Why Larry Summers Should Not Be Chairman of the Federal Reserve
Laws should apply to Fed Chairperson candidates, too. Right?

August 5, 2013

Now that Ben Bernanke has announced his intention to step down, there has been a lot of debate lately about who should be the next Federal Reserve Chairman. Some favor Larry Summers, former Secretary of the Treasury. Others favor Janet Yellen, who is presently Vice Chairwoman of the Fed.

For me, the choice is obvious: anyone who isn't Larry Summers. The reason is because he shouldn't be eligible. After all, Larry Summers is a criminal—albeit not a convicted one.

You might think that I'm talking about Dr. Summers's role in orchestrating the calamitous financial crisis in 2008, by virtue of his helping to roll back the Glass Steagall Act, which separated retail and investment banking. Or you might think that I'm referring to his decision to bet an enormous stake of Harvard's endowment on interest rates going the wrong way, though there's nothing criminal about being wrong. Both of these examples do call into question his legendary brilliance, however, and suggest that many mistake his characteristic brusque nature for "genius."

No, what I'm talking about is actually related to Dr. Summers's extra-curricular activies, some of which have earned him eight figures. You see, Larry Summers is on the Board of Directors of Square, Inc., a well-known startup in the mobile payments space. (By way of full disclosure, my company is in litigation with Square.) Square received a cease-and-desist order from the Illinois Department of Financial & Professional Regulation in March, 2013 because it was, at least then, an unlicensed money transmitter. Violations of state money transmission laws in turn constitute a violation of 18 U.S.C. § 1960(a), not just on behalf of the company breaking the law, but also on behalf of any member of its Board of Directors—such as Larry Summers. As the statute states, "Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both" (emphasis added).

In other words, former Secretary of the Treasury Larry Summers has very clearly violated a criminal financial statute with serious criminal penalties. Will he be prosecuted? Ha! Of course not. Does it mean that the statute makes sense? Not even. But it does raise some interesting questions. Do we want a Fed chairman (or chairwoman) who thinks that they're above the law and profits to the tune of millions as a result? Or one who looks at the stilted economic landscape before us and thinks that the Fed can play a role in flattening it?

Aaron Greenspan is the CEO of Think Computer Corporation and author of Authoritas: One Student's Harvard Admissions and the Founding of the Facebook Era. He is the creator of the FaceCash mobile payment system, ThinkLink business management system, and PlainSite legal transparency project.

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Dave Winter
August 10, 2013 at 6:18 AM DT

Having just watched 'Inside Job' I'd say you're dead right. That Summers, Paulson, Greenspan et al have not been prosecuted is an outrage and an affront to all those who lost their jobs or savings through their reckless policy of financial deregulation and heedlessness of warnings about the dangers of their actions.

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