Summers at Davos

Summers at Davos

We’ve been hearing Larry Summers name floated as Treasury Secretary. Bad idea. Not only did he not call the financial crisis, but he has foot in mouth disease. What a Treasury Secretary says can move markets in a big way, and Larry is simply too frank, and too unable to control his mouth for the spot. And while yes, he’s brilliant, but he’s also brilliantly abrasive and his brilliance is primarily in the details, not in the big picture. Such a bad choice for Treasury Secretary and I find it odd that he’s even being considered.

According to Steve Clemons, there are others in the running: Tim Geithner of the NY Federal Reserve Bank; Paul Volcker, the Fed Chief who wrestled inflation under control in the 80s; FDIC Chairman Sheila Bair; Laura Tyson, who was chair of Clinton’s council of economic advisers; and Jon Corzine.

I’m going to ignore Corzine, I don’t think he’ll make it. Volcker was a great Fed chairman and he saw the crisis coming. I think he’s a bit too inflexible to deal with the current crisis, but he wouldn’t be a bad choice overall. I suspect his preferred policy tools would not work.

Geithner was talking about the possibility of a bubble and about risk premia being way too low back in January of 2006. That differentiates him from both of his bosses, Greenspan and Bernanke. Not a bad technocratic choice.

Laura Tyson has been on the board of Morgan Stanley since 1997. After our experience with Paulson, and given Morgan Stanley being caught flat footed by the crisis, that’s not exactly a recommendation. Thumbs down.

Sheila Bair seems to be emerging as a progressive favorite because of her plan to rewrite mortgages to fixed interest mortgages at the initial rate in order to allow people to stay in their houses. Unfortunately, without also rewriting the mortgages to a lower face amount, this is actually a profoundly bad idea, since it will lock people into mortgages based on home valuations that are unreasonable. Honestly, many people would be better handing the keys back to the banks and walking away. The plan leads to Japanification, by saddling people with mortgages that eat up all their disposable income, turning them into economic zombies. Good regulatory plan, bad for the overall economy, though better than doing nothing.

Of the bunch, I’d have to give a very reluctant nod to Geithner or Volcker, with Bair as a distant third.

But the list itself is pretty awful. Here’s the question—why aren’t people like Roubini, Krugman and Stiglitz on it? Why aren’t people who got it right, early, and who are actually reasonably progressive, on the list? Or even Robert Reich, who called it in 2005?

Yes, I know Obama and Krugman, for example, have history, since Krugman preferred Clinton. But Obama’s been big in talking up the whole "team of rivals" and reaching out. Time to put it in play.

As for Summers, just no. He can be an undersecretary for something, and I’m sure he’ll do a great job. But he’s not the man you put out front, he simply does not have either the judgment or social skills for the job.