Imagine how astounded one was in May when the WSJ leaked a short list of nominees for Ben Bernanke’s job and number two on the list was Larry Summers. My issue with Larry isn’t merely that he is a misogynistic bully, but rather that he has been wrong on just about every public policy initiative that he has ever put forth. He has perhaps the single worst judgement amongst his peer group (a very high bar indeed). Larry has been failing up, since he entered the public sphere. The results have been catastrophic for many Americans.
From October 2010 Charles Ferguson:
Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.
Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.
Since much ink has been spent writing about Larry’s role in Glass-Steagall, I am not going to write about that matter.
Larry Summers v. Brooksley Born
Larry Summers does not put up with dissent, particularly from women. Further he seems unable to foresee the adverse consequences of his public policy. For instance, coincident to LTCM, Brooksley Born (head of the CFTC at the time) was making noise at about regulating derivatives. This is what happens next:
Summers, with the help of Alan Greenspan and then Secretary Robert Rubin, dismissed her concerns and accused her of trying to cause a massive liquidity crisis just for releasing a "concept paper" about regulating derivatives. Summers argued that Born would facilitate "the worst financial crisis since the end of World War II" and that leading bankers were very upset about this potential oversight.
Larry Summers (with help from his buddy Ken Lay) v. Gray Davis
Larry Summers (with a dose of Greenspan) then moved on to California along with his then buddy Ken Lay (CEO of Enron at the time) and told Governor Davis that “regulation” was causing the horrific blackouts in California during the summer of 2000. Governor Davis said it was “corporate tampering” that was causing the blackouts. As a result environmental regulation was rolled back to “comfort the market”. When Larry left Treasury he was offered a seat on the Board of Enron. He passed but in a note to Ken Lay, wrote:
Summers had also famously assured Lay that "I'll keep my eye on power deregulation and energy market infrastructure issues" shortly after becoming Treasury Secretary, in hand-written scrawl at the bottom of a letter.
Larry Summers v. Harvard
After leaving the government he took his brand of deregulation, insider dealings, inability to discern conflict of interest and misogyny to become the President of Harvard from 2001-2006. The destruction he caused at Harvard in a short 5 years was astounding.
- Larry Summers got Harvard and Andrei Shleifer (friend and protégé of Summers) to negotiate a deal with the DOJ that settled charges against Shleifer out of a conflict of interest that arose while Shleifer was advising on Russian Privatization in the 1990’s (a pet project of Summers while he was at the Clinton White house). Harvard paid $26.5m of the $28.5m settlement. Economics professor Andrei Shleifer was allowed to retain his tenured position on faculty at Harvard.
- When one looks at the manner the Harvard endowment was decimated under Summers, one can only conclude that Larry didn’t really understand derivatives. Let’s start with Iris Mack, who joined the Company that oversaw the Harvard Endowment fund in 2002. She acted as a whistle-blower when she directly emailed Larry Summers about the level of risk unsophisticated traders were taking in swaps and derivatives on the endowments dime. For her trouble she was promptly shown the door. Of course, by the time 2007 rolls around Harvard had $3.52B invested in interest rate swaps (signed off on by Summers) and derivatives. These investments lost $1B during 2008 and Harvard had to tap distressed bond markets to meet margin calls. Harvard paid almost $500M to various Banks to exit these investments and will pay another $500M over the next 40 years.
- His comments on Cornel West and Women in Science were clearly just wrong (typical Summers). Those are just further evidence of his misguided arrogance, his own belief in white-male exceptionalism, and his lack of professional character.
Larry Summers v. Obama Administration
“The Central Irony of a Financial Crisis is they can only be solved with more confidence, more borrowing, more lending, more spending…”In other words, after Obama came to power he handed his economic policy over to a guy whose sole goal was to keep the music playing for all his Wall Street friends.
Since Larry had such a massive handprint on most of the economic public policy that helped cause the financial crisis, it must have been a dream come true when he got to head the team responsible for coming up with a plan to get the country out of crisis. As expected Summers screwed that up as well.
Obama’s economic policy, in the first two years of his Administration can only be described as a disaster. Under Summers control his team, underestimated the impact of the financial crisis, decided to go with a stimulus mainly designed for the pet projects of Congressional Democrats, subverted all economic policy to the health of the Banks (not the banking system), and finally helped put forth the policy that allowed TBTF banks to escape prosecution due to the fact that such action would undermine the confidence in said banks and the financial system as a whole.
In addition Larry consistently undermined colleagues that dared to disagree with him. He censored Christina Romers work before it could reach the President’s desk. He was finally described by his colleagues as a “good bureaucratic infighter”.
Conclusion
When one looks at the record of Larry Summers over the last 30 years, one would be unable to come up with a reason to short list this guy for any job let alone the Chairman of the Federal Reserve. The preceding sections are merely the most notable instances where Larry won a battle (usually through bullying, and use of MAD) and lost, along with the American public, the ultimate war. In fairness, I do recognize that Larry Summers would bring two attributes to the Fed; a) his rolodex -helps to have home numbers of bank CEO’s worldwide; and b) his psychopathic ego. What Larry doesn’t have or shouldn’t have is any credibility as an economist, or any other position related to public policy and/or capital markets.
Larry Summers has never suffered the consequences of his professional behavior. Deference to pedigree has allowed Larry Summers to maintain his power, his prestige and the delusion that he too could be a Fed Chairman. Larry is not just a bad choice he is with 99.9% certainty the worst choice to become the next Fed Chairman.