View Full Version : Summers and Wall St (NYT)

04-06-2009, 07:42 AM

04-06-2009, 12:50 PM
All reports concerning L. Summers , are that he is brilliant. His academic record - at least as a student - also buttresses the claims.
As a Rubin protege , opposed financial markets regulation at end of Clinton admin era; supported repeal of Glass Steagall , and the commodities legislation restricting/precluding hedgefund controls , and allowing side-bets as CDS.
Quants tend to be good within the box , but antsy about reconfiguring same --
or , perhaps it would be more intellectually fair to say that it requires a good bit of commitment , probably incorporating substantial pugnacity , to counter the currently vast , entrenched interests of the U.S.'s financial-regulatory oligarchy. I was initially hopefull that Christopher Cox would be an active regulator , not because i thought a conservative Republican Bush appointee would necessarily grasp reality ... but because it was reported that Cox had previously witnessed regulatory failures and associated side-stepping, on his watch . Instead , Cox reported last fall that 'voluntary' regulation was inadequate ! [That's OK for 2nd or 3rd grade elementary school ... but 'unacceptable' beyond middle school.]
Again , Quants know numbers , or better , mathematic formulations/applications and theory , relevant algorithms. Joseph Nocera , ever the apologist for such peddlers of fraud as Henry Blodgett , explains in elegant prosaic detail how some financial actors were able to effectively employ VaR (Value at Risk, cf: http://www.nytimes.com/2009/01/18/magazine/18letters-t-.html?scp=3&sq=Joe%20Nocera%20VaR&st=cse , http://www.nytimes.com/2009/01/04/magazine/04risk-t.html?scp=1&sq=Joe%20Nocera%20VaR&st=cse ). But , as noted by TONY VENEZIA of Mamaroneck, N.Y. in a letter, the problem was not that "...[senior management] didnít see the black swan; it was simply that they were unwilling to kill the golden goose.Ē
There are ratings agencies , bought-off/compromised.
There are accounting functionaries , bought-off/compromised.
{update- 'mark-to-market' acctg is relaxed}
The underwriting, brokering , investment advising and insurance functionaries are bought-off/compromised.
The entire regulatory function has been re-defined as irrelevant; it also presents as bought-off/compromised. Treasury Secretary T. Geithner ,responding to Congressional questioning (admittedly a bleak venue for illumination at this point) in March , reported that although a life-long public sector servant , he had never been a 'regulator'. A previous head/member of the NewYork Federal ReserveBank , William Donaldson , has been repeatedly quoted , over at least a thirty year timespan , to the effect that ,"Markets do/can NOT regulate themselves" ... one suspects his employment at the Fed was perceived to be in the capacity of a regulator (and that such a detail was nothing to be embarassed about).
Paul Krugman in 'Return of Depression Economics' C1999, explains the severe consequences ,of moral hazard, involved in guaranteed loans/deposits/storm-insurance.
Simon Johnson , The Atlantic magazine May2009 ,"The QuietCoup" observes that generally when (typically developing) economies reach the current status of the U.S. economy , it is generally necessary to break up the entrenched relations between elements of the prevailing oligarchic elite. (refs in following thread)http://www.woodenboat.com/forum/showthread.php?t=94934
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Even given Dodd, Lieberman , Markey , and Gramm retiring/resigning -- and being replaced by active , disciplined regulators -- how could Summers 'tweak' the banking/finance establishment effectively. It seems a consensus on the causes of the systemmic financial>>economic failure are essential to plausible corrective action, and , again , this seems lacking. [Oh-- no Senators have resigned YET!]
Summers has been reporting for over a decade that the new global economic interrelationships have conferred on 'those with requisite skills' the impressive sums of consideration expected as remuneration by such WallStreet heroes as John Thain, lionized in the popular media (well ,until more recently demonized) .

The question posed by the mentioned article,
'Business A Rich Education for Summers (After Harvard)
By LOUISE STORY Published: April 6, 2009' , reflects the observations made by ex-CIA operative Robert Baer, in the period leading up to 9/11/01 (primarily referencing the Clinton administration) ,"Afloat on this sea of self-absorption, the White House and the National Security Council became cathedrals of commerce where the interests of big business outweighed the interests of protecting American citizens...". The good news is that Summers has now some wealth, whether that will contribute to 'independence' or indebtedness, remains to be seen.
-T m

04-09-2009, 11:13 AM
In 1989 L. Summers wrote a paper anticipating a market collapse sparked by real estate and issues with securitized assets sold abroad ... reported last weekend , NYTs , but i lost/fergot citation .

06-08-2009, 09:59 AM
Current NYTs article reviews some of the dynamics within perhaps the most qualified economic team in any presidential administration.

June 8, 2009 By JACKIE CALMES
Obama’s Economic Circle Keeps Tensions Simmering
Lawrence Summers: " “The advice I give is based on determining the right course of economic action, recognizing all the political factors.” "

Timothy Geithner: " “Larry will come to any issue and say, well, here’s all the 16 reasons why there’s problems with that proposal. If he’s got ideas, particularly if I think they won’t work, I say to him, ‘Well, why don’t you make the case against it, Larry, because you’re pretty good at making the case against anything.’ ”
But, Mr. Geithner said, that trait makes Mr. Summers a good director of the economic council because “he is better than anybody else on the planet at framing the case for and against any particular issue and reducing something to a set of concrete options.” "

Peter Orszag: " “Larry Summers is one of the world’s most brilliant economists,” .... “He enriches any discussion he participates in, which is particularly valuable given the complexity and importance of the challenges currently facing us.” "