Wednesday, April 7, 2010

Could Larry Summers Be Leaving?

I found the reason for the selloff - it appears Larry Summers is throwing a temper tantrum and took his finger off the "buy SPY futures" button at any sign of weakness.

Rut Roh Raggy - looks like Larry's ego is being hurt and he doesn't want to play house anymore.  Obama and Timmy Geither [Oct 15, 2009: All of Tim Geithner's (Wall Street) Men]  are apparently in a bromance and Larry seems to be the third wheel.. Widely thought to be biding his time for the Fed chairmanship, once a knife was inserted in Bernanke's back ("Et tu, Larry?") obviously that plan did not work out. 

Stifling proud old men who care about the country (Paul Volcker) [Jun 26, 2009: Bloomberg - Paul Volcker Marginalized; Major Push Back on Curbing Excess. Our Life of Financial Oligarchy Does not Change] can only be entertaining for a man of such prodigious ego for so long.  Using his wealth of knowledge on how to make HAL9000's across the globe work in concert from his days at quant hedge fund DE Shaw [Apr 6, 2009: Larry Summers - No Conflict of Interest; He Pinkie Swears] to make good on President Obama's March 2009 "I think it's a really good time to buy stocks" (wink wink) has more or less run its course.

So now what? I know the optics would be terrible but a "thank you for your service to our oligarchy" advisory position at Goldman Sachs (GS) or JPMorgan (JPM) would be the only fair thing.  But even Larry probably knows going directly from White House to the financial oligarchy (without stopping at another position first for appearance sake) would be much too obvious.

The most important question to markets....who runs point at the Plunge Protection Team once Larry goes?  Someone has to wake up early 4 out of 5 mornings to gun SPY futures.   [Mar 18, 2010: (Video) Scott Bleier - Behold the Zombie Market]  Or make sure to hit the "buy buy buy" button each time the market swoons more than 0.5%.  Larry are you being naughty today?  Your petulance is legendary.

(p.s. I never knew Mark Zandi had such sway in the White House... news to me)

Via The Atlantic's Joshua Green (blog)
  • One angle in my recent profile of Tim Geithner concerned his relationship with Larry Summers, his former mentor and the director of the National Economic Council. I contend that Geithner, not Summers, has emerged as Obama's key adviser on financial matters, and that Summers isn't happy about it.
  • Since my piece appeared, the buzz that Summers is looking to leave--or is being pushed out--has picked up. Earlier today, my colleague Marc Ambinder wrote about this, defending Summers against his critics while leaving open the possibility that he may, indeed, leave. My own view is a bit less sanguine. I think Summers is going to leave sooner rather than later, possibly before the mid-term elections, and if not then, soon afterward.
  • Why? Because Summers is frustrated by his role, and his colleagues are clearly frustrated with him. Alexis Simendinger had a devastating item in last week's National Journal suggesting that Summers's "legendary self-regard" and "ego the size of the national debt" had gotten out of control.
  • Some of Summers's frustration no doubt stems from his wanting to be Treasury secretary. When that plum went to Geithner, Summers cast his eye on the Fed chairmanship and agreed to bide his time until Ben Bernanke's term ended at the NEC--a staff position well below his old job as Clinton's Treasury secretary.
  • Most administration officials tactfully avoid pointing this out, because Summers has a fragile ego. But that's why Joe Biden is so great. "How many former Secretaries of the Treasury would come in not as Secretary of the Treasury?" Biden blurted out to the New Yorker's Ryan Lizza last fall. (hahah!)
  • But Summers didn't get the Fed job either. Apparently that didn't sit well. Administration insiders told Simendinger that Summers demanded a series of perks as compensation, including cabinet status, golf dates with the president, and a personal car and driver. (translation: "waaaah! waaaah!!! wahaaaaahhhh!!!")  In the "No Drama" Obama administration, such behavior stands out.
  • And it isn't the first time Summers has been the target of leaks. Last June, only a few months into the administration, Jackie Calmes of the New York Times ran a Summers-focused piece on "tensions" in the economic team. A little later, Al Hunt wrote a column suggesting Obama was frustrated with Summers's poor coordination of the economic team. I heard the same thing from several sources, one of whom groused about the time spent "cleaning up Larry's messes."
  • Summers always seemed a bad fit for NEC director because the job entails dispassionately presenting the president with the counsel of his competing economic advisers. Summers doesn't do "dispassionate" and he didn't want to limit himself to fielding others' advice--he had plenty of his own to offer. In other words, he was supposed to be the referee, but he also wanted to play power forward.   This rankled other members of the economic team, including Austan Goolsbee, Christina Romer, and Peter Orszag, enough that they're widely presumed to be the sources of many of the leaks.
  • Summers maneuvered to sideline people like Paul Volcker, Joe Stiglitz, and even Orszag, behavior more characteristic of the Clinton administration than the Obama administration. Alter also reveals that Obama's nickname for Summers is "Dr. Kevorkian," which does not imply paternal fondness.
  • But what really makes me believe that Summers won't stick around is that all this Machiavellian intrigue has failed to win him what he wanted most: power. Summers gets plenty of presidential face time, but he's not the nexus of White House activity that everyone expected him to be, and that doesn't sit well according to the Summers associates I spoke with.  The hand-holding of anxious lawmakers that became an integral part of the NEC job under Summers's mentor, Bob Rubin, is being handled by another economist, Mark Zandi, a former McCain adviser.
  • If Summers's situtation is untenable, two questions arise: Who succeeds him at NEC? And where does he go next? I, too, heard--but, alas, could not confirm--the rumor that Rahm Emanuel has put out feelers for a possible successor.  (we could hope for Lloyd Blankfein or Jamie Dimon but that would simply be too good to be true)
  • I don't know what's next for Summers, and neither did anyone I spoke with. Fed chairman is out of the question, and contra the periodic blogger hyperbole, Geithner seems ever more secure at Treasury. A university presidency isn't going to happen. So a return to Harvard, Wall Street consulting and an FT column might be the likeliest option.
  • The natural time to leave would be after the mid-terms--but if Democrats get thumped, it might look like Summers got pushed out. The embarrassing leaks seem designed to bring about an announcement sooner rather than later, which might, in the end, be the best thing for all parties because it would inoculate Summers against a mid-term rout.

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