... more » Summers, an economist and Treasury Secretary from 1999-2001, is currently the Director of the National Economic Council in the Obama Administration.
A controversial genius, Summers has long been considered a top U.S. economic brain. As the new head of the National Economic Council (NEC), Summers will now have a chance to exercise maximum sway over U.S. economic policy as the top White House economic adviser during the worst economic crisis since the Great Depression.
The former Clinton Treasury secretary was an influential adviser to President Barack Obama during the 2008 campaign and his name topped the list for a return trip to head the Treasury department in 2009. Instead, that slot went to a Summers’ protégé: New York Fed Chairman Timothy Geithner.
That may be because despite Summers intellectual heft, he has ruffled more than a few feathers in his storied career, including feminists and women’s groups who railed at Summers’ suggestion, when president of Harvard University, that women were innately inferior to men when it came to math or science. Such a track record could have caused Obama more than a few headaches during Senate confirmation hearings; the head of the NEC does not have to be confirmed by Congress.
Summers was ahead of the curve in sensing how much risk the economy faced from the popping of the housing and credit bubbles. He argued for aggressive government measures to combat it before most of the economics profession caught on to the severity of the crisis, and has been a loud voice for a bailout package and an economic stimulus measure to curb the credit struggles of banks and stave off home foreclosures.
Summers says his role as an Obama economic adviser is to help "think about how we can move this economy forward with the greatest decisiveness, with the greatest possible energy, at what is a critical time, probably the most serious economic situation we've faced since the Depression," he said.(1)
Path to Power
Summers may have been genetically programmed to become an economist. Both his parents were professors of economics at Ivy League schools, and two of his uncles — Paul Samuelson and Kenneth Arrow — won Nobel Prizes in economics. "I wasn't any good at math or physics," says Summers, "so I became an economist.”(2)
However, when Summers joined the Massachusetts Institute of Technology as a 16 year-old undergrad, he couldn’t pinpoint his career aspirations. He was leaning towards studying mathematics when his father ran into celebrated Harvard economist, and future chairman of the Council of Economic Advisers under President Ronald Reagan, Martin Feldstein. Feldstein agreed to take Summers on as an intern for the summer after his sophomore year. After graduating from M.I.T, Summers attended Harvard and studied under Feldstein to earn his Ph.D in economics. Feldstein sponsored his doctorate.(3)
While earning his doctorate, Summers was diagnosed with Hodgkin’s disease. The chemotherapy treatment worked, and the disease has not returned.(4)
Feldstein would shepherd Summers into the public sector. President Ronald Reagan named Feldstein to chair his Council of Economic Advisers. Summers would join his mentor, working as an economist for ten months at the White House. He would then return to Harvard as a professor.(3)
By age 28, Summers had become one of the youngest tenured professors in the famed institution's history. He moved on to the World Bank as its chief economist in 1991, before leaving two years later.(5)
Joining the Treasury
The year 1993 was a good one for Summers. He received the famed John Bates Clark Medal, which is given to the top economist under 40. It's seen as a stepping stone to the Nobel Prize. That year, President Bill Clinton also named him as Treasury undersecretary for International Affairs, which meant he was the nation’s top financial diplomat. Euromoney called him "the most ambitious Harvard professor to come to Washington since Henry Kissinger.”(3)
The comparison to Kissinger has not disappeared. In December 2008, Time magazine said Summers "is expected to do for the economy what strong-minded and ambitious National Security Advisers like Henry Kissinger have done for foreign policy: plan it, set it and control it.”(6)
It was as Treasury undersecretary that Summers first met Geithner. Summers immediately took notice of the Treasury special assistant because of his original thoughts and willingness to confront him when he thought Summers was wrong. Summers quickly promoted the young Geithner to deputy assistant secretary, jumping many levels of the bureaucracy. As Summers climbed the Treasury ladder, Summers would continue to promote Geithner along with him.(7)
In 1995, Summers became deputy Treasury secretary to Treasury first Clinton Treasury Secretary Robert Rubin. While working under Rubin, Summers helped respond to the Mexican peso crisis and aided by Geithner, to formulate U.S. policy towards the Asian financial crisis. Time magazine even included Summers on its cover with the headline, “The Committee to Save the World,” along with Rubin and Fed Chairman Alan Greenspan.(8)
But even then, Summers’ strong points-of-view — his detractors would call it intellectual bullying — caused problems. Some Asian publications compared him to General MacArthur for the way he pushed banking reform onto various countries.(9)
By 1999, when Rubin stepped down as Treasury secretary, Summers was the obvious replacement. The 43 year-old took office with little debate or dissent.
During his two-year tenure as Treasury’s top official, Summers used surpluses in the budget to repurchase Treasury debt and pay down the deficit, which hadn’t happened since the 1920s.(10)
When President Clinton’s term ended, Summers returned to Harvard, this time as the institution’s president. Summers’ tenure as the hallowed institution’s president drew more notoriety than his stint as the government’s top financial official.
First in 2001, Summers worked to (successfully) oust Harvard African-American studies professor Cornel West. When Summers first took office, he met with West and asked him to produce more academic work and to come in every couple months to update Summers on his progress.
This outraged black civil-rights activists and Democratic power-players like the Rev. Jesse Jackson, and the media quickly jumped on the story. Summers met with West again in January 2002 in what was described as a cordial meeting. West said Summers apologized. Summers denied apologizing, and West eventually left to teach at Princeton University.(11)
But the flap with West was minor compared to the next Summers controversy. In 2005, at an academic conference, Summers questioned whether there was an “innate” difference between men and women that pushed women away from math and sciences. This created a surge of criticism from professors, students and national women’s groups. He apologized soon afterwards, but some felt it wasn’t enough. ‘“Apology or no apology, a lot of damage has been done by reinforcing these stereotypes,’ said economics Professor Caroline M. Hoxby, who was at Harvard for about 11 years.”(12)
The controversy energized a broad group of Harvard faculty dissatisfied with what they viewed as Summers’ dictatorial style. Summers would resign from Harvard in 2006, but he still holds a professor position.
After Harvard, Summers joined the hedge fund D.E. Shaw & Co. as its part-time managing director. Working one-day a week, Summers took home over $5 million in the two years he spent at Shaw, acccording to financial reports released by the White House.(13) He also wrote a regular column in the Financial Times newspaper, in which he explained his views of the financial crisis as it broadened.
As head of the NEC, Summers will be Obama’s top White House economic adviser. He is likely to have an imprint on every area of economic policy.
Already during the transition, Summers and Geithner have led marathon discussions with other Obama economic advisers over how to restructure the financial system rescue to demand more accountability from banks in how they use money the government invests in them. The two have plotted how to try to use government funds to reduce the number of home foreclosures. And they have designed the outlines of an $800 billion stimulus package comprised of tax cuts and vast new spending in a range of areas.
“'Summers is the thinker, the ideas guy,' said one Obama economic adviser. ‘Geithner is the implementer.’”(14)
One obvious Summers’ imprint on Obama’s strategy is visible in the president’s comments about the budget deficit. Summers argues for big deficits in the short run, to help ease the pain of the recession, coupled with fiscal responsibility in the long run. Obama has regularly adopted similar language.
Summers arrived at the view that the nation was on the verge of a serious recession sooner than did people within the Bush administration and the Fed. By November 2007, Summers warned that the subprime mortgage crisis could very well lead to a recession.
“Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability,” he said.(15)
Since coming to that conclusion, Summers has pushed for an economic stimulus, as well as measures to prevent home foreclosures. In August 2008, he mentioned the possibility that the government may need to take control of major financial institutions.
“Third, there is the question of whether government will need to find a way to recapitalise institutions through taking some kind of preferred interest, as ultimately proved necessary in the US in the 1930s and Japan in the 1990s,” Summers wrote. “Government involvement in recapitalising financial institutions is like devaluation: a very unattractive last resort. Delay is tempting, but it can be enormously costly.”(16)
President Bush, Treasury secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have used all three of those tactics, but came to the same conclusion two months later.
Summers has urged Obama to pass another economic stimulus package in order to get people spending again. He believes this will help homeowners pay bills that could cause more defaults if left unpaid. He also urged Obama to support the $700 billion bailout bill.(1)
Increased Financial Regulation
From the moment President Obama entered office, the administration worked to stymie the 2008-2009 recession. With efforts like the continued distribution of the Troubled Asset Relief Program funds and enactment of the $787 billion stimulus package, it appeared as if the downturn had finally stabilized by the spring of 2009. But in order to prevent another crisis, Summers and Geithner proposed reform of the entire regulatory system.
In June 2009, the plan to increase financial regulation began to take shape when Summers and Geithner published an op-ed in the Washington Post. The two officials outlined five moves the administration would make to help assure that a downturn as severe as the 2008-2009 recession would never occur again. First, they proposed issuing requirements for raising capital and liquidity levels. Although they didn't name specifics, Summers and Geithner said that the larger, more interconnected firms would have more stringent liquidity requirements. Firms whose failure could threaten the financial system would have more comprehensive supervision from the Federal Reserve. The officials also said a "council of regulators" will be created with a broader mandate of keeping the financial system safe.(17)
The second move that Summers and Geithner announced was the stricter regulation of securities and derivatives, a sophisticated financial tool that takes its value from the success or failure of other assets. The plan is to impose more rigorous requirements when selling asset-backed securities, while convincing regulators and investors to decrease their dependence on credit agencies. They said that all derivatives will be regulated.(17)
Summers and Geithner also want to increase efforts to protect consumers and investors, while promising to work with and encourage the rest of the world to boost supervision of financial markets. Finally, the two called for the creation of a mechanism to handle the dismantling of a financial firm that could have significant impact on the market, if it failed. "This authority will be available only in extraordinary circumstances, but it will help ensure that the government is no longer forced to choose between bailouts and financial collapse," wrote Summers and Geithner.(17)
Summers has spent many years in academia and governmental circles and has the connections to show for it.
His mentor in college was Martin Feldstein, who was chairman of the Council of Economic Advisers under President Reagan. President Bill Clinton named Summers as an undersecretary at Treasury, and Secretary Robert Rubin became his mentor, pushing him as an eventual successor. Summers met Timothy Geithner when he was a young career staffer at Treasury, and promoted him into senior jobs; now, Geithner is Obama’s Treasury Secretary.
Unlike many academics, though, Summers also has extensive knowledge of Wall Street arcane from his work as Treasury secretary and at hedge fund D.E. Shaw.
Summers has given $8,800 to campaigns since 2002, all of which went to Democrats. In July, Summers gave $2,500 to Obama and $2,300 to Sen. Hillary Rodham Clinton (D-NY).(18)
Kranish, Michael, ‘Summers could return to D.C., bringing baggage He is viewed as brilliant adviser,’ The Boston Globe, Nov. 8, 2008
Jereski, Laura, 'Nobel House: Economist Lawrence Summers,' Forbes, Jan. 25, 1988
Kilborn, Peter T., ‘The Economists Behind the Candidates; Summers: A Legacy of Liberalism,’ The New York Times, June 5, 1988
Sanger, David E., ‘The Administration's Fiscal Closer,’ The New York Times, May 13, 1999
'Treasury Secretary Rubin Resigns; Deputy Summers Picked As Successor,’ Dow Jones Business News, May 12, 1999
Calabresi, Massimo and Fox, Justin, ‘Why He Just Can't Wait,’ Time, Dec. 8, 2008
Solomon, Deborah and Phillips, Michael M., ‘The Obama Transition: Two vie for Treasury post --- Summers, Geithner top Obama shortlist, have close career ties,’ The Wall Street Journal Asia, Nov. 10, 2008
Wessel, David, ‘Summers Break: Rubin's Departure Will Test How Well He Groomed Successor --- Clones on Policy, Two Men Differ on Tack: Protege Lacks Mentor's Restraint --- Haunted by His Old Ideas?,’ The Wall Street Journal, May 13, 1999
Hirsh, Michael and Rosenberg, Debra, ‘Grooming Mr. Summers.,’ Newsweek, May 24, 1999
Department of the Treasury
Duke, Lynne, ‘Moving Target; With the Harvard Flak Behind Him, Cornel West Heads to Princeton. And He's Ready to Give His Critics Plenty to Talk About,’ The Washington Post, Aug. 11, 2002
Mehren, Elizabeth, ‘The Nation; Harvard President Issues an Apology for Remarks; He implied in a speech that women were less capable at math and science than men,’ Los Angeles Times, Jan. 20, 2005
Story, Louise, "A Rich Education for Summers (After Harvard)," The New York Times, April 5, 2009
Weisman, Jonathan, ‘Geithner, Summers to take the lead on New Economic Team,” Wall Street Journal, Nov. 24, 2008
Summers, Lawrence, 'Wake up to the dangers of a deepening crisis,’ The Financial Times, Nov. 25, 2007
Summers, Lawrence, ‘Big Freeze part 4: A US recovery,’ The Financial Times, Aug. 6, 2008
Geithner, Timothy and Summers, Lawrence, "A New Financial Foundation," The Washington Post, June 15, 2009
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