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Aug-22-2013 02:49printcomments

It'll be a cold day in January...
The Summers of Our Discontent

He makes a July's day short as December; And with his varying childness cures in me Thoughts that would thick my blood. - William Shakespeare, The Winter's Tale

Lawrence Summers
Lawrence Summers photo: web.mit.edu

(DAYTONA BEACH, FL) - Recently, a White House hanger-on drew a comparison between the Republican Party and Lawrence Summers, former Clinton Treasury Secretary, Obama Economic Adviser and short-listed candidate for Federal Reserve Chairman. On the one hand, said the sage, you have an entrenched affinity for the topless towers of Wall Street and the banks that inhabit them, a disdain for the working public, the huddled masses yearning to be free and, more specifically, a chauvinistic attitude toward women in general and those in government and the academic world in particular.

And on the other hand, you have the Republican Party.

Larry, unlike his namesakes Kudlow and King Live, is at home around 1600 Pennsylvania Avenue, and certainly he's no stranger to The Street overlooked by Trinity Church, nor yet is he unfamiliar with exclusive boardrooms such as that of Enron.

But is he welcomed these days in the hallowed halls of Harvard? Not so much. At least not of late, since, as Harvard President, he exercised too vigorously his considerable financial derivative acumen, honed on the boards of hedge fund and mega-bank alike. As a result, he managed to slim down the University's overweight endowment fund by a tad over a billion dollars.

Compared with the loss JPMorgan Chase sustained through Libor wagering, or the total that Citibank collected as bailee in '09, that may not be so bad, although Harvard's alumni kitty or endowed boodle is generally considered too big to fail. But in the event, they Emeritussed him anyway, albeit with full academic honors.

According to William Greider, writing in The Nation, it may take some internecine lobbying by what Greider terms left-labor Democrats (a threatened species) to hold off the Summers nomination, given that he's one of Obama's faves. He somehow isn't quite a fit with those earnest liberals wringing their hands with frustration over the dead-end kids across the aisle. He and his predecessor Robert Rubin in the Clinton Treasury office were birds of a feather, and the detritus of their laissez-faire guano devastated the middle class, resulting in chaos since 2008 too familiar to us all even to mention.


In addition to academe and government, Larry had a sparkling career in corporate boardroom and World Bank sinecure alike. As the latter's chief economist, he showed his mettle at solving difficult problems, for example, by suggesting that toxic waste should be dumped in third-world countries. Third-worlders, in Larry's lexicon, are sort of like the working class in America writ large on a global scale. A bit of a pain in the ass, but quite manageable if kept in their place.

One of the unofficial mandates for the Federal Reserve, after containing inflation and stabilizing the business cycle in tandem with the banking system, is that old bugaboo ensuring maximal employment. In all the economics textbooks, full employment is the vector "C" which flat lines whenever Interest Rates "A" and Money Supply "B" are not too screwed up in the theoretical model. That's the stuff Larry used to teach at Harvard, so he's a natural for Fed Chairman.

For example, in 2007, he contributed the following definition to the Encyclopedia of Economics, in which he explains how jobless workers and their 47% solutions (such as unemployment insurance) actually are to blame for long term unemployment:

"Unemployment insurance increases the measure of unemployment by inducing people to say that they are job hunting in order to collect benefits… Government assistance programs contribute to long-term unemployment... by providing an incentive, and the means, not to work."

On the other hand, he infers, if people don't say they're looking for work, there is no incentive to pay them. As a result, no problem. It's a leaf out of Romney's book: if you pay the buggers, they remain idle.

In practice, the Federal Reserve has recently seemed to consider 6.5% as an acceptable unemployment level, at least in the brave new world that has such politicians in it. This rate should be greeted as inadequate, wasting human potential, dampening wage increases and restricting economic expansion. While Summers hasn't said so, such a permanent number and the acceptance of long term joblessness seems to be consistent with his oft-stated views on the economics of social welfare and his surly investment banker's suspicion of the clamorous working class and their constant drain on monetary policy because of unemployment checks and food stamps.


Contrasted with that bullying attitude - a major component of Larry's personality - is his abiding faith in large and comfy financial institutions. His highly visual record includes plumping for the repeal of some of the juicier provisions of Glass-Steagall, the Act that's been around since 1933 (sometimes managing to separate deposit-taking from playing the market). He also routinely opposes the regulation of derivatives, that peculiar flesh-eating disease epidemic in Wall Street since the 1990s, which he and the boyz on The Street maintain is a healthy adjunct to capital formation. And employing much the same reasoning, programmed trading - now about 70% of daily volume - is seen as good for Mom and Pop investors. Massive derivatives trading, of course, was one of the levers of the late lamented financial bouleverse, so his loyalty to the genre is understandable. That and the TBTF doctrine that netted his Citigroup alma mater $45 billion in the Big Bailout of '09.

Also in the wings as possible Fed boss, of course, is Janet Yellen, who is good news and bad news. Moderately liberal economist and veteran central banker, as Assistant Fed Chair she has staunchly supported Bernanke, and advocated efforts to mitigate unemployment and other structural economic weaknesses.

Summers' background in the seats of the mighty doesn't exactly dovetail with the need for Fed activism on employment, the need at times to balance expansionary supporting of job growth against countervailing initiatives to contain inflation and, accordingly, benefit Wall Street. And such a toss-up is likely to become more acute in the economy's staggering progress toward recovery. Greider notes that in a Wall Street Journal rundown of all Federal Reserve officials' forecasts over the past three years, Janet Yellen's was the most accurate score card.

The bad news is that she's a woman, and therefore couldn't offer a bigger contrast to Larry Summers, who on his Harvard record would probably consign her to the kitchen or at best to a job as stenographer.

"This year," the Nation's writer persists, "is the 100th anniversary of the central bank and the stolid masculinity of this cloistered institution has failed the country spectacularly. It needs to be ventilated by public debate."

And, possibly, the keen perception of a profoundly experienced and highly capable woman.

One of the criticisms most often aimed at Obama since the first term has been that his breath-taking oratory often fizzles out in the sober aftermath that should engage policy and action, but instead falls short, at least pertaining to working people and the middle class. His administration, of course is just one of the horses in the troika of government, but in one clear area his is the whip hand - determining who will run the Fed and ergo the monetary health of the nation. The choice between Summers and Yellen couldn't be more clear, the alternatives so sharply delineated.

It's a long, long way, as the old song goes, from May till December. But the days grow short and Obama's dilemma will grow more acute when we reach December.

Summer - and perhaps Summers - will be just a memory.

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Bill Annett grew up a writing brat; his father, Ross Annett, at a time when Scott Fitzgerald and P.G. Wodehouse were regular contributors, wrote the longest series of short stories in the Saturday Evening Post's history, with the sole exception of the unsinkable Tugboat Annie.

At 18, Bill's first short story was included in the anthology “Canadian Short Stories.” Alarmed, his father enrolled Bill in law school in Manitoba to ensure his going straight. For a time, it worked, although Bill did an arabesque into an English major, followed, logically, by corporation finance, investment banking and business administration at NYU and the Wharton School. He added G.I. education in the Army's CID at Fort Dix, New Jersey during the Korean altercation.

He also contributed to The American Banker and Venture in New York, INC. in Boston, the International Mining Journal in London, Hong Kong Business, Financial Times and Financial Post in Toronto.

Bill has written six books, including a page-turner on mutual funds, a send-up on the securities industry, three corporate histories and a novel, the latter no doubt inspired by his current occupation in Daytona Beach as a law-abiding beach comber.

You can write to Bill Annett at this address: bilko23@gmail.com

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Steve Moylett August 23, 2013 11:48 am (Pacific time)

Mr. Laffer (Laffer's Curve) would be the most responsible choice considering that the Senate cannot provide a budget (years now), and Obama's puppeteers have finally wound their strings too tight to expect any ideas from them, i.e., just more of the same distractions. Every year since some of the American voters understood the need to put adults in charged of at least the House, we have seen Obama and crew blame everyone else for our economy, failed domestic policies, poor educational achievement, uptick in black on white hate crimes (yesterday an 89 year old WWII Marine [Purple Heart/Okinawa] was beaten to death by two blacks in Washington state using a mag flashlight), and on and on. Leadership is not to be expected in this Fed choice, so I expect more of the same until we remove the cyst from our backside.

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