Larry Summers in his West Wing office, two short flights of steps above the Oval Office. Photograph by Steve Pike.
Larry Summers is not an easy man to catch off guard. Behind his rumpled, jowly, professorial façade hides the world’s shiniest gold-plated résumé and one of its fiercest intellects. No less an authority on presidential power than Henry Kissinger once told Tim Geithner, now the Treasury secretary, that Summers should have a permanent job at the White House, solely to sort out for the president—any president—the good ideas on economic policy from the dumb ones.
When Barack Obama was elected, many thought that Summers, who headed Treasury during the final 18 months of the Clinton administration, would find his way back to that post. But inside the Beltway, Summers’s connections to New York hedge funds and his rocky tenure as the president of Harvard University, from 2001 to 2006, were of concern, and it was decided that Geithner, Summers’s former colleague at Treasury and the president of the Federal Reserve Bank of New York (a job he got in 2003 with Summers’s help), would be more easily confirmed by the Senate. But since Geithner goes back some 10 years or more with Summers and seems to think five minutes with Summers is worth an hour of most other people’s time, there is little evidence that Summers lacks for influence in his current post as director of the White House’s National Economic Council.
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Wedged into a faded-yellow upholstered wingback chair in his cramped White House office—two short flights of steps above the Oval Office—Summers is not yet, just before noon, in full pontification mode, even though he’s been up for hours and is fully caffeinated. His ubiquitous can of Diet Coke is perched an arm’s length away, on the edge of his desk behind his multiple computer screens. Two empties are scattered elsewhere. His kinetic, amped-up energy fills the small room, and, as usual, he has little time for the social niceties. Ask whether the odds favor the Boston Red Sox—in first place in the American League East on July 4—to make the playoffs this season and he shoots his press attaché, Matt Vogel, a withering look. The Great Oz has clearly expected a weightier question—about when the recession will end, or whether health-care reform will pass Congress. Indicating Vogel, he says, “He doesn’t know what you’re talking about. He doesn’t know where this is coming from, I’ll bet. You’re referring to the teams that are ahead on July 4 normally winning the pennant, even when they have a relatively small margin, like the Red Sox do.”
When Summers was a sixth-grader, at Penn Valley School, in Lower Merion, Pennsylvania, he spent part of his summer riffling through the microfilmed sports pages of old newspapers and magazines dating back to 1930, in order to determine if there was any correlation between where a team was in the standings on Independence Day and whether that team eventually made the playoffs. His parents—Robert and Anita, then economics professors at, respectively, the University of Pennsylvania and Bryn Mawr College—had encouraged him in his quirky mission and helped him calculate the odds. As the Vietnam War was heating up in October 1965, the Philadelphia Bulletin described Summers as “the most qualified 11-year-old odds maker” in baseball.
Calculating the odds of making the playoffs is very different these days, Summers tells me, warming to the topic, given the introduction over the years of divisions within leagues and the advent of the wild-card spot, all of which makes it so that four teams in each league go to the playoffs instead of just one. Anyway, he concludes, “My proud father has chip-shotted that [anecdote] into profiles of me that have been written at various points, and that must be what you encountered.”
Summers has plenty of other things figured out as well, including the origins of the current financial crisis, for which he has crafted a cogent explanation worthy of his reputation as a policy wonk and his days as a college debating champion at M.I.T. “I think crises like this get made by multiple cascading misjudgments,” he explains, and then catalogues them: too much government spending, not enough private-sector saving, too much dependence on foreign debt, too much demand for “riskless” financial instruments that weren’t, in fact, riskless …
By the time he’s finished, he’s barely breathing, the words are tumbling from his mouth so quickly. But then he sums it all up in his trademark way of making the complexities of economics and finance comprehensible to mere mortals: “The classic stories about markets are where, if the market for wheat goes down, people plant a little wheat. People demand to eat a little more bread, and the thing self-stabilizes. But it was [economist John Maynard] Keynes’s central insight that it’s not always that way. And it’s not always that way in particular because leverage [i.e., borrowing] can create situations where, when prices fall, then people have to sell, and so they fall faster. When asset prices fall, capital values fall, and, therefore, people are in less of a position to lend, and, therefore, other people are forced to sell. And there’s a whole set of these vicious cycles. You can also have a change in gestalt where people who had perceived things as safe all of a sudden move things from the concept of being safe to the concept of being risky, and if they’re risky, they don’t want to hold them. And so you see a large scale of abandonment. And I think in one way or another the leverage, the vicious cycle, the change in gestalt, the unwinding—that’s the financial crisis.”
Summers had a pretty good handle on the crisis even as it was unfolding. Ten days before the collapse of Bear Stearns, in March 2008, he said in a speech at Stanford University, “We are facing the most serious combination of macro-economic and financial stresses that the U.S. has faced in a generation and possibly much longer.”
But while the housing and mortgage bubbles were busy inflating a few years back, Summers was convalescing after his tortured departure as Harvard’s president, in June 2006. He had resigned that February in the face of a second no-confidence vote the Harvard faculty was prepared to deliver. The first had come a year earlier, following his impolitic and ill-advised—but severely taken out of context—comments about a lack of scientific aptitude among women. Summers had spoken at a private conference from notes, so there is no transcript of the speech. But afterward an M.I.T. professor provided snippets of it to a Boston Globe reporter, and a media frenzy ensued. Summers told The Harvard Crimson, “Everyone agrees that working toward gender equity is vitally important,” and discrimination must be faced “head-on.” But, he said, academics must also conduct “careful, honest, and rigorous research” to understand why women are too often under-represented in certain professions. “My speculations were intended to contribute to that process,” he said, but he has also admitted making the speech was a mistake.
That wasn’t his only mistake at Harvard. In fact, people there have so many complaints about him it is difficult to know where to begin. Along with his ambitions to vastly expand the campus into Allston, displacing working-class residents from an affordable neighborhood, and to revamp the undergraduate curriculum by boosting the role given to the sciences, he also was said to have insulted, in addition to women, many of the diverse communities at the school—from blacks to gays to Hispanics. He was criticized for his uncouth personal style—from toothpicks dangling from his mouth to stocking feet up on his desk during meetings—for cutting off questioners in midstream, and for his tendency to look right through people while they talk. There was also his tone-deaf willingness to autograph for students dollar bills that already had his signature on them (from when he was Treasury secretary) and to replace his predecessor’s “aging Lincoln” with a brand-new Town Car. “That shiny black sedan soon started popping up all over campus, with Summers’s chauffeur waiting patiently inside, sometimes for hours at a time,” wrote Summers’s erstwhile biographer, Richard Bradley, who chonicled many of Summers’s perceived foibles at the university and elsewhere in Boston magazine and in his 2005 book, Harvard Rules.
After leaving Harvard, Summers signed on at D. E. Shaw, a $29 billion hedge fund, which gave him his first real-world taste of the psychological—as well as economic—dilemmas confronting traders on a daily basis. (He also got a taste of Wall Street compensation, receiving $5.2 million in 2008 working just one day a week.) The D. E. Shaw gig followed being on the board of advisers of Taconic Capital Advisors, a hedge fund founded by Goldman Sachs alumni Frank Brosens and Ken Brody. And for a total of $2.7 million in 2008 he was also giving regular and high-priced speeches to corporate America. (For instance, in April 2008, Summers spoke at Goldman Sachs, for $135,000; in February, he spoke at J. P. Morgan, for $67,500; in April, he spoke at Lehman Brothers, for $67,500; and in May, he spoke at Siguler Guff, a New York–based hedge fund, for $67,500.)
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