Lawrence Summers Becomes Treasury Secretary, Accelerates Derivatives Deregulation Campaign

The U.S. Senate confirms Lawrence Summers as the 71st Secretary of the Treasury, replacing Robert Rubin and continuing the aggressive deregulation agenda. Summers had spent the previous year as Deputy Secretary orchestrating opposition to derivatives regulation, including making an “irate phone call” to CFTC Chair Brooksley Born when she proposed regulating over-the-counter derivatives in 1997.

In July 1998 testimony before Congress, Summers argued that “the parties to these kinds of contracts are largely sophisticated financial institutions” and claimed “there has been no clear evidence of a need for additional regulation of the institutional OTC derivatives market.” This position directly contradicted Born’s warnings that unregulated derivatives posed systemic risks to financial stability. Summers’ opposition helped drive Born from the CFTC in 1999.

As Treasury Secretary, Summers immediately convened a high-level task force that in November 1999 issued a report signed by Summers, Rubin, and Greenspan recommending explicit exemption of the $80 trillion OTC derivatives market from government regulation. Summers would personally urge Congress to act quickly on this deregulation, setting the stage for the December 2000 Commodity Futures Modernization Act. His appointment represented continuity in Wall Street’s capture of Treasury policy, ensuring that financial deregulation would continue unimpeded through the end of the Clinton administration.