The Real Question isn’t about Summers Judgment
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?
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.