(End of) Summers Updates

Bloomberg has a piece this morning about the debt swap fiasco at Harvard, and what it says about Larry Summers's tolerance for risk and his suitability for the Fed job. I am glad that the reporter at least mentioned the Shleifer affair as a factor in Summers's exit from the presidency, though the reference to Shleifer is too obscure to serve as anything but a reminder to the small number of people who knew about it already. The same reporter wrote a stronger piece several years ago. Summers's defenders have a fair argument when they say that Summers can't be held responsible for the disaster caused by the inaction of his successors. The investments, goes the argument, were unconventional but smart ("brilliant," I can almost hear them say) at the time, but they required constant monitoring for changes in the interest rate picture. The losses came because Harvard waited too long once Summers was gone and, apparently, no longer micromanaging the investments. I said that argument was fair--I did not say it was convincing. The counter-argument is that these investments were utterly inappropriate for any non-profit, certainly at the scale they were being made. In fact the logic of the defense raises more questions than it tries to answer. EITHER these investments were Larry's personal play, in which case the Harvard Corporation was letting him make billion-dollar gambles. OR these investments were subject to thorough vetting by the Corporation, in which case the Corporation should be honest enough to take responsibility for making investments that no expert on nonprofit management would defend. And let's see now--who is on the Harvard Corporation who might have been thinking about this bright idea of Larry's? Why, his old crony capitalism buddy Robert Rubin. (Cf. my 2009 Huffington Post piece.) But no, Summers's apologists are instead throwing our history professor president under the bus.

The blame lies with Faust and her administration, not Summers, said Brad DeLong, an economics professor at the University of California, Berkeley. They failed to monitor the contracts and opted to terminate them at a time when the financial panic made the cost of exiting more expensive.

That is outrageous. Fine, maybe throw in some blame for the CFO. But where are the Treasurer, the Senior Fellow, and most of all, the financial wizard Mr. Rubin, either at the time these bets were made or the time they were lost? But enough on the debt swaps. A couple of other interesting pieces have appeared lately. In a post modestly called The Confidential Memorandum at the Heart of the Global Financial Crisis, Greg Palast parses a curious memo of which he somehow got a copy. Here is Palast's opening:

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn’t believe it.

The Memo confirmed every conspiracy freak’s fantasy:  that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet.  When you see 26.3%unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears. 

The Treasury official playing the bankers’ secret End Game was Larry Summers.  Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank.  If the confidential memo is authentic, then Summers shouldn’t be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world. 

The memo is authentic.

Now this is a fascinating piece. I don't know anything about Palast and I am in no position to comment on any part of Palast's interpretation of the significance of this memo. But one part of his explanation looked quite familiar.

To avoid Summers having to call his office to get the phone numbers (which, under US law, would have to appear on public logs), Geithner listed their private lines.  And here they are: