All the sins of Larry Summers that justified his comeuppance

Since yesterday, when Larry Summers announced that he is taking his name out of consideration for the Chairman of the Federal Reserve, I have received two emails from old friends.  Hey, Judy, what do you think of that?  (As if they didn't know!)
Let us not cry for Larry and his lost dream.  He will have to satisfy himself in his comfy office at Harvard, and at whatever hedge fund he's hanging out at these days.  The man will not starve, though a little bit of fasting might not hurt him.
Still, it is time for me to lay out ALL of his sins, and to wonder why President Obama would ever have thought he would be acceptable to his (Obama's) base.  Most of these you will know about.  One, however, was embedded deep in one of Summers' op-ed pieces in the Washington Post over the past year.  It's the most cardinal sin of all.

Recap:  The frequently mentioned sins:  

1.  Responsible for the Financial Crisis:  He and his mentor (Bob Rubin) disparaged Brooksley Born, of CPSC, back in the 1990's, when she tried to get the Clinton Administration to do something about  the danger of unregulated derivative markets.  Those two, along with Alan Greenspan, snickered at little Brooksley who, as female, could not possibly understand the workings of big finance.  Eventually, to ensure their point of view, the four horsemen (Rubin, Greenspan, Summers and Gramm)  shepherded the Commodities Futures Modernization Act of 2000 through Congress near Christmas 2000.  Did Clinton even know what he had signed?  Well, not his greatest hour, but he listened to his advisors.  His advisor, our boy Summers, was not only wrong on the issue, he was arrogant about opposing views.   Unlike Alan Greenspan, he has never apologized for his role in the fiasco.

2.  Harvard Remarks on Women:  After alienating the faculty (let's forgive that), he made some remarks about women and math, which were probably inadvertent but which reflected an unscientific mindset and a clear bias against women.  He was pointing out the achievement gap in higher math between men and women. That's simple fact.  He argued for more research on the causes of same.  That's good.  But, then, he couldn't stop.  He said his "hunch" was that the cause of the gender gap is genetic and not environmental.  Ah, Larry. There it is.  No evidence, but your null hypothesis (needing to be disproven) was genetic male superiority!  Done as President of Harvard.  Yea!

3.  Performance in the White House during the Obama years.  Divisive, dithering, turf-conscious.  Ron Susskind's book, "Confidence Men" laid it all out.  I needn't say more.  Here is the New York Times article that describes Summers and what everyone (except the President, apparently) thought about him.  I will say no more as this item makes me wonder about my own crush on President Obama.  I don't want to go there.

The Mortal Sin:  (not mentioned in any of the news articles)

1.   The man supports the building of the Keystone Pipeline.  Why, he's such a genius that he knows about energy policy and global warming even better than the vast majority of climate scientists,   When I read his Washington Post Column (on economic growth) in which he put forth his argument, I felt obliged to write an angry letter to the Post editor asking why they print this man's drivel after his performance in numbers 1, 2, and 3 above. (I thought I was being clever, but my screed was not published.)  I have just spent a half hour looking for that opinion piece in the Post and could not find it.  But here it is, reprinted in a Reuters-India paper.

RIP, Public Servant Summers!  Enjoy retirement advising the hedge fund managers.

The best summary of the causes of the financial crisis

The Washington Post's Sunday business section had a wonderful piece by Barry Ritholtz on the causes of the meltdown:  The Big Lie.
He could have made more of the long-running idiocy of the SEC that anointed the three ratings agencies (S&P, Moodys and Fitch) as the only "nationally recognized" sources of bond ratings, thereby requiring pension funds and insurance companies to rely on those ratings for SEC compliance, and at the same time taking the pension fund managers off the hook for failure -- "What else could I do?  I had to rely on the ratings agencies.  Besides, if I had to do more work, I wouldn't have been able to go home to my beautiful family and our house in the Hamptons (or Martha's Vineyard, take your pick) on the weekends."

Here's some charts he put up on his web site as of 11-20-2011. Ritholtz Charts

The state of the global economy, by Joseph Stiglitz

Much has been made of his nobel prize in Economics, but let's face it...there are now a lot of those running around.  Nevertheless, I always find his papers and remarks understandable, which is a big thing in my view.
Here he has a sort of radical idea for saving the world economy, and he also puts the "state of" in an excellent perspective.
Here it is:  Stiglitz World Bank Talk

Closing the Wall Street Tax Loophole: Citizen action needed now

You may have heard something about how private equity managers are able to shield most of their income from ordinary income taxes, instead paying the 15% capital gains tax. The original bill in the House eliminated that windfall and required them to declare income from investments in which they have no financial stake as ordinary income. Now, the financial reform bill is in Congress, and ALREADY compromises have been made. This morning's Washington Post editorial (strangely and stupidly not available on their web site right now) lays out the latest deal -- only 65% of the income will be taxed as ordinary income, leaving the remaining 35% to capital gains.

These guys (yes, they're mostly guys) make gazillions, and their lobbying efforts are paying off, with stupid arguments about how this will hurt their incentives to take risks. The only risks they take are with their human capital by choosing to work as private equity artists, and I betcha they couldn't make as much money -- even fully taxed -- had they invested their human capital for 15 years to become a brain surgeon!

Now is the time for those of you in swing states (alas, Maryland is full of democrats who will vote for whatever the leadership agrees to) to contact your congressman or senator and demand that these private equity firm managers pay their fair share of taxes. Click here for directions on how to find out who your congressman or senator is, and how to contact her or him.

Back to the Summers Blame Game

Frontline had a great program on our gal Brooksley Born, sometime head of the CFTC who tried to regulate the credit default swap market and was blown down by chief bloviator Larry Summers et al. and Sen. Phil Gramm (he of the late night Christmas 2000 law to "modernize" the CDS market by rendering it beyond the purview of regulation). It's on-line at PBS: The Warning. (Read about Brooksley at links provided in my May 26 post about her.)
It got me back in touch with my inner raging populist once again to ask the question: What the heck are Congress/White House doing to reform the financial markets? Brooksley answered this question in her Frontline interview: NADA!
What needs to be reformed? Two things, in my view:

1. The laws that require insurers, pension funds and mutual funds to rely on those heinous ratings agencies (Moody's, S&P, Fitch) for directing their investments. SEC anointed those three as the chosen few, even though they (ratings agencies) were paid by the issuers of the securities for the ratings that would determine how much interest the issuers would have to pay investors. (COI!) Even the FED got into the game, telling the banks it regulated that it could treat AAA securities as good as cash.
2. The easy money policy that led to the big pot of cash for investments in these doggy instruments.

Have you heard anything lately about either of these problems being fixed by Congress? by the FED? By Larry Summers? No? How shocking!

What the Obama administration is doing wrong on the banks

Here's a great 10-minute interview in the New Yorker's Blog page of Joseph Stiglitz, a liberal economist, who is critical of the Obama Administration's handling of the economic crisis, particularly bank reform. What I like most about what Stiglitz (a Nobel prize winner) has to say is his defense of market mechanisms, properly regulated. This isn't about health reform, but if you keep it in the back of your mind as you listen to Stiglitz, you'll appreciate why I'm such a proponent of a regulated competitive market place for health insurance. Public plan could be in there, provided it doesn't use the leverage of the Medicare program to exact price concessions from hospitals and doctors that private insurers cannot.

Cash for Clunkers cost us (taxpayers) $2000/car

Here's a great AND READABLE article in an electronic economics journal--The Economist's Voice--about the net costs to our society of the cash-for-clunkers program. By two University of Delaware economists. Net, it cost us about $1 billion extra...small change? One quote from this article is worth the whole thing: "Concentrated benefits create vocal advocates while diffused costs produce silent apathetic opponents."

Save, Save Save!....er, no...Spend, Spend, Spend!

Am I the only one tired of the mixed (confused?) signals our economic "leaders" (Larry and Tim and Ben) are sending about what we should do with our money? We Americans have spent ourselves into a debt hole in the past 20 years, courtesy of China, mainly, which has bankrolled us. Just a few months back, we were hearing about the crisis in credit card debt due to our profligate spending on cheap Asian goods over the past 20 years.
Now we consumers are being blamed for the failure of the economy to respond to the gadzillions being poured into it by the government. If we just save it, they whine, then all that spending won't do what they want it to do. Make the economy look better and therefore make THEM look better.
So, what should I do? Here's how I'm thinking about the save vs. spend dilemma. Part of me wants to save save save for the rainy day that I absolutely KNOW in my gut is on the way. That day will bring torrents of inflation, mainly through collapse of the dollar, but also because oil prices will gradually sneak upwards. But, if I save, I must put my money in something that's inflation-proof, and those investments are hard to find. Especially since the big guys like Goldman Sachs chew up idiots like me who might try to invest in commodities. I really do not know how to invest in commodities.
On the other hand, I've wanted a lot of gadgets that look like fun. HDTV, smartphones, laptops, kindles, fitness monitors, new big computer screen, new desktop, Wii, etc. etc. And, new furniture, too. And new PJ's. All of these are made in China now. So, once China makes good on its hints that it will switch its currency away from the dollar, all those goodies will get much too expensive for me. So, I'm on a China spending spree right now.
I'll save later-- my savings will be in the form of higher taxes paid to the government when the bill comes due. Since I can't keep everyone else from spending their stimulus-gotten dollars on cheap China, and since I'll have to share in the forced saving known as paying back government debt through taxes, I might as well have a few gizmos to show for it.

Goldman Sachs' Perfidy????

Love that word -- perfidy? I'm not sure I'm using it correctly, but out it jumped, keeping me out of the nursing home for another week. But, that's another story.
Sister Janet alerted me to an article by Matt Taibbi in Rolling Stone Magazine (of all places) on Goldman's role in every major bubble-meltdown since the Great Depression (ours today is only the Great Recession). Today in the Washington Post, Alan Sloan tells how Goldman is arguing with the Feds, which saved its hide in the past year, over how much our (i.e., US taxpayers') stock warrants are worth. Sloan thinks Goldman is tacky and greedy. We should contact the White House with a simple E-mail -- "Make Goldman Pay!" It's easy to do that...Click Here!
My friend G., who volunteers at the White House's phone bank, says the White House actually DOES methodically monitor the content and views of its incoming calls, except for total cranks whose expletives deleted are hard to categorize. So, I'm sure they're doing the same with their E-mails.


Then, somehow, we should keep track of what Treasury does. I'll try, but if you happen to see it in the next few weeks, leave a comment at the end of this post, and I'll pick up on it.

Robert Reich on GM, bailouts, productivity and US.

My prolific reader friend Lupi sent me link to three pieces by Robert Reich(Labor Sec'y under Clinton) on the future of our economy, as seen through the prism of the GM bailouts. (ReichPartI; ReichPartII; ReichPartIII). She knew I would like them. Reich always makes sense to me, but his sensible ideas never seem to make it into policy.
We really DO need a new political party in this country -- the Common Sense Party? -- the Centrist Party? My advisors tell me I'm a dreamer to imagine that the grass-roots power of the internet could bring about such a thing. I'd follow Reich if he announced such a move.
Turns out Reich has a blog where he posts wonderful stuff on all manner of public policy issues. Check it out here: Reich Blog. I'll put a link to it in the list of blogs here (scroll down to bottom in left column), so you can always find it. Or, just add it to your own Favorites list.

Mortgage Bankruptcy Cram-down bill coming up for Senate Vote

Making primary residence mortgages subject to Chapter 13 bankruptcy is a proposal that's been hanging around since 2007, so says Credit Slips, an interesting blogger page on credits and bankruptcies. It's called "Cram-down" cause bankruptcy judges can force the lenders to take lower payments while the homeowner stays in the house. I believe this is on balance a good proposal -- mainly because it will scare lenders in the future from writing ridiculous mortgages for people who obviously couldn't afford them. It might also allow some (perhaps undeserving, but otherwise homeless) borrowers to stay in their houses and avoid foreclosure. So, I say go for it. They'll still be bankrupt and that's not pretty. But they won't be trashing the neighborhood on the way out.
Credit Slips says that the Congress House of Reps passed a bill in March, and now the Senate is poised to vote on it. Read the Credit Slips article, "Mortgage Modification Vote in the Senate" , which urges us to contact our senators about the vote. As a resident of the Socialist state of Maryland, I don't have to do that.. my Senators are on the leftist side of everything, even when I'm not. But, your voice might matter. If you vote in Nebraska (Ben Nelson, Dem), or Montana (John Tester, Dem), or if you give money to democratic senatorial committees (I don't...just mentioning it), or if you live in a state with a Republican senator, you should let them know what you're thinking.
To contact your Senator, go to the US Senate Home Page, and plug in your state's name in the upper right hand corner. Then let your senator know what you think about the mortgage cram-down provision. Most important, ask your senator to explain to you just what his/her position is on this issue. Even if he/she's against it, it would be good to ask him/her to tell you why. And, it's fun. Watch them squirm.

What we taxpayers now own -- Our Bailout dollars at work

ProPublica, the new web-based investigative journalism site, has posted a list of bailout recipients. It's fun to know how well diversified we are within the financial sector. Will it help when we call up Citimortgage, or SunTrust to refinance our mortgage to mention, ahem, that we are, you know, a major shareholder?