Comments on: Larry Summers on Preventing and Fighting Financial Crises

By: egominimus

egominimus — Sat, 29 Aug 2009 15:55:40 +0000

Much of what you write Jake, is a straight rant. Direct quotes in this very blog, let alone the extensive writings of Summers shows an academic with exceptional insight into the subject at hand. You have not even bothered to refute the very arguments James is discussing.

The point of the post, and the key issue here is that despite Summers deep subject matter expertise and maverick credentials, within whispering distance of the presidents ear, few of his policy proposals were adopted. This is not a testament of the failings of Summers, although their are many-see hilarious radioactive larry comment above, rather this is a testament to the power of the forces, political, inertial, or financial, arrayed against the policies he advocated as an independent academic, circa 2000.

By: egominimus

egominimus — Sat, 29 Aug 2009 15:41:03 +0000

First insightfull comment of the thread,

Thanks

By: Silke

Silke — Thu, 27 Aug 2009 22:06:32 +0000

I doubt it – the Chinese I had to deal with seemed completely pragmatic, knowing always who had the upper hand and thus was to be deferred to

By: Susan

Susan — Thu, 27 Aug 2009 21:51:49 +0000

Where are you taking this class, and is it open for enrollment?

By: Yakkis

Yakkis — Thu, 27 Aug 2009 21:05:37 +0000

In the words of the boxer Muhammed Ali: “It’s hard to be humble, when you’re as great as I am”, and “I’m not the greatest. I’m the double greatest.” I’m sure the Chinese feel the same way.

By: don

don — Thu, 27 Aug 2009 17:51:34 +0000

Re: 6. I don’t think you would get much of a counter-argument against this claim. The contrast between what Summers said and what he did is revealing and should be pointed out to those who would support him for responsible position based on his intellect.

By: Michael Siteman

Michael Siteman — Thu, 27 Aug 2009 16:30:50 +0000

If Mr. Kwak’s assertion is correct regarding Larry Summers’ “Spot On” diagnosis, then how is it that Mr. Summers was unable to predict that the complete deregulation of the financial markets and resulting collapse of the financial system would occur by repealing the Glass-Stegall Act of 1933 by encating the Financial System Modification Act of 1999 and its companion bill the Commodoties System Modification Act of 1999 (which he created in association with Phill Graham)? The situation was further exacerbated when in 2004, Henry Paulson, then CEO of Goldman Sachs, led a consortium of the five largest investment banking companies, met with the SEC and prevailed upon them to loosen the leverage/equity ratio imposed on those companies when purchasing securities. The fox has been in the hen house since the mid-1980′s. It’s not a conspiracy; it’s the confluence of a number of uncoordinated decisions made by unethical, greed inviduals leading companies that must continually show growth or suffer the results of market down gradation. The first mistake actually occurred in 1971 when then President Richard Nixon separated the Gold Standard from the US Currency in order to finance the expansion of governmental programs.

By: Kirk Tofte

Kirk Tofte — Thu, 27 Aug 2009 13:34:18 +0000

Summers joined the Obama team with the expectation that he would be named the next head of the Federal Reserve. Perhaps in four years, he still will be.
But this assumes Obama will be re-elected, which I think is pretty doubtful. Summers is, therefore, between a rock and a hard place within the administration. He is stuck with supporting the weak Obama policies being implemented by Tim Geithner. Even if Summers knows that these policies cannot work, it is probably too late for him to oppose them because he went along with the package proposed in the first place–in no small part, I believe, because he hoped they’d lead to his being named head of the Fed next year.
Giethner is the real disastor in the Obama administration. He really, really believes his old bosses (the board members of the Federal Reserve Bank of New York made up of Wall Street executives and their minions) have all the answers. He continues to act as their water boy to the detriment of the economy and the American people.
Obama-Geithner-Summers is a very weak team. Summers is the strongest of the three, but that ain’t saying much at this sorry juncture.

By: Silke

Silke — Thu, 27 Aug 2009 08:16:08 +0000

at the time a railway line of this type (the first) http://www.youtube.com/watch?v=hUATDtZble0
was built in China radio was full of complaints by engineers about how they and their corporation were maneuvered into transferring more technical knowledge to the Chinese than was initially agreed upon
the smart ones who move to China to make it on an even plane with the Chinese i.e. not as customers will be made to feel who has the superior culture – the engineers telling their stories on radio gave me the impression that the Chinese were very good at haughtiness

By: Yakkis

Yakkis — Thu, 27 Aug 2009 05:08:15 +0000

Then the smart ones move to China and start all over. Seriously, people are abandoning ship and getting to shore while others complain it’s sinking.

By: jake chase

jake chase — Thu, 27 Aug 2009 00:51:06 +0000

It is obvious that American ‘exceptionalism’ now depends upon China’s appetite for dollar assets. No one bothers to ask why China is enabling our Ponzi finance. To me, China is temporarily serving its own interest in catching up on Western technology. For example, it buys aircraft from Boeing but demands the location of ever increasing productive capacity on Chinese soil. Meanwhile, among its billion odd people are an ever increasing number of engineers educated in the West. Suppose it now occupies the same economic position in the world that Japan occupied in 1955? Does anyone remember that ‘made in Japan’ was once a joke? This suggests America has perhaps ten years to get its economic house in order, assuming momentarily that our so called leaders have any interest other than their own plutocratic ambitions at heart, which would be making a giant leap in view of the evidence. So far, fiddling comparisons between President Obama and Nero are not so far fetched, unless one believes that Nero has been grossly maligned in popular history.

The preoccupation of mainstream economists with the mere dimensions of GDP are papering over a sordid reality, in which the collapse of domestic wages is ‘financed’ by consumer usury. But there will be no bailout for consumers, and no wage growth in a shrinking employment market, so it will not be long before even the false prosperity claimed by our cheerleading ‘growth’ peddlers will prove unrealizable. The likely response of the financial sector will be continued escalation in the rate of interest charged consumers, and the response of our captive government will be continued free money for the monopoly capitalists, until one day the Chinese stop swallowing everything available at those Treasury auctions. Then what?

By: Michael

Michael — Wed, 26 Aug 2009 23:25:09 +0000

Sorry for the typo. There will be no reeducing of the deficits, ever.

By: Michael

Michael — Wed, 26 Aug 2009 23:23:15 +0000

“The biggest difference is that instead of being compounded by flight from the affected country’s currency and government debt, in our case the exact opposite happened; investors fled toward the U.S. dollar and Treasuries…”

Those are the most important words written to date about what has happened. All of current economic understanding is based on the historical fact that currency exchange – even with multiple manipulations and controls – has always rebalanced both excessive government debt and excessive trade deficits. It has never happened before that one country was elevated “above” this rebalancing so that it’s currency strengthened under such conditions. Either it’s a short-term distrubance in the Force (in which case be very afraid) or the now-ubiquitous phrase “we have entered uncharted waters” is a gross understatement – all existing economic knowledge gives us no clue whatsoever about the future. If the American exceptionalists are right, we have been chosen by God and are not subject to the limits everyone else is subject to; if this the thinking, there will be reducing of the deficits, ever.

By: john

john — Wed, 26 Aug 2009 18:38:00 +0000

Re: “But looking only at the last two decades, I think that GAAP did not keep up with the realities of financial innovation, for example in accounting for SIVs.”

I’m no expert, but it seems to me that many “innovative” accounting practices were nothing more than efforts to game GAAP, with no truly useful purpose.

There will always be attempts to game whatever standards may be in force, but it seems to me that this is an area that needs some attention.

By: SvN

SvN — Wed, 26 Aug 2009 18:34:44 +0000

I just finished teaching a course on financial crises in June, so let me suggest two papers for your reading list.

- BIS (2004) “Bank Failures in Mature Economies” Working Paper #13, Basel Committee on Bank Supervision. (http://www.bis.org/publ/bcbs_wp13.htm)

- Honohan and Klingebeil (2003) “The fiscal cost implications of an accommodating approach to banking crises” Journal of Banking and Finance, 27, 1539-1560.