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Tuesday, August 13, 2013

Maureen Dowd, "Summers of Our Discontent": Winter Is Coming

Will Larry Summers become the next chairman of the Federal Reserve?

In her latest New York Times op-ed entitled "Summers of Our Discontent" (, Maureen Dowd takes aim at the Summers candidacy:

"This idea is being pushed by the boys’ club around President Obama, and also by the bullying cool kids, some of the Wall Street types like former Treasury Secretary Robert Rubin who paved the way for the country’s ruin. Larry’s loyal former protégée Sheryl Sandberg aside, it evokes a sexism of complacency — just a bunch of alpha males who prefer each others’ company and who all flatter themselves that they’re smart enough to know how smart Summers is.

These days, it’s impolite to mention that all those cool bankers that President Cool didn’t punish enough brought the country to the brink of disaster."

Dowd's appears to prefer Janet Yellen for the job:

"Sure, Summers, the son of two economists and nephew of two Nobel laureates in economics, has a high I.Q. and inspired a great cameo bit in 'The Social Network.' But there has to be somebody out there to run the economy who wasn’t a part of the culture that ran the economy into the ground.

Janet Yellen, the Fed’s vice chair, has generally been more publicly aligned with Bernanke than Summers has been in using monetary policy to revive the economy."

Me? I don't care if the next head of the Federal Reserve is a man or a woman. However, I am concerned by placing one of the architects of bank deregulation in the position. You see, I am not convinced by the strength of America's purported economic recovery, and I continue to be troubled by the failure of the Obama administration to rein in gluttonous American financial institutions.

In April, The Washington Post refused to publish my opinion piece submission calling for reinstatement of the Uptick Rule, so I'm going to repeat for the umpteenth time . . . the 2007 cancellation of the Uptick Rule is destroying the US economy:

Micro-cap company "X" has designed and patented a revolutionary widget. Recently, the achievements of "X" have made their way into the news, and its shares have risen. Farmer Joe, who attends night school and reads the financial news, decides to buy 1,000 shares of "X". However, Farmer Joe is unaware that Slick Eddy at Hedge Fund "Z", who couldn't care less about the merits of company "X"'s widgets, has also noticed the rise in the share price of "X". With almost unlimited resources behind him, Eddy borrows "X" shares from various financial institutions and begins to sell vast quantities into the market, causing a precipitous decline in the market price of "X". Eddy then blocks any rally in the share price by activating a computerized program to immediately sell 100 shares at the bid after any purchase. Worried by the huge downswing in the price of "X," and also concerned that at the end of each trading day "X" always goes down (Eddy often sells into the market during the last seconds of trading), Farmer Joe dumps his shares at an enormous loss ("Someone must know that something is wrong at 'X'"). Having succeeded in panicking Farmer Joe and other small investors in "X", Eddy buys back the shares at a significantly lower average price than that at which he sold them, resulting in enormous profits for Hedge Fund "Z". Eddy's bosses note his "fine" work and reward him with bonuses as the shares of "X" tumble.

Of course, there are those who will say that ultimately the stock market is "efficient", and the price of "X" will recover to an appropriate level. However, in the process we have witnessed the flow of wealth from Farmer Joe and other small investors to Hedge Fund "Z" and Slick Eddy.

Also, consider the damage to company "X", which, owing to doubt raised by the run on its shares, is suddenly unable to raise additional funds to finance expanded production of a new line of widgets, declares bankruptcy and fires its staff.

Sure, there are instances when the scientific and/or commercial progress of a company shorted by Hedge Fund "Z" is so great that Hedge Fund "Z" must buy back the shares at a higher price, but these losses are more than covered by its programmed downward manipulation of the shares of many other companies.

Notwithstanding the 2007 cancellation of the Uptick Rule, is there something other than Potemkin Village economic recovery underway in the US? Unemployment in the US has ticked down, but it remains at a disastrously high rate. (If you're over 50, go try to find a job.) Almost 50 million Americans are on food stamps. US stock markets are near all-time highs, but raise interest rates by the tiniest notch, and the air will come flooding out of them.

And small cap companies, which are America's wellspring of economic growth, are being imperilled by government indifference to their well-being.

Summers to the rescue? I don't think so.

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