After Peak Finance
July 24, 2009
There are three kinds of "bubbles"--a term often used loosely when asset prices rise a great deal and then fall sharply, without an obvious corresponding shift in "fundamentals." A short-run bubble. Think about 17th century Dutch Tulip Mania: spectacular, probably disruptive, but not a major reason for the decline of the Netherlands as a global power. A distorting bubble. In this case, the increase in asset prices contributes to a reallocation of resources across sectors. Think of the Dot-com Bubble: fortunes were made and lost, the collapse was scary to many, and--at the end of the day--you'
Jamie Dimon Vs. Larry Summers
July 19, 2009
Jamie Dimon has won big. JP Morgan Chase now stands alone, both in financial position and political clout--including special access to the White House and, as explained in today's NYT, Rahm Emanuel's likely attendance at his next board meeting tomorrow. Dimon's semiotics have been brilliant throughout the crisis--it wasn't his fault, he was forced to take TARP money, and--in phrasing that will make the history books--bankers should not be "vilified." But now he has a problem. Larry Summers forcefully stated Friday that high recent profit levels for big banks (i.e., JPMorgan and Goldman) are b
What To Think About Obama's Regulatory Reforms?
June 17, 2009
There are three views on who exactly is behind financial regulatory reform package that has just been presented. Each view has distinct implications for political dynamics going forward. The first view is that Tim Geithner and Larry Summers have genuinely become radical reformers. They see the error of the ways they pursued during the 1990s--both in terms of financial deregulation for the United States and in their advice to other countries, particularly through the capital market liberalization policies urged upon the IMF. They now seek to put globalized finance back in its box and will pursu
Writing in the Washington Post this morning, Tim Geithner and Larry Summers outline a five point plan for dealing with the underlying problems in our financial system, titled "A New Financial Foundation." The authors are not completely clear on what they think caused the current crisis, but you can back out some points from their reasoning--and the implicit view seems quite at odds with reality. Their view: Regulation is overly focused on safety and soundness of individual banks. Reality: There was a complete failure of safety and soundness supervision. This must be fundamental to any financ
Summers To Chrysler Bondholders: Quit Yer Bellyachin'
June 12, 2009
This, from Larry Summers' CFR talk today, sounds about right to me: Mr Summers defended the administration’s handling of the Chrysler bankruptcy – in which union creditors received better terms than debtholders who had more senior claims, alarming many investors who see the order of creditor seniority as a crucial underpinning of finance. He said it was “standard practice” for providers of capital to bankrupt companies to favour some creditors whose goodwill was important to future business success.
May 06, 2009
Barack Obama's new theory of the state.
Why The Stress Test Leaks Have Been So Confusing
May 06, 2009
The public relations campaign packaging the bank stress tests is kicking into high gear and our professional information managers are really hitting their stride. They face, of course, a classic spin problem: you need to get the information out there, but you don't want to be too definitive on the first day or soon after--if you're easy on the banks, that looks bad; if you're tough on the banks, that might be dangerous. The best way to handle this is by jamming your own signal--which they are starting to do in brilliant fashion. To the WSJ you leak that BoA needs to raise a great deal of capit
Larry Summers = The New Bob Reich?
April 29, 2009
From David Leonhardt's interview with Obama for this Sunday's Times Magazine: [Leonhardt]: When you and I spoke during the campaign, you made it clear that you had thought a lot about the economic debates within the Clinton administration. And you said that you wanted to have a Robert Rubin type and a Robert Reich type having a vigorous debate in front of you. ... THE PRESIDENT: ...
April 27, 2009
For a good summary of the Obama administration’s approach to the economy, it’s worth listening to the speech last Friday by Larry Summers to a meeting in Washingon of the Inter-American Development Bank. Summers acknowledges that we are not in an ordinary recession, but a deep downturn that occurs three or four times a century and that defies the tendency of the market to be self-equilibrating.
What Kind Of Puzzles Did Larry Summers Solve At D.e. Shaw?
April 07, 2009
Slate's Chris Beam did some follow-up reporting with a former trader at D.E. Shaw, the hedge fund that employed Larry Summers between 2006 and 2008. (Recall that, according to the Times, Summers had to solve some "math puzzles" before D.E. Shaw would hire him.) --Noam Scheiber