in the regulatory arena.
We have short collective memories and there have been hints and murmurs that some of the same mistakes that led to the financial crisis are being made once again. When Dodd-Frank bears its teeth, few shutter. And with the exception of Goldman Sachs golden boy Fabrice Tourre being found liable for defrauding investors yesterday, little legal action has been taken to hold these financial wizards accountable for the havoc they wreak. Meanwhile, your industry is dragged through the mud because, in the mind of John Q. Public, selling life insurance and annuities fall under the big, filthy umbrella of the financial services industry.
The very people the life and annuity industry profess to help, the “orphans and widows” are the same people the Tourres of the world are harming. Literally. Tourre sent an email where he joked that he was selling subprime mortgages to widows and orphans that held no value. Thankfully, these electronic communications leave a digital trail that leads up to the latest ugly incident, this time perpetrated against retirees.