Is Larry Summers Headed for the Door—Again?
Posted on March 29th, 2010 in Uncategorized | 27 Comments »
Fox Business News reports that he’s been “telling associates” he’s gone by the end of the year….
Gasparino quoted Wall Street executives who deal with key members of Obama’s economic team, who suggest that Summers may be unhappy in his job.
What next then? Back to Harvard? D.E. Shaw?
27 Responses
3/29/2010 6:24 pm
Well, RB, if LHS wants to hold on to the Charles Eliot Norton University Professorship and its considerable emoluments, he would need to be back at Harvard by January 2011:
http://www.thecrimson.com/article/2000/6/5/white-house-whiz-kid-kissinger-serves/
Kissinger’s leave of absence-strictly limited to two years by University policy-expired in 1971, but the government department preserved a chair for him for two additional years in an unorthodox decision.
“This was an unusual action, prompted by the view of his former colleagues that there was not…a scholar in the field of international relations whom the department would prefer to him,” said James Q. Wilson, then chair of the government department, in a 1973 statement.
Wilson, currently professor emeritus of political science at the University of California at Los Angeles, says Harvard repeatedly asked Kissinger to return.
“The department would have been pleased to have him back,” he says. “He had a reputation as an excellent lecturer and excellent seminar leader.”
But Kissinger refused the offers.
3/29/2010 7:46 pm
Maybe he just wants to live in the same town as his wife.
3/29/2010 9:55 pm
Maybe he is ready to be Dean of HBS
3/29/2010 10:16 pm
Clearly Summers’ decision, if indeed it is Summers’, will carry a great deal of weight in the grand scheme of things.
3/30/2010 8:00 am
Well, is it Summers’ decision or not? This reader would like to know what you think. Why should Summers get off on this blog now when he didn’t get off before? Richard has a “real” job and he is doing the best he can but it takes a lot more of his time than it used to, and he has let us know that many times. I know the blog means a lot to him and I know he will contribute more when he can. Is anybody around? Do we really need him to babysit us? Discussions have gone on before without him, sometimes for days. They were interesting.
3/30/2010 8:11 am
RT,
In theory yes, Larry would have to be back by January 2011.
However, that is in theory. There have been exceptions to that rule, at least in The FAS. One famous one involved an extended departure of several years and when the professor wanted to return, the high muckety-mucks in Mass Hall (yes, Mass, not University Hall) not only brought him back, but gave him the outrageous financial package that he demanded. It was business as usual for “special” people, at the expense of all the other faculty members… and from what I hear, it goes on even as this is being written. Cut the library budgets, but give certain “stars” outrageous sums, either as cash or perks.
3/30/2010 8:23 am
At this point, though, “star” doesn’t go in quotation marks for Summers anymore. He’s a leader of a team that cobbled together a phenomenal recovery of a horribly wounded financial system.
Whatever inappropriate special treatment LS might have gotten in the past as part of an ugly severance situation, special treatment he gets going forward will be justifiable with reference to his stature as a historic figure in applied economics.
I hasten to add that I don’t think his Harvard pay should be supersized — nor will he need it to be. But he will have earned some latitude due to his accomplishments.
Consider by analogy a John Glenn coming back to teach at Miramar. He writes his own ticket.
Flame away.
Standing Eagle
3/30/2010 8:30 am
And consider by extreme counter-analogy Alberto Gonzales. Had his shot, disgraced his profession, and virtually no law school will touch him. Has a visiting gig in Lubbock. Much unlike Skip Gates, he couldn’t get ARRESTED in Cambridge.
Success in a national context — within the bounds of intellectual integrity — matters.
SE
3/30/2010 9:36 am
John Yoo seems to be doing fine at Berkely though.
3/30/2010 10:06 am
He had tenure before.
3/30/2010 10:18 am
That’s better! Hope you keep it going. I know Richard checks the blog but it takes time to find stuff to post on here when you have umpteen other things on your mind, (that I can understand) and I know he will participate when he can. In the meantime, I have to try and figure out why my computer appears to be dying for no apparent reason which doesn’t make me too happy. Mortgage rates are going up today and the last thing I need to do right now is buy a new Mac. (Now it’s changed it’s mind.)
3/30/2010 10:28 am
Jim,
“a phenomenal recovery.”
Surely you jest.
3/30/2010 10:34 am
My thoughts exactly, Sam. Anyone got a job for my daughter in the Brooklyn/NYC area?
It’s presumably pre-supersized, SE, since I imagine he took the permitted two-year unpaid leave and will step back into the UP. How about a pool as to when it happens? I say soon before Jan. 24, 2011, first day of classes — not that he would have to teach.
3/30/2010 10:52 am
Sam, I said a phenomenal recovery OF THE FINANCIAL SYSTEM. Not the economy overall.
Consider for example:
http://voices.washingtonpost.com/ezra-klein/2010/03/taxpayers_to_make_8_billion_of.html
3/30/2010 10:54 am
I would have to question that phenomenal recovery as well. My daughter and I put out some feelers as to the housing market in Portland, Oregon which is a possibility for some post doc work my son-in-law might be doing there, and we were greeted by a shark-like feeding frenzy among realtors. There are more houses for sale there and foreclosures than leaves on the trees. I wouldn’t call that a phenomenal recovery by any means.
3/30/2010 12:02 pm
Please, no bad words about sharks! Richard doesn’t like that.
3/30/2010 12:45 pm
Jim,
An 8 billion dollar profit from Citi (if in fact it turns out to be 8 billion) on an incredibly risky loan of 300 billion (why didn’t Klein mention that in the Post article you pointed to ?) is a terrible risk/reward return, and it certainly doesn’t speak to a “phenomenal financial recovery.”
There has been no phenomenal financial recovery, just a return from the brink of a financial apocalypse. The system, both macro and micro, is still far too highly leveraged. Asset impairment for banks, insurance companies, university endowments, private equity funds, real estate funds and hedge funds in general, is still the norm. Return on capital is very low.
The government has had the printing presses going full time and that has saved us from the brink, but so far no more than that. The ramifications of a hugely expanded Fed balance sheet remain to be seen. Institutions are still overleveraged, the consumer is overleveraged, and now the government is way, way overleveraged.
More importantly, there has been little financial reform. For example, why is it that the banks that taxpayers saved, are still lending to hedge funds so that the funds can leverage themselves at 4:1, 5:1 and more. Didn’t the government learn its lesson about excessive leverage. Why has Citi (and other banks and investment banks that taxpayers saved) once again funded their proprietary desks with huge amounts of capital? Prop desks add little real value to our economy. Why aren’t bank capital ratios higher than they are. Have we quickly forgotten what happened in September 2008 and the subsequent six months?
It remains to be seen whether we have a “phenomenal financial recovery.” A financial recovery takes about three years. The jury is still out.
As I’ve also said here a number of times in the last year, there will be a huge price to pay for the level of debt that has been used to bail out the financial institutions, financial institutions that took on very poor risks using a tremendous amount of leverage, made a ton of money (for the employees at the institutions) and then had taxpayers bail them out… at a minor cost to the institutions, but at a huge cost to us the taxpayers.
In two years, why don’t we revisit this again and see if we’ve had a “phenomenal financial recovery.”
3/30/2010 2:38 pm
Sam, what is the worst case scenario in your view? and what are the odds of that scenario?
3/30/2010 3:23 pm
Don’t know about worst case scenario. All I know is that I’m very, very cautious about my our investments (i.e. We’re fully hedged, and have been wrong for the past six months). Our investments are all we have to live on now that my wife doesn’t have her multi- million dollar salary and the incredible number of low priced stock options that Mother Harvard gave her during her employment.
The odds of a worst case scenario… I don’t look at things that way. Odds are only good when you have many exposures (the old actuarial student speaking). If you have a worst case scenario, whatever that is, you simply don’t want to bet that it won’t happen, as Nassim Taleb pointed out so well in The Black Swan (and again, read Lewis’s The Big Short). You want to bet that it is a possibility and take the proper precautions to guard against that possibility. Fat tails and long tails have to be considered as a real possibility in this fragile environment.
3/30/2010 3:51 pm
Okay, I say “so far so good,” you say “just you wait.” Of course I agree about the need for regulation of leverage and capital requirements, and I hope Obama can pull off a farsighted legislative miracle. Maybe he missed his chance for that, but I don’t think congressional tactics are Summers’s portfolio.
We have to take your word for it on the riskiness of the Citi thing, because all that we laypeople have to go on is outcomes. It’s clear though that all these economists were operating in a very high-risk environment, and it’ll take some doing to persuade me that inaction or additional action (ie, nationalization) toward the big banks would have
been any riskier.
I think you know my opinion about broad analogies between private leverage and government debt. They’re simply not the same thing, and until there begins to be SOME indicators of inflation on the horizon I refuse to obsess about the deficit. Unlike most people, too, I think Obama is serious about his debt commission. He had perfect cover to scrap it and he forged ahead.
We’ll see how things unfold. But your phrase ‘back from the brink’ puts us at 70% agreement already.
Standing Eagle
Not Hawkish on Deficit
Hawkish though for Cistercian (look it up)
3/30/2010 3:56 pm
Forgot to mention moral hazard. It’s a shibboleth for some damn thing, so:
Moral hazard! We have to address moral hazard!
(I propose we address it by making more immoral things [*cough* undercapitalization *cough cough*] illegal. Did I ruin the shibboleth effect?)
Ahem.
Moral hazard.
That is all.
Standing Eagle
3/30/2010 4:20 pm
1. I don’t have to look up Cistercian. I’ve been to Citeaux Abbey.
2. You said: “We have to take your word for it on the riskiness of the Citi thing, because all that we laypeople have to go on is outcomes.” So… the government steps in to back 300 billion because Citi couldn’t get rid of it… doesn’t that say something about the risk of what it backed?
3. You said: “I think you know my opinion about broad analogies between private leverage and government debt. They’re simply not the same thing, and until there begins to be SOME indicators of inflation on the horizon I refuse to obsess about the deficit.”
Jim, inflation is only one part of the potential problem with the deficit. You’re a very smart guy, but some of your statements make me wonder if you might possibly need a refresher course in macro.
4. You remember what George said, don’t you: Those who do not remember moral hazard are condemned to repeat it.
3/30/2010 5:35 pm
1. You’re supposed to look up “Cistercian Hawk.” Go Hox!
2. The point of a financial “panic,” and of bailouts during a panic, is that assets are wildly undervalued. A pretty important premise of bailing people out is that when things return to normalcy you’ll most likely recoup your money. The $300b needed backing because there was a PANIC, not because they were unsound assets. What am I missing here?
3. I’m sure there are lots of other potential problems with a high deficit, but I’ve never taken a macroeconomics class and don’t know what those problems are offhand. I could certainly think on it a bit, or you could enlighten me. How far away are they? What are the warning signs? What should I be short-selling that no one else has noticed or pointed out in the economics blogs I read? Which of the dire deficit consequences is worse than 11% unemployment?
4. I hate me some moral hazard too, of course. I’m with you 100% on the need for serious reregulation.
To be honest, I thought you might come back with attacks on Summers for being anti-Glass-Steagall when it counted, or some such. That might have been more interesting than just generally scolding me for being pretty damn, and I think justifiably, pleased with our policy over the last 18 months of extreme crisis. This road may be rutted and bumpy, and the guy in the back seat spilled some of his Mountain Dew on the upholstery, but we’re not currently a mound of smoldering Greyhound-bus parts at the bottom of the canyon, and that’s a hell of a thing.
Flame away (“ZOMG! Standing Eagle Never Took an Economics Class! !!!!1!!! !!!!!!!111!!!!ONE!!!!!”).
Standing Eagle
Trying to Picture Sam S. typing the letters “OMG”
3/31/2010 3:04 am
That last was not from me.
3/31/2010 3:29 am
Jim,
With regard to #2… in a panic, some assets are wildly undervalued. That’s why value buyers of equities, me for instance, were, between October 2008 and March 2009, like kids in a candy store.
However, in a panic, some assets are not wildly undervalued; some assets are worthless, close to worthless or severely impaired. In each of the foregoing cases, usually the assets are worth a lot less than what they are carried on the books of whomever owns them. If people weren’t aware of this fact before, Lewis’s The Big Short will show them this is so.
It is crucial to distinguish between wildly undervalued (opportunity time!) and worthless (paper your walls). It doesn’t take a genius (nor someone who has taken an economics class) to take advantage of the wildly undervalued situation… so you can do it Jim. All it takes is some common sense, a lot of patience, and the ability to withstand wildly undervalued assets, going to wildly, wildly, wildly undervalued assets. That means no excessive leverage. Once again Mr. Keynes: “the market can remain irrational longer than you can remain solvent.”
Best,
3/31/2010 6:53 am
Bingo. And the US government can remain solvent longer than anyone else. Hence, bailouts.
Which, to be clear, you’re right, were not investments. The profit is gravy.
Didn’t I say we weren’t disagreeing?
I think I’d be good at managing my investments, if I hadn’t gone into the field of education. No lucre!
Allow me to affirm that of course the US is not guaranteed to stay solvent forever. So fill me in: what are the short-term dangers of countercyclical deficit spending when the debt is already (somewhat) high as a percentage of GDP?
SE
3/31/2010 6:12 pm
Sorry, Sam. The comment in your name was not meant to be disrespectful to you, it was meant to take a shot at SE, all in fun. Richard deleted it and I think that was probably why. He’s quite right. It must be a wonderful think to be that well respected and treated with the respect you are. You are a lucky man.