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Dick Bove Bids Good Riddance to Larry Summers

Wednesday, 22 Sep 2010 | 3:16 PM ET

Dick Bove published an open letter today where he analyzed the root causes of the financial crisis — and concluded with an assessment that Larry Summers, then Director of the National Economic Council, was “not effective in his position.”

Lawrence Summers, Director of President Barack Obama's National Economic Council
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Lawrence Summers, Director of President Barack Obama's National Economic Council

Bove writes that the problems in housing and on Wall Street were the result — not the cause of — the financial crisis. Instead, Bove argues, the source of the financial collapse was economic policies that led to excessive consumption, and insufficient production, in economic mix. (In his view, our trade imbalance led U.S. consumers to borrow money to buy foreign goods; the foreign beneficiaries of our trade policy then lent that money back to us, where we proceeded to overinflate the cost of housing with borrowed capital.)

After the failure of our economic policy makers to understand the actual causes of the crisis, Bove argues, they proceeded to go after the banks, with Larry Summers leading the charge.

Near the end of the letter, he levies some very interesting criticisms on the unintended consequences of the attack on banks:

1) The Obama administration’s policies caused banks to shrink, causing the money supply to contract;

2) The administration forced consolidation while, criticizing “too big to fail”;

3) Finally, administration policies drove up the cost of banking services by adding bureaucracy in the name of consumer protection.

Those last three arguments may just be compelling enough to gain some traction — particularly among banking lobbyists on Capital Hill.

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