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Come Clean, Larry Summers, About Your Role in the Credit Default Swap Mess!

© 2008 Hazel Henderson

Dear Larry, now that you have been appointed as President-elect Obama’s economic supremo, we need you to explain why you enabled the unregulated CDS market to balloon to some $60 trillion!

Mr. Obama said at his news conference November 25th about his incoming administration that “When we make mistakes, we admit them.”

How we arrived at what Obama called “this huge mountain of debt” and your role in it, needs to be public information, especially since your appointment does not require Senate confirmation. On your watch as Clinton administration Treasury Secretary, you turned a blind eye to the public warnings by the CFTC’s Brooksley Born about how, in her testimony, this build-up of CDSs could cause a major blow-up in the financial system. As we all know now, these reckless bets on defaults are at the core of today’s financial crisis.

As the New York Times reported in October and again on November 25th, you not only reprimanded Ms. Born, but actually went on to champion, along with Robert Rubin and Alan Greenspan, the 2000 law that kept CDSs deregulated – as they still are today. Will your first order of business in the Obama administration be to see that CDSs are properly regulated and only traded with full transparency on a public exchange?

We agree with the New York Times November 25th call for you to fully explain to the public the reasons for your error in judgment. Even Alan Greenspan has admitted that his economic model was the wrong one. Surely you can give us your own explanation. The new consensus, after the current spectacular failure, is that markets are not always efficient or self-correcting. Can you, therefore, assure the public that you have also learned this lesson? This will assure the public that your advice to President-elect Obama can be trusted.

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