The thought of this asswipe being the most powerful man on earth should scare the living shit out of every thinking person in America. That narrows it down to a few thousand TBP readers. His awful administration of Harvard from 2001 to 2006 lost the school $1.8 billion of school operating funds as he gambled on interest rate swaps and lost. It’s nice to know he has such a fine grasp on interest rates. He will be controlling them for the world in a few short months.
This guy’s resume is like a freaking train wreck. He was one of the architects of repealing Glass Steagall with his butt buddies Bob Rubin and Alan Greenspan. He single-handedly stopped Brooksley Born from putting any regulation into effect over the burgeoning derivatives market in the early 1990s. Thank God letting Wall Street banks combine with investment firms and then allowing them to issue a quadrillion dollars worth of derivatives of mass destruction didn’t have any adverse consequences on our economy.
This is the same boob who was the architect of the $800 billion Obama Porkulus Program, Cash for Clunkers, and the first time home buyer bullshit credit. He is a Keynesian disciple and is more beholden to the Wall Street criminals than Bernanke or Greenspan ever were. The dude was worth $400,000 in the mid 1990’s and now has a net worth as high as $31 million. Since he left the Obama Whitehouse he has been getting paid big bucks by insolvent Too Big to Trust Citigroup. Him and Bobby Rubin must sit up in the executive dining room eating aborted fetus souffle and laughing about all the good old times.
This will be the asshole in charge when the U.S. Titanic sinks into the bitter watery abyss. It will be a different cover next time.
Why Larry Summers Shouldn’t Be Permitted to Run a Dog Pound, Much Less the Federal Reserve
By: Yves Smith
Photo Credit: Shutterstock.com
In early 2012, Summers was lobbying hard to become the head of the World Bank and didn’t get the nod. The fact that he is now under consideration for a bigger job should set alarm bells off. While Paul Krugman weighs in on both, concluding that Yellen would be the better pick, he’s still far kinder to Summers than the Harvard economist deserves.
The big problem with Summers is not his record on deregulation (although that’s bad enough) or his foot-in-mouth remarks about women in math, or for suggesting that African countries would make for good toxic waste dumps. No, it’s his appalling record the one time he was in a leadership position, as president of Harvard. Summers was unquestionably the worst leader in Harvard’s history.
Summers, unduly impressed with his own economic credentials, overruled two successive presidents of Harvard Management Corporation (the in-house fund management operation chock full of well qualified and paid money managers that invest the Harvard endowment). Not content to let the pros have all the fun, Summers insisted on gambling with the university’s operating funds, which are the monies that come in every year (tuition and board payments, government grants, the payments out of the endowment allotted to the annual budget). His risk-taking left the University with over $2 billion in losses and unwind costs and forced wide-spread budget cuts, even down to getting rid of hot breakfasts. The Boston Globe provided an overview:
It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard’s endowment, and Lawrence Summers, then the school’s president, would face off in a heated debate. The topic: cash and how the university was managing – or mismanaging – its basic operating funds.
Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.
“Mohamed was having a heart attack,’’ said one former financial executive….
In the Summers years, from 2001 to 2006, nothing was on auto-pilot. He was the unquestioned commander, a dominating personality with the talent to move a balkanized institution like Harvard, but also a man unafflicted, former colleagues say, with self-doubt in matters of finance.
Now Harvard had put some of its large operating budget at risk in speculative investments starting in the 1980s, but Summers ramped it up to a completely new level. Again from the Globe:
The very thing that the former endowment chiefs had worried about and warned of for so long then came to pass. Amid plunging global markets, Harvard would lose not only 27 percent of its $37 billion endowment in 2008, but $1.8 billion of the general operating cash – or 27 percent of some $6 billion invested. Harvard also would pay $500 million to get out of the interest-rate swaps Summers had entered into, which imploded when rates fell instead of rising. The university would have to issue $1.5 billion in bonds to shore up its cash position, on top of another $1 billion debt sale. And there were layoffs, pay freezes, and deep, university-wide budget cuts
Without overburdening you with detail on the swaps that blew up Summers’ piggy bank (see this Bloomberg story for details), let there be no doubt that Summers signed up to be a chump to Wall Street. As Epicurean Dealmaker remarked when the Bloomberg expose came out (emphasis ours):
Now forward swaps, or forward start swaps—which behave like normal swaps except the offsetting fixed and floating rate payments are scheduled to start at a date certain in the future—by themselves count as little more than rank interest rate speculation, specifically in this instance as a bet that short-term interest rates will rise in the future. They can make a great deal of sense when an issuer intends to sell bonds in the relatively near future and when the issuer wants to hedge against budgetary uncertainty by converting floating rate obligations into fixed rate debt. That being said, I have rarely encountered a corporate client who feels confident enough about both their absolute funding needs and current and impending market conditions to enter into a forward swap starting more than nine months into the future. Entering into a forward start swap for debt you do not intend to issue up to 20 years in the future sounds like either rank hubris or free money for Wall Street swap desks.
So Summers couldn’t keep his ego out of the way, bullied the people around him, ignored the advice of not one but two presidents of Harvard Management, and left a smoldering pile of losses in his wake. And serious adults are prepared to allow someone with so little maturity and such misplaced self confidence to have major sway over much bigger economic decisions?
Summers’ second big problem is the scandal that led to his ouster at Harvard, which was NOT the “women suck at elite math and sciences” remarks. The university has conveniently let that be assumed to be the proximate cause.
In fact, it was Summers’ long-standing relationship with and protection of Andrei Schleifer, a Harvard economics professor, who was at the heart of a corruption scandal where he used his influential role on a Harvard contract advising on Russian privatization to enrich himself and his wife, his chief lieutenant Jonathan Hay, and other cronies. The US government sued Harvard for breach of contract and Shleifer and Hay for fraud and won. This section comes from a terrifically well reported account in Institutional Investor by David McClintick:
The judge determined that Shleifer and Hay were subject to the conflict-of-interest rules and had tried to circumvent them; that Shleifer engaged in apparent self-dealing; that Hay attempted to “launder” $400,000 through his father and girlfriend; that Hay knew the claims he caused to be submitted to AID were false; and that Shleifer and Hay conspired to defraud the U.S. government by submitting false claims.
On August 3, 2005, the parties announced a settlement under which Harvard was required to pay $26.5 million to the U.S. government, Shleifer $2 million and Hay between $1 million and $2 million, depending on his earnings over the next decade. Shleifer was barred from participating in any AID project for two years and Hay for five years. Shleifer and Zimmerman were required by terms of the settlement to take out a $2 million mortgage on their Newton house. None of the defendants acknowledged any liability under the settlement. (Forum Financial also settled its lawsuit against Harvard, Shleifer and Hay under undisclosed terms.
And while Harvard can’t be held singularly responsible for the plutocratic land-grab in Russia, the fact that its project leaders decided to feed at the trough sure didn’t help:
Reinventing Russia was never going to be easy, but Harvard botched a historic opportunity. The failure to reform Russia’s legal system, one of the aid program’s chief goals, left a vacuum that has yet to be filled and impedes the country’s ability to confront economic and financial challenges today.
And while Summers was not responsible for Shleifer getting the contract, he was a booster and later protector of Shleifer:
Summers wasn’t president of Harvard when Shleifer’s mission to Moscow was coming apart. But as a Harvard economics professor in the 1980s, a World Bank and Treasury official in the 1990s, and Harvard’s president since 2001, Summers was positioned uniquely to influence Shleifer’s career path, to shape US aid to Russia and Shleifer’s role in it and even to shield Shleifer after the scandal broke. Though Summers, as Harvard president, recused himself from the school’s handling of the case, he made a point of taking aside Jeremy Knowles, then the dean of the faculty of arts and sciences, and asking him to protect Shleifer.
And the protection Shleifer got was considerable:
Knowles tells Institutional Investor that he does not remember Summers’ approaching him about Shleifer… However, not long after Summers says he intervened on the professor’s behalf, Knowles promoted Shleifer from professor of economics to a named chair, the Whipple V.N. Jones professorship.
Shleifer’s legal position changed on June 28, 2004, when Judge Woodlock ruled that he and Hay had conspired to defraud the U.S. government and had violated conflict-of-interest regulations. Still, there was no indication that the Summers administration had initiated disciplinary proceedings. To the contrary, efforts were seemingly made to divert attention from the growing scandal. The message from the top at Harvard was, “No problem — Andrei Shleifer is a star,” says one senior Harvard figure…
One instance was a meeting early in the academic year that began in September 2004, less than two months after the federal court formally adjudicated Shleifer’s liability for conspiring to defraud the U.S. government. A faculty member asked [Dean] Kirby why Harvard should defend a professor who had been found liable for conspiring to commit fraud. The second confrontation came early in the current academic year when another professor asked Kirby why Harvard should pay a settlement of $26.5 million and legal fees estimated at between $10 million and $15 million for legal violations by a single professor and his employee, about which it was unaware. On both occasions Kirby is said to have turned red in the face and angrily cut off discussion.
On at least one other occasion, Summers himself told members of the faculty of arts and sciences that the millions of dollars that Harvard paid in damages did not come from the budget of the faculty of arts and sciences, but didn’t say where the money came from. Those listening inferred he meant that the matter shouldn’t be of concern to the faculty and that they shouldn’t raise it, a curious notion, given that Shleifer was one of their own…
Shleifer has never acknowledged doing anything wrong. Summers has said nothing. And so far as is known, there has been no internal investigation or sanction. “An observer trying to make sense of the University’s position on Shleifer, Ogletree and Tribe is driven to an unhappy conclusion. Defiance seems to be a better way to escape institutional opprobrium than confession and apology. . . . And most of all being a close personal friend of the president probably does one no harm.”
But for the faculty, which had already had frictions with Summers, the Russia scandal was the final straw. Copies of the Institutional Investor article were stuffed in the mailbox of every faculty member the morning of the no-confidence vote that forced Summers’ resignation.
And that’s before we get to Summers’ role in the ouster of Brooksley Born over credit default swaps, and his role as Treasury secretary in supporting the passage of Gramm–Leach–Bliley and the repeal of Glass Steagall (admittedly so shot full of holes at that point as to be close to a dead letter, but still necessary to allow Traveler and Citigroup to merge). Yet Summers has refused to recant any of these actions.
So with this record, it’s hard to watch Paul Krugman yet again tarnish his good reputation endorsing, even in a careful way, a colossally failed proposition like Larry Summers (Krugman put both Yellen and Summers in the “I know and admire” category). Take that back. Summers is your man if you are a banker, looter, or plutocrat.
But given that (per the Ron Suskind book Confidence Men), Obama increasingly couldn’t abide Summers, and Obama wouldn’t nominate Summers for the less influential World Bank position, one has to wonder why his name is suddenly being bruited about as a strong contender for the Fed chair. It may simply be the dint of Summers’ PR efforts.
But I worry another play is afoot. As much as Yellen and Summers are expected to take largely similar postures on monetary policy, Yellen is anticipated to be less of a bank booster than Summers. So Wall Street is likely to be pushing Summers’ candidacy. But the real play may be that the insiders know that Summers won’t hold up well under protracted scrutiny, and at a late date, Timothy Geithner will be pushed to the fore. I can only hope that Geithner (due to his lack of monetary economy chops) won’t be seen as an acceptable alternative, but I would not bet on being so lucky.
Let us all be ready to see him lose trillions and trillions, should we start a pool to see how much he loses before a certain date? John
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Larry Summers and the politicization of the Fed
August 29, 2013 @ 5:00 pm
By Felix Salmon
Ezra Klein [1] has an excellent piece on Larry Summers today, basically saying that he’s “the overwhelming favorite” to become the next Fed chair just because he’s an old Clinton hand, and is trusted by all the other old Clinton hands with whom Barack Obama has surrounded himself. (Interestingly, that’s a phenomenon unique to the economic team: no other department exhibits the same trait.)
The top slots on the economic team are all held by members of the Clinton clique. Sperling leads the National Economic Council. Lew is secretary of the Treasury. Furman is chairman of the Council of Economic Advisers. Sylvia Matthews Burwell, deputy director of the Office of Management and Budget during the Clinton administration, now heads OMB…
It stretches credulity to believe that a pure meritocratic process has simply and ineluctably led to the same six or seven people cycling among positions.
Klein’s thesis, when it comes to economic appointments, is that “the bar for each appointment is that the economic team already likes the candidate and knows he or she is good at the job and will work well with the other members of the team”. The reality of economic appointments to date is entirely consistent with that thesis, and I, for one, am convinced.
But here’s the problem: such a mechanism is a bad idea in principle, a bad idea in practice, and an especially bad idea when it comes to the Fed chairmanship in particular.
In principle, it’s even harder for a team like this one to learn from its mistakes than it is for an individual to do so. When the world changes, individual technocrats tend to change [2] with it. But when a small, close-knit team is put in charge of running the economic policy of the global hegemon, they create the facts on the ground. In practice, what that has meant is a depressingly predictable cycle of laissez-faire regulatory policy leading to crises, which are solved with massive bailouts, which leave the financial sector largely unscathed, and free to continue taking excessive risks, safe in the knowledge that if and when things blow up again, there will be yet another bailout.
This cycle creates what I call Obama’s dangerously heroic view [3] of economic technocrats — a view which, it should go without saying, works very much to the advantage of the very advisers who have helped him develop it. It’s a view which places crisis-management skills far above crisis-prevention skills, and which considers crisis-management experience as being uniquely valuable. It’s also a view which makes it almost unthinkable for Larry Summers not to be nominated to the Fed: short of nominating Terry Checki [4] to the position, it’s hard to imagine a candidate with more crisis experience than Summers.
But it’s one thing having groupthink within the White House — it’s the job of a disciplined executive branch to implement clearly-articulated policies, and if the populace doesn’t like it, they can kick the incumbents out at the next election. It’s something else entirely to take one of the most central — and most political — members of the White House team, and nominate him to lead the independent board of governors of the Federal Reserve.
Make no mistake: Summers would be the most political Fed chair in living memory. Greenspan was pretty bad, especially when he testified [5] — in clear support of the Bush administration’s tax cuts — that we had reason to be worried about budget surpluses. But Summers has been one of Obama’s closest economic advisers since the day that Obama took office: he’s much closer to Obama than Greenspan was to Bush.
Summers has spent most of the past five years doing everything in his power to shape and advance Obama’s agenda. Obama, of course, is very happy about this, and would love to reward Summers for his loyalty by handing him the Fed chairmanship.
Summers is not a consensus-builder; he’s the kind of person who, as chairman, would be convinced that he was right, and who would bully the rest of the board into doing exactly what he wanted them to do. (In this, he would have the active help of Obama, who would certainly nominate Summers-friendly names to the multitude of open board positions, and to the vice-chairmanship.) The result would be a central bank which had, to a first approximation, zero independence from the government, at least so long as Obama is president.
A non-independent central bank is a bad thing; a bullying central bank chairman who’s determined to get his own way is also a bad thing. (The Fed is run by a diverse board of governors for a reason.) But put the two together, and you get a uniquely toxic combination, a way to fulfill all the craziest conspiracy theories of Ron Paul. Having what Klein calls the “Clinton clique” in sole command of Obama’s economic policy is bad enough. But it would be much worse if they essentially managed to engineer a hostile takeover of the Federal Reserve Board.
When Tony Blair became prime minister of the UK in 1997, the first thing he did was to make the Bank of England independent. It was a signal that he was committed to orthodox economic policy, and that he was willing to be punished by an independent central bank should his policies go awry. It didn’t exactly work out that way, in the end, but his initial decision was clearly the right one, and came from a position of strength and self-confidence.
If Obama nominates Summers to the Fed, the message will be the exact opposite: that he’s not going to be comfortable unless he can install his own man to run the show. Obama, it seems, can’t trust Yellen to do the right thing — or maybe he worries that her actions will reflect the consensus of the board as a whole, and will therefore be less predictable and controllable. So he’s going to pass her over, and put a political operative in charge instead, albeit a political operative with genuine economic chops.
That’s a move even Clinton would never have dared make: he kept Greenspan at the Fed for his whole presidency. And it sets a horrible precedent: the next Republican president will henceforth have no compunctions whatsoever about appointing a party hack to the post. From here on in, if Summers gets the job, we won’t just be voting for president in presidential elections. We’ll be voting for Fed chair, too. And the Fed will become just as politicized as the Supreme Court has become.
What I knew about Larry Summers would have fit on a postage stamp.
Thanks for posting this. TBP … the real No Spin Zone!!
Seems like Larry has reached the zenith of the Pecker Principle, or was that Peter?
From bad to worse. From the frying pan into the fire. A fate worse than death. It’s all downhill from here. The light at the end of the tunnel is an oncoming train. We’re on the edge of the precipice and about to take a great step forward. Between the devil and the deep blue sea. Gasoline on the fire. Up shit creek without a boat. All these are idioms to say …… we’re fucked!!!
Larry Summers is an educated IDIOT. I have been following him for years. All he does is fuck things up. When Marc Andreessen (Netscape developer / founder) brought in Larry as a board member I questioned this – and I never got a reply ! Must have been for the political connections cause it sure wasn’t for Larry’s financial success.
He is eminently qualified to lead the fed. He is the biggest fuck-up on the face of da earf, so let’s bring him on board! His leadership, judgement and decisions have been incredibly effective in sticking a very large dick into the works of everything he touches. He is a shit midas, pure and simple.
Larry Summers managed to lose over 1/3 of the Harvard endowment during his tenure there, and his equally wonderful record was repeated as Obama’s Economic Czar, as chronicled above.
The Peter Principle in all its shining glory.
So, it begs the question: WHY would the Ovomit Adminimstration put him as the head of the nation’s central bank? Particularly at this very unstable time?
Because he has such a sterling record of economic success and will bring the (FU)USA back to economic greatness?
Or,
Because Summers is some kind of economic antichrist and is being brought in for the final coup de grace of the US economy?
Let’s have a TBP poll about how soon the (FU) USA’s economy tanks after Summers is appointed as the new Chair Satan.
When Obama picks this fat idiot, it’ll show how little Obama understands about banking and economics. This will be on Obama when it all collapses. They could pick a 4th grader to do a better job. Bubbles Bernanke is leaving a flaming wreck of an economy, interest rates going up, the Fed having to buy up ALL treasuries now that Asian are dumping. Summers will print money like a drunken sailor, it’ll put Japan to shame, and then a catastrophic implosion. No better imbecile than Larry “snoozer” Summers. What a fucking idiot.
Biy should have been Boy. Fucking keyboard.
Let’s show more balanced reporting, Administrator. Larry Summers is a man of tremendous achievements. He was Harvard’s first Jewish president. Summers was US Secretary of the Treasury at a time when America was prospering. He won a prestigious award for his contributions to economic thought and knowledge. That Summers is now worth $40 million or more shows his financial acumen.
As a candidate for chairman of the Federal Reserve, Summers has been praised by the President and The Financial Times for his intellectual and creative ability. He’d be a great successor to Alan Greenspan and Ben Bernanke. Summers is one of that group of best people who control the Congress, the MSM, the President, the military, and need to keep hold of the reigns of the Federal Reserve for America to prosper.
Why Wall Street Wants Larry Summers (and Why the Rest of Us Should Not)
By Yahoo! Finance | The Exchange – Thu, Aug 29, 2013 2:07 PM EDT..
By Laurence Kotlikoff and Jeffrey Sachs
On the surface the debate about the Chairmanship of the Federal Reserve is about the merits of the two leading candidates, Lawrence Summers and Janet Yellen. But looks can be deceiving. President Obama leans toward Summers not on the merits but because the Wall Street bankers want him. Summers is one of the boys, and the bankers know that Summers will do their bidding, at the expense of everybody else.
Obama has declared that the two candidates’ attitudes to inflation and unemployment are his main concern, entirely glossing over the fact that the Fed oversees and regulates the US banking system. Our recent near-death experience under Alan Greenspan’s anti-regulation Fed chairmanship, aided and abetted by the deregulation pushed by Summers, should cause the President to think hard about banking regulation. Yet Obama and his tight-knit circle of advisors, almost all of whom are from Wall Street, are apparently too beholden to Wall Street to contemplate any serious regulation of an industry that continues to be out of control.
The case for Yellen
On the merits, Janet Yellen is the obvious candidate. For six years, 2004 to 2010, she was President of the San Francisco Fed. She is Deputy Chair of the Federal Reserve Board and former Chairman of the Council of Economic Advisors. Her academic record is exemplary and distinguished. Her leadership of the Fed was widely admired, while Summers’ Presidency of Harvard ended in a debacle. Yellen correctly foresaw the risks of the 2008 financial meltdown, while Summers famously missed it. She, not Summers, has hands-on experience running the Fed.
Moreover, she has not played the revolving door by cashing in on government service for personal wealth. That, of course, is why she is suspect on Wall Street. Yellen has proven herself to be less interested in her personal wealth than in her nation’s monetary policy. For that reason, Wall Street leaders view her as dangerous.
Summers, the bankers’ best friend
Summers, on the other hand, is safe and reliable, the bankers’ best friend in politics. From the bankers’ point of view, his record is perfect. Summers late 1990s’ advocacy of financial deregulation is of course legendary. In the Obama years, he championed the bank bailouts while also fighting attempts to cap the bankers’ bonuses and to set limits on risky bank behavior, including Summers’ opposition to the Volcker rule to limit banks from trading on their own account.
Summers not only shot down proposals by Senator Dodd and others to limit Wall Street bonuses, but took an even more audacious stand: that the AIG unit that helped trigger the entire calamity by writing reckless credit default swaps should also get their mega-bonuses after the fact. Summers explained to a shocked nation that he did not want to “violate the contracts” of these employees, even as the world economy lay in ruins at their handiwork. Even Gordon Gekko would not have had such audacity.
When Summers left the Obama White House, he made a beeline back to Wall Street, just as he had done after leaving the Treasury in 2001. In a normal moral universe, a leading candidate for the Fed Chairmanship would hesitate to pass through the Washington-Wall Street revolving door so quickly and boldly, for fear of triggering public concerns about financial conflict of interest. Yet Summers quickly took up not just one Wall Street position but many, including with DE Shaw, Citigroup, NASDAQ, and other companies.
Conflicts of interest?
As Summers’ colleague and former Harvard dean Harry Lewis has recently noted, Summers did all of this while being a full-time professor with the limited right to consult “one day per week.” Moreover, Lewis describes how Summers’ lucrative consultancies reflect a persistent pattern in which Summers has shown a completely dismissive attitude towards financial ethics and financial conflict of interest.
When a Harvard colleague of Summers was caught in a financial conflict of interest, Summers, shrugged it off under oath (at the time he was President of the University): “In Washington I wasn’t ever smart enough to predict them [ethics rules] … things that seemed ethical to me were thought of as very problematic and things that seemed quite problematic to me were thought of as perfectly fine.” Summers testified that in his view, ‘’there was no aura of wrongness of any kind [in the US Treasury] that would be associated with providing advice on a financial issue in which one had an interest.”
Unseemly, yes. Problematic for Summers’ public credibility as a bank regulator? You bet. A problem for Obama to select Summers as Fed chair? Sadly not. The Administration has long ago blurred any boundaries between itself and Wall Street.
If Summers had demonstrated some magical powers of macroeconomic judgment over the years, his revolving-door approach to personal enrichment might be held in a different light, at least partially. Yet Summers has not displayed such magical powers. He has failed repeatedly to anticipate financial crises, whether in Mexico, Russia, and East Asia in the 1990s, when he had the Treasury’s international portfolio, or in the sub-prime crisis.
His crisis responses have been undistinguished as well. Most recently, Summer’s Keynesian policies piled on trillions of dollars of public debt but did very little to restore robust growth or reign in risky bank behavior. Behind the scenes Summers has also been on the biggest foes of responding effectively to climate change, another example of his big-business bias.
Many cynics have put the Fed issue far more succinctly. Since the banking lobby is already so powerful in the White House and Congress, why not simplify matters and just turn the Fed over to Wall Street. In fact, Obama seems on the verge of doing so.
Laurence J. Kotlikoff is a professor of economics at Boston University and author of “Jimmy Stewart Is Dead” and Jeffrey D. Sachs is a professor of economics and Director of The Earth Institute at Columbia University and author of “To Move the World: JFK’s Quest for Peace.”