Sure appears as though Larry Summers likes ordering around women — and he appears to have a temper when he is told “no.”
Summers’ debate with Hubbard
Summers was the flashpoint of a recent closed door debate with the conservative dean of Columbia University’s business school, Glen Hubbard. The private event, hosted at the Greenwich, CT mansion of well known hedge fund executive Steve Cohen and reported by Fox Business News, covered financial reform, “Obamacare” and taxes – but likely avoided the real issues that matter in Summers’ past.
On this night Summers wasn’t shy about displaying his personality by doing something rarely done to male Federal Reserve Chairmen. Summers, a stalwart of the big banking elite from the start of derivatives deregulation in 1998, was openly critical of the sitting Fed Chairwoman Janet Yellen, calling out her recent comments that certain sectors of the stock market may be in a bit of a bubble.
Summers didn’t need to call out Yellen’s encroachment into stock picking territory – it had been well covered and generally acknowledged as a misstep. The question is would the man who was turned down as Fed Chairman in favor of Yellen have done that to a man?
Summers never publicly called out former Fed bosses Ben Bernanke or Alan Greenspan despite their much more serious missteps? Were his vocal cords not working when the Fed Chairmen made what are publicly documented mistakes?
Is a different standard at play?
Consider in Summers history he has made many missteps that should be part of any debate but likely wasn’t even brought up in polite company. In fact, the powerful have seldom called him out despite his numerous benchmarks in the history of derivatives catastrophes.
Summers humiliated Brooksley Born
We could highlight the obvious Brooksley Born hit. This is where Summers is documented to have worked at the reported behest of the largest banks to remove Born in humiliating fashion as CFTC Chairwoman because she only asked for information on the unregulated derivatives that would ultimately blow up the economy.
Summers was said to have treated Born in a demeaning fashion, which is the polite language for what actually happened.
But that’s the easy story to tell.
Perhaps the more significant story is to put the proper frame around the man who can be considered responsible for the derivatives disasters of past, present and future is his time spent at Harvard University working as a trader… er… I mean school president. During his tenure Summers was credited with losing $1.8 billion on wrong way derivatives trades – on interest rates.
Consider that Summers wanted to manage interest rates at the Fed, but had no clue about interest rate direction. But what’s even worse, he was warned.
Dr. Iris Mack, now a well-known derivatives expert teaching at Tulane University, was an up and coming derivatives wiz kid in a very unusual sense. She is a smart, beautiful, African-American woman – a triple whammy in the clubby derivatives industry, where both females and African-Americans are in short supply among the trading ranks.
But it was Mack who warned Summers about his impending derivatives implosion with Harvard’s money. It was a logical warning, backed by mathematical analysis and exposure ratios, according to sources involved in the incident.
But the advice was ignored. Perhaps it was because she was female the risk management discussion was avoided, perhaps it was the color of her skin, or perhaps Summers just couldn’t believe that unregulated derivatives, the backbone of his existence, could betray him. Who knows. Getting into a traders head during a derivatives implosion is a scary place.
Summers lashes back on risk management discussion
What is clear is that Summers didn’t just politely ignore the risk management discussion. He lashed back, giving Mack a beatdown that appeared to go past the humiliation felt by Born.
Mack recovered and went on to form PhatMath.com, a math and financial literacy educational organization, in-between international assignments, book writing and teaching.
Life changing derivatives implosions are a part of life – trust me, I know. Typically when a derivatives trader losses billions, however, it changes their direction. But not Larry. His direction was pre-ordained. Larry knew how to deliver for the big banks.
Ultimately he would get the nod to become the next Fed zar. It was said the real nod didn’t come from Washington DC, but it came from New York City during July, as I reported, before Obama’s final fall decision to cede to the popular revolt that had taken place among reformers when Summers was nominated.
To reformers who know the inside story, Summers’ name is like fingernails on a chalk board yet the stories he inspires to be told, typically occurring after hours with a drink in one hand, are the most interesting.
What to watch for next?
Hillary Clinton is having a campaign fundraiser in the Hamptons on August 22. Jon Corzine of MF Global infamy is co-hosting the event. Perhaps Larry and Jon can get together and discuss the planning leading up to the Brooksley Born hit, a time when Corzine was president of Goldman Sachs.
Or perhaps they can both just laugh at how they control the system and can’t be held accountable by anyone.