In 1989, Larry Summers Predicted Current Financial Crisis

New York Times:

IN 1934, the journalist Johannes Steel wrote a remarkably prescient book, "The Second World War," which described the social psychology that laid the groundwork for global tragedy.

Mr. Steel was trying to peer into people's minds and infer their actual world views and motivations -- in part by examining prewar cycles of social provocation in Germany and Japan and Italy. His timing about the war was wrong -- he expected it to start in 1935, not 1939 -- but he was correct about many fundamentals. Yet his early readers were often skeptical and blithely assumed that there would be no war.

Read the whole story: New York Times

Comments

[Alexander Hamilton]

during a 1998 Senate hearing, Summers testified against the regulation of the derivatives market on the grounds that we could trust Wall Street! “The parties to these kinds of contract,” he said, “are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities laws,” calling them “an important component of the American capital markets and a powerful symbol of the kind of innovation and technology that has made the American financial system as strong as it is today.”

It would be hard to make assumptions that turned out to be more wrong. Larry Summers was either the most corrupt and sinister Treasury Secretary in our nation’s history, or the most incompetent one. However, his high level managing position for D.E. Shaw, one of the most secretive of hedge funds, upon leaving office, would tend to argue in favor of the former.

Even more damning, though, was an Op-Ed by Summers that appeared in the New York Times November 19, 2006. In that piece, written upon the death of radical libertarian economist Milton Friedman, Summers makes the startling revelation that Friedman was “his hero.” In the piece, which he entitled “The Great Liberator,” Summers argues that “any honest Democrat will admit that we are now all Friedmanites,in convincing people of the importance of allowing free markets to operate unencumbered.”

[nogimmicks]

To make sure that his predictions materialize, he helped to design the conditions for the crisis later. In 1999 Summers, Rubin and Greenspan pushed for further deregulation and suppressed warnings of Brooksley Born, head of the Commodity Futures Trading Commission.

[FreedomCorpse]

When I stick a live fish on my hook and then throw out into the water and reel it in, it doesn't mean I am a good fisherman.

[funkalicious]

The problem inherent in the intellectual debate postulated by Summers and his ilk is not the prescient quality of their work.
It is the definition of that work amongst the bulwark of an intellectual construct that may or may not be correct but it is inherently the unimagined consequence of that intellectual process that leads our policy makers to make gaffs that lead to the enormous malinvestments and structural anomalies like we have today.

All of Summers work, at the helm and we still have realized an economy that is out of equilibrium.
Perhaps it would be better to have a Treasury economist with an empty zen like mind free of preconceived fantastical constructs... when the problems enter his mid he can see it rationally and clearly for what it is . not through a hazy filter to be boxed and sorted into his intellectual categorizes.

[lightningbolt]

Predicting something and then doing everything in your power to make that prediction happen does not make you a good predictor. In Summers' case, it makes him a criminal.

[munki]

Heinz sight... yeah... you did...
Many did, but many denied like Summers...

[pueblocolorado]

I just wonder...who didn't think it was not going to last? We worked in the housing industry (construction) and it was pretty obvious.

[michaeldoug]

"And these bubbles were in turn driven by a view of the world born of complacency about crises, driven by views about the real source of economic wealth, the efficiency of markets and the importance of speculation in our lives."

No, these bubbles were driven by greed, corruption and the failure of the government to regulate.

[wagadog]

Summers predicted it because he ENGINEERED it with the repeal Glass Steagall. Sheesh.

I predict that if I push a rock to the edge of a cliff, it'll eventually plummet -- ALL THE WAY TO THE BOTTOM!

Wow. I am so prescient.

[fem56]

I trust Obama. During the campaign, people questioned and criticized his tactics and strategy. He proved them all wrong. Brilliant, talented, knowledgeable flexible people can learn from their mistakes. I rest my case.

[jsarets]

Obama is most definitely a brilliant, talented, masterful political tactician. But if he's working for Wall Street, then his intellectual prowess is surely no consolation to the people he serves.

When he was a candidate, we could reasonably assume that his intention was to win the election. His tactics could be analyzed through the prism of that underlying motivation.

But as president, he could have any number of intentions, and it's difficult to interpret his actions and statements when his ultimate motivations are somewhat ambiguous.

He could be a Roosevelt, or he can be another Wilson. It's a fallacy to trust someone because they're smart. Smart people commit fraud, too, and they tend to be pretty good at it.

[MyTake]

Prof. Shiller should have read Prof. Quigley's book Tragedy and Hope, pp 950-970, as Summers sure did. He then would have figured out that 4 interlocked organizations, based in England and the U.S., controlled by powerful PRIVATE MEN impose these booms and bust cycles at will through their insider international banking syndicate control of The U.S. Federal Reserve, The Bank of England and the stock markets. And since the heads of transnational corporate media hold membership in these organizations, well, mass media will never reveal this international financial and control mechanism. History and public understanding suffer greatly as a result.

But let's just look at Mr. Summers who holds membership in two of those 4 organizations. This is a partial attendee list of the secret 3 day Bilderberg annual meeting held in Virginia last June during the height of the primary race: http://illegalprotest.com/2008/06/08/list-of-bilderberg-2008-attendees-globalists-exposed/ . Note the array of powerful elite people from international finance, corporate, government, education and media that attended, yet not a single printed word or media photo covered the event.

Seated there was Paulsen, Bernanke, Gueithner, Summers, Daschle, Rice, Kissinger and the BOSS of BOSS', David Rockefeller. And even the Google guy and Microsoft guy showed up for this international tea party of insider information.

So, Prof. Shiller, you have a lot of research work left to do! And yes, Summers is inserted into these government positions by these groups.

[journey80]

And yet, there he was, in the late nineties, doing his level damnedest to make it happen.

http://www.prospect.org/cs/articles?article=the_summers_bubble

Why is this man heading Obama's team of economic advisers? Obama is not stupid; so why is he heading so smugly and so stubbornly down the same path, with the same people, that deregulated and looted the U.S. economy and got us into this mess?

[Asean4Obama]

an excellent piece in the NYT

At least Geither was in part to blame for the Asian Financial crisis
http://www.smh.com.au/opinion/obamas-economic-saviour-savaged-as-keating-lets-rip-20090306-8rk7.html?page=-1

[Freedland]

Professor Shiller has studied under Professor Kindleberger who wrote the "book" on panics, manias and crashes and explained that these were not only part of economic behavior but there were aspects of each mania and crash that are similiar. That manias are precipitated by easy money and what follows is a pattern that has been repeated through history. As to Summers, his 11% rate of return on investments does not include after tax returns and it is not clear if dividends were included. True market returns are difficult to determine as investments may be taxed on many levels and at different rates as capital gains taxation changes as does the ordinary income tax rate on dividends. Other investments are held in tax deferred accounts with different after-tax results. As to predicting the second world war, one should look to none other than Keynes, who explained that oppressive war reparations imposed upon Germany would destroy their economy and also their self-esteem which would leave them vulnerable to inflation and a dictatorship. Read the "Economic Consequences by Keynes".

[freedomitchy]

Summers was one of the key people who deregulated the financial markets and caused the crisis! "Lawrence H. Summers, now the head of the president’s National Economic Council and the dominant economic intellectual at the White House. During the Clinton administration, Mr. Summers was Treasury secretary and backed legislation that helped deregulate financial markets; many analysts say the policies helped lay the foundation of the subsequent financial crisis." BTW he gets no credit for a prediction, since he didn't hit the date. In economics you can predict every normally occurring event and it will be correct, in time.

[IGGHY]

Never mind giving him the credit for his prediction. Actually, it's worse. He knew and didn't do anything about it. In fact, he sped it up by actively advocating deregulation. It was probably the politically right thing to do at that time against his better judgement. Quit self-serving. All the more reason to denounce him.