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The Real Question isn’t about Summers Judgment

2009 November 29
by Ian Welsh

So, a story about how Summers ignored repeated warnings about risking Harvard’s endowment:

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, who spoke on the condition of anonymity for fear of angering Harvard and Summers. He considered the cash investment a “doubling up’’ of the university’s investment risk.

But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses.

What does this say about Summers judgement?  What does it say about the man who may be more in charge of Barack Obama’s administration’s economic policy than anyone else?

And the real question almost no one wants to ask, what does it say about Barack Obama’s judgment that he made this man his chief economic adviser and keeps him as his main economic adviser?

As Sean-Paul Kelley said, somehow everyone’s willing to take shots at people like Summers and Geithner, but not at the Czar:

This is just irritating.

I think the president is [focused on Main Street],” Brown told CNN’s “State of the Union.” “I think the vice president is. I think the advisers are mixed.”

The Ohio Democrat was responding to a handful of House members — Democrats and Republicans alike — who this past week had criticized Timothy Geithner for mishandling the bank bailout and failing to spur small business lending. Those members have called for the Treasury Secretary’s resignation in light of these perceived failures.

What Sherrod Brown is basically saying is this: “I love the Czar, Long Live the Czar, but down with his ministers.” Seriously, this is a narrative trope straight out of Czarist Russia, when the peasants, long oppressed and over-taxed bemoan the fact that their Czar loves them, but is surrounded by evil ministers. Brown knows better.

If the emperor is surrounded by bad advisers, the emperor is ultimately to blame.  He chose them, not the other way around.

7 Responses
  1. anonymous permalink
    November 29, 2009

    I don’t think anybody inside or outside the WH is fooled. They’re just trying to let the jerk save face, but mostly they want spare the Dems a circular firing squad come next year’s elections. In the end, Obama will be held responsible, but the congress will be held responsible 2 years before Obama. If they come out against him, the election becomes a referendum on Obama. Total lose-lose situation for the Dems, especially the progressives. The Blue Dogs instinctively think that running against the DFHs will help them. And if you’re talking about a state full of mewling fuckwits like Connecticut, it does.

  2. November 30, 2009

    Obama is responsible for sure, in a technical sort of way. But it’s not that surprising that he would make such people his advisors. After all, they are supposed to be the cream of the economic crop. And what are Democrats if not interested in what the “real” “experts” want to say…? After all, being “reality-based” and “scientific” makes them different from Republicans…

  3. Ian Welsh permalink*
    November 30, 2009

    If being the “cream of the economic crop” requires one to have lost billions and missed the greatest economic collapse of the post war era, then yes, Summers is the cream of the crop.

    And his failings were known in January.

  4. November 30, 2009

    By the way, I’ve been wanting to say this for a long time, not because it’s actually useful or anything but…do the Kossacks work for the Czar?

    Hee hee.

  5. November 30, 2009

    Obama, may not, at the beginning, have realized just what he got with Summers and Geithner. Summers appears to have all the over-confidence and false charm of a narcissist, and such people are amazingly persuasive. There’s this whole huge rhetorical structure been built up to provide these people with arguments: Obama was probably exposed to it at the University of Chicago. I wonder if he knows, now. I wonder if he cares.

  6. Lex permalink
    November 30, 2009

    The idiocy of Summers should have been clearly visible to all at least a decade before Obama appointed him to blow up whatever was left of the US economy.

    I don’t care what his IQ is, that has nothing to do with anything except the luck of the genetic draw. What one does with one’s IQ is the important bit. What kind of mush-brained fools are populating the halls of power if they’re all intimidated by Summers? Aren’t they supposed to be the best and the brightest too?

    Sean-Paul is dead on describing the meme as Tsarist; i expect Obama to start heading out to resolve a peasant dispute or two each year after reading letters from the little people. Remember how much he hyped his transition and the all-star team that would rival Lincoln’s as it hit the ground running?

    I don’t label myself a “progressive” (too haunted by Zeno for that at the definitional level)…or even a “liberal”. There isn’t room in the American discourse for a lonely socialist-libertarian, so this doesn’t feel like any more of a betrayal than everything else that happens in that fetid swamp of political debauchery. But i know a jackass when i see one, and i don’t see anything else in Mr. Obama.

  7. John B. permalink
    November 30, 2009

    Remember the bumper sticker:

    Get Disapointed by Someone New: Obama ’08

    How apt…

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