Thread by @ritholtz

Why Does Anyone Care What Lawrence Summers Thinks? dlvr.it/S2S980

My complaints about the former Treasury Secretary (in decreasing order of importance):

1. Commodities Futures Modernization Act of 2000
2. Repeal of Glass Steagall in 1999
3. Harvard Endowment

I don't really care about his time as Chief Economist at the World Bank, or how he handled the Winklevoss twins vs Zuckerberg / Facebook.

My beef is his poor decision-making on broad public policy issues resulting in immense negative consequences for society.

None of his errors were more consequential than his support of the Commodities Futures Modernization Act of 2000.

That Enron-sponsored act created an exemption from usual regulations.

https://twitter.com/ritholtz/status/1373662873235431432

CFMA meant:

-No oversight from exchanges,
-No listing of derivative trades;
-No disclosures of risk
-No transparency
-No counter-party information.

Worst of all, these derivatives required zero reserves in case of a claim.

This effectively allowed infinite leverage.

No other traded financial instruments receive this special treatment;

CFMA let AIG underwrite $2.7 trillion in derivatives with zero set aside in reserve. It only took a fractional loss of $2T to destroy AIG, turning it into a ward of the state.

https://twitter.com/planetmoney/status/1285052343

This is what Tom Savage, President, the head of AIG’s Financial Products, said about derivatives:

“The models suggested that the risk was so remote that the fees were almost free money. Just put it on your books and enjoy the money.”

ritholtz.com/2011/02/did-go…

Then there was the Gramm-Leach-Bliley Act that repealed Glass Steagall.

I cannot understand why Secretary Summers seemingly got on board every terrible idea Senator Phil Gramm & Alan Greenspan ever had.

ritholtz.com/2015/07/gramms…

Next beef: Deficits.

Endless spending for unfunded tax cuts; Trillions + trillions for an unnecessary war of choice in Iraq.

But fix the damned roads, bridges, electric grid, airports?

"Gee, I'm unsure about this deficit spending," said only the most clueless of Democrats

Inflation:

I don't have to spend much time on this cause the inflation fears have already failed.

ritholtz.com/2021/06/deflat…

And do we really need to discuss the Harvard Endowment changes that took place while he was President there?

theatlantic.com/business/archi…

Boston Globe did some award-winning journalism on the endowment also

archive.boston.com/news/local/mas…

An earlier thread by @EconDerek looks at other aspects of Summers' leadership.

The pattern is the same: Poor decision-making with outsized negative consequences, yet somehow still commanding the respect of policymakers.

https://twitter.com/EconDerek/status/1373340606777458691

Here is @jeannasmialek of the @nytimes explaining why policymakers are STILL enthralled by his flavor of "wisdom," despite the wealth of evidence his public policy judgment has been utterly disastrous.

nytimes.com/2021/06/25/bus…

Yes, yes, we all know he is very smart.

I think of him as a PC with a super high-powered CPU processor but really bad software.

The result: Bad decisions faster.