It’s been only about 70 days, but already Bush is beginning to seem like a bad memory. Obama has been a breath of fresh air in many ways, but there’s some notable exceptions, made all the more depressing for the very reason that they are so few.
The most notable exception is the quality of his economic team, which is top-heavy with the folks, or the enablers of the folks, who gave us the economic crash. Chief among them is Larry Summers, about whom there is more news today. It seems while he was at Harvard (as its president, not as a student) he was involved in firing a woman who had the temerity to warn him that the Harvard endowment was being invested in derivatives that were not understood by the folks who were doing the investing. The story (via TPM Muckraker) was broken by the Harvard Crimson:
A former quantitative analyst at Harvard Management Company, the university’s once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers’ chief of staff about the money manager’s risky use of derivatives the traders didn’t understand.
From the Crimson:
“The group I was working for had no background whatsoever to be working on [derivatives],” Mack says, adding that, to her knowledge, several of her colleagues were not licensed securities traders. “Sometimes the ways they handled even basic Black-Scholes models [widely used to price stock options] were puzzling.”
Back to TPM:
So Mack took inventory of the abuses — high employee turnover, lax risk management practices and a “low level of productivity in the workplace” were among others, and detailed them in an email to Marne Levine, Summers’ chief of staff and a Treasury staffer on the Obama Transition Team. (Summers was the only person to whom Meyers reported, and according to a recent Forbes story he personally ordered the university’s biggest derivatives trade, a purchase of interest rate swaps that cost the university billions this year.)
She was fired quite explicitly for raising these issues, even though she was told that the communications would be kept confidential. Of course, what’s important for us is the fact that this is just another example of Summer’s faith in these financial instruments, which thanks to his genius have caused such losses at Harvard. This is not a man who is capable of perceiving that the economic system needs fundamental restructuring, because for him to perceive that, he would have to admit that he has been consistently wrong for a very long period of time. People with outsize egos can’t do that sort of thing, and from all accounts, Summers has an outsize ego. Rather than creating a new economic order, Summers is invested in re-establishing one in which he believes and with which he is comfortable. That’s very bad news for the rest of us.
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