Monday, September 09, 2013

Syria is not as important as the choice of the next chief of the Federal Reserve ... by gimleteye

With Syria, President Obama will have succeeded -- whether Congress votes to approve a limited engagement this week, or not -- in pointing out the limits of American power in an increasingly small and dangerous world. These limits will be tested again by our adversaries. Having spent a few trillion dollars on wars without clear or achievable objectives, on Syria the American taxpayer and voter is the ultimate decider.

Moving the domestic economy is a much more complicated matter than the tangled, tragic Mideast. There are no obvious signals -- like the Assad regime chemical gas attacks on its own citizens -- as signposts for public consideration. The operations of the economy, through the US Treasury and Federal Reserve, are opaque.

It is an interesting contrast: the highly visible and stomach churning Youtube clips of gassed children and adults in Syria and the cloaked, mysterious interplay between the high chief of finance -- the head of the Federal Reserve -- and the high chiefs of Wall Street.

The loss of confidence by Americans in government and public institutions is arguably a bigger and more present danger than the murderous Assad regime or the Al Qaeda infiltration of rebel ranks. Along this line, with his choice of the next chief of the Federal Reserve, President Obama has a better opportunity to distance his administration and legacy from the emergence of bad policies and even disinformation campaigns waged by recent administrations, on the economy.

That's why the choice of a new federal reserve chief by President Obama is as momentous as the decision whether or not to drop bombs on Syria. Obama -- it is thought -- is leaning toward Larry Summers, a key member of group of advisors who Obama leaned on heavily, from the first days of his administration, as the White House struggled to contain the worst economic emergency since the Great Depression. But Summers is also associated with the origins, along with other hold-overs from earlier administrations.

With the Syria mess, President Obama can plausibly claim -- even if Congress repels a vote to unleash the bombs -- he has pinned the onus on Congress for any future transgressions of chemical attacks. With a choice of Summers instead of vice chair Janet Yellen, President Obama would be making his own irretrievable error. Conservatives and liberals alike would blame President Obama for a Federal Reserve chief who cannot plausibly distance himself or herself from so much economic carnage.

Peter S. Goodman, Executive Business Editor, The Huffington Post

Larry Summers Is An Unrepentant Bully
Posted: 07/25/2013 12:44 pm

In the fall of 2008 -- just after many of the nation's largest financial institutions teetered toward collapse, prompting the government to unleash a taxpayer-financed rescue -- I called Larry Summers at his Harvard office to ask him whether he had any regrets.

Specifically, I wanted to know how Summers had come to view his actions as Treasury secretary in the Clinton administration, where he had joined then-Federal Reserve Chairman Alan Greenspan to dismantle the government's authority to regulate trading in derivatives -- the very financial instruments then playing a central role in the crisis.

Summers immediately took charge, barking that we were off the record -- a directive that I rejected, prompting him to raise his voice. He accused me of conducting a "jihad" aimed at unfairly implicating him as a cause of the financial crisis.

I promised to call him again before my piece ran, giving him time to reflect. I left messages but didn't hear back, so I left one more, reminding him of my previous calls. When he finally called, his legendary condescension was fully engaged.

"The probability that you left me a message that I did not receive is approximately zero," he said. When it turned out that his secretary had been mixed up about the date of my messages (or maybe it was Larry who was mixed up?), he turned on her, criticizing her sharply with me on the line.

There are worse things in life than terrible phone manners, imperiousness and excessive confidence, but these traits have just become more relevant amid the disclosures that Larry Summers appears to be the front-runner to take over as Federal Reserve chairman assuming Ben Bernanke steps down early next year.

By intellectual pedigree, Summers may be unrivaled as claimant to the chair. He has a bachelor's from M.I.T., a Ph.D. from Harvard, a slew of academic awards and an unmistakably brilliant mind. Anyone who has talked to Summers must surely grasp what prompted President Barack Obama to bring him aboard as his leading economic adviser. Summers excels at boiling down difficult subjects to their essentials and analyzing competing positions crisply. He speaks in PowerPoint sentences, with the sort of authority and sweep that a president needing to make a tough decision must crave.

But history is full of examples of people whose remarkable brains have effectively inured them to important dimensions of reality. This is how Ivy League-trained technocrats in the Kennedy administration led us into the pointless killing ground of Vietnam, so certain of their world-views that they did not bother to examine conditions on the ground.

This is how Greenspan persuaded Congress and several presidents to trust in his libertarian fantasy that leaving the markets alone would make milk and honey spew forth from the earth. He was so resolute in his views and so forthright in his articulation that those around him were fearful of challenging him lest they risk embarrassing themselves. The result was a collective delusion that gripped the polity: Housing prices can never fall. This became the underpinning for an economic tragedy from which tens of millions of Americans have yet to escape.

"It's like dealing with a professor of a complex subject that you're supposed to know something about," the former chairman of the Securities and Exchange Commission, Arthur Levitt, said of Greenspan when we talked in the fall of 2008. "I always felt that the titans of our legislature didn't want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth. I don't recall anyone saying, 'What do you mean by that, Alan?'

Now imagine what happens in response to a similar question: What do you mean by that, Larry?

The result is likely to be an impatient lecture rather than an exchange of thinking that might improve policy by injecting alternate views into the conversation. Summers possesses the same sort of supreme assuredness that rendered Greenspan impervious to competing perspectives, plus another trait that may be even more disturbing in a Fed chairman: He is a bully. He cannot help but run over people who hold positions counter to his own (especially if said people are women).

His clashes with female professors at Harvard are legendary. More recently, Summers squelched Christina Romer, his White House economic team colleague, as she sought a larger dose of stimulus spending than he deemed wise.

Back in the late 1990s, Summers ran over Brooksley Born, then head of the Commodity and Futures Trading Commission, when she presciently sought to use her agency's authority to regulate derivatives. He personally called her and hollered at her, according to Born's commission colleague, Michael Greenberger, who was in the room at the time.

"He said, 'You're going to cause the greatest financial crisis since the Great Depression, if you regulate this,'" Greenberger told me.

When I bumped into Summers more recently, in January 2012, he remained both unrepentant and unreflective. I asked him if he had any regrets given the benefits of hindsight. Could he have done more to avoid the financial calamity? Could he have accelerated economic recovery? He just scowled and dismissed his critics as people who lack the requisite sophistication about economics and politics.

The realm of the Federal Reserve is arcane to most people, but suffice it to say that it is in something like a control tower overseeing a busy major airport: It is supposed to recognize dangers early enough to do something about them. The Fed tightens the flow of money when investment bubbles begin to emerge. It eases the credit taps when the economy is slowing. It is the ultimate overseer of the financial system, the institution that is supposed to be looking out for signs of dangerous speculation and inadequate transparency.

It is in short an institution that ought to be headed by a keen student of history -- a group that includes Larry Summers -- but also someone capable of examining their own personal history in pursuit of needed tweaks to their thinking. The chairman ought to be open to absorbing and considering the admonitions of others, cognizant that no one's thinking is as sharp as several brilliant minds probing a problem together.

Summers is temperamentally ill-suited for this all-important job. His life can be summed up in a simple equation: Brilliance plus arrogance yields perilous foolishness. His absolute faith in the soundness of his views coupled with his demonstrable tendency to disdain people who disagree have put him on the wrong side of history. We can do far better than hand him the keys to the Fed.

This story appears in Issue 60 of our weekly iPad magazine, Huffington, in the iTunes App store, available Friday, August 2.

1 comment:

Anonymous said...

Summers would be a disaster. Is this fear of nominating a woman?