October 18, 2009

The curious case of Larry Summers

Okay, maybe I can't let well enough alone on economics. About a decade from now, someone will have both the material and distance to write a fabulous biography of Larry Summers. On one level, he is a brilliant economist. At another level, he has been a total MF, and at Harvard the financial games and the Schleifer scandal are worse than his noncollegial style and tendency to say tremendously stupid things in public. I think he clearly has matched Bill Clinton on the "fast thinker with a deep mental problem" scale. The extent of all this is unknown at the moment. We have some interesting pieces by Ryan Lizza on his role on the White House economic team, Vanity Fair on the collapse of Harvard's endowment, and evolving coverage of what was clearly a bone-headed move in interest swaps* that the Boston Globe reported Friday but bloggers had uncovered in the summer (as Margaret Soltan explains). I know that Mark Ames tried to put things together last fall on Summers, but events move faster than journalists and sometimes you need a real historian and real time to put things in perspective.

When that time comes, you'll need someone with financial acumen and knowledge of higher education, as well as politics. That will be an interesting challenge, but I look forward to reading the Summers biography when it eventually comes out. If you're 13 years old and looking for a great dissertation topic, here's the one to keep in mind!

* In response to a colleague's concern many months ago about swaps, I looked at the interest-swap agreements of my own university. Mind-numbingly dull and mundane, they were the ordinary kind where the university bonded out debt at variable-rate interest and then turned around and agreed with a bank to pay the bank a fixed rate in return for the bank covering the variable-rate interest on the bond. It's a hedge against inflation, and because interest rates can't go below zero, the ordinary interest-rate swap looks like it has a limited liability. What Summers did at Harvard was different: Apparently Harvard agreed to interest-rate swaps on debts that Harvard would not incur for years and years. 

** The swap-swashbuckling was compounded by the other bone-headed move of investing operating funds in less-liquid, more-risky investments.

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Posted in Higher education on October 18, 2009 8:45 AM |