Rubin to Summers to Chance Jude Wanniski May 12, 1999

The only reason for the financial markets to get upset about the resignation of Treasury Secretary Bob Rubin is if they believe Rubin has been a moderating influence on his deputy, Larry Summers, who will be nominated by President Clinton for the top job. In the four-plus years since Rubin has been at the job, I have been reporting here that Summers has been de facto Treasury Secretary anyway. When Rubin was offered the job back in November 1994, when then-Secretary Lloyd Bentsen told the President he wanted to leave, he expressed reservations about being up to the job but was assured that Summers would be at his side, and that Summers was "the smartest economist in town." Indeed, Summers has two uncles who have been awarded a Nobel Prize in Economics -- Paul Samuelson and Kenneth Arrow. (Summers's father changed his name from Samuelson.) As I have no reason to believe Rubin had any moderating influence on policy as developed by Summers, there is no reason, one way or the other, for asset values to change. If anything, Summers may be more moderating on his own policies now that history either will reward him as the first academic to make good on the job, or punish him as the bozo who caused things to crash on his watch.

We must remind you, though, that Summers was "acting Secretary" in the month after Bentsen cleaned out his desk and before Rubin was confirmed by the Senate and moved in. It was in that month that Mexico devalued the peso, and the record will show that Summers was part of that evil deed. Indeed, one of the other bad guys who pushed Mexico into the devaluation was Ted Truman, then the chief international economist at the Federal Reserve, now the chief international economist at Treasury. With their friends on Wall Street shorting the peso, knowing the devaluation was going to happen as the government changed hands in Mexico, from Salinas to Zedillo, Summers, Truman and Stanley Fischer of the International Monetary Fund had no trouble kicking Mexico into the abyss. The Mexican economy still has not recovered. It was because of the IMF's role in encouraging the devaluation that Jack Kemp called for the dismissal of its chief, Michel Camdessus. The whole sorry mess was covered up, of course, because the Republicans did not want to upset their friends at the big banks who were eager to get taxpayer funds from Congress to cover their losses.

Remember that Summers came to Treasury from the World Bank, where he was chief economist. It was from that post that he assisted Jeffrey Sachs in blowing up the Soviet Union and the Yugoslav Federation with "shock therapy." The war in the Balkans and the return of the Russian Communist Party also can be chalked up at least partly to Summers's credit. In May of 1997, when I became alarmed at the unfolding of the Fed's monetary deflation and could find no support for my anxieties among my friends, I asked Sen. Bob Torricelli [D-NJ] if he could get me a meeting with the President, so I could warn him what was coming. The best he could do, via White House Chief of Staff Erskine Bowles, was to have Summers invite me in for a meeting on May 27, 1997. He was nice enough to give me his e-mail address, so I kept him informed step-by-step all year long as the Asian Crisis unfolded. Of course he did nothing about it. The falling price of gold, he assured me, was of no importance. Now that he can no longer hide behind Rubin but must take direct responsibility for the Treasury portfolio, perhaps he will be more responsive. With Y2K coming down the pike, and at least a small chance of global financial chaos, Summers may wish he were back at Harvard. Of course, I wish him well and hope he has learned from his mistakes.