Larry Summers Under Well-Deserved Attack
April 8, 2009 • 10:26AM

Boston University economist Laurence Kotlikoff has taken the lead in trashing Larry Summers, with two pieces appearing today. Writing in the Boston Globe, Kotlikoff, in an article titled "Scrap the Geithner Plan," does a nice job of critiquing the heart of the Summers program, the "auction" for the toxic waste. Setting up a scenario where "Seamy" Bank, holding "Troubled" assets, sets up a phony "Rescue Inc" front, Seamy Bank and Rescue Inc can artificially bid up the "value" of the Troubled assets, turning a $1 billion Summers gift into $2 billion or more. Writing in the Financial Times, this time with noted humanitarian Jeffrey Sachs, Kotlikoff again goes after the Geithner and Summers Program, which he calls "GASP," with a similar, but more detailed description of the Public Private Investment Funds (PPIFs), only this time specifically naming Citibank as the perpetrator.

Unfortunately, Kotlikoff's solutions are no good: First, he errs in assuming that "Troubled" assets might actually be worth anything at all, which they aren't. In the Times piece, he essentially described a "good" bank, "bad" bank scenario; and in the Globe argues for a "transparent," credit-choking 1:1 deposit-to-lending proposal called the Limited Purpose Banking program, which would not provide the necessary credit for a recovery. Kotlikoff, along with BU colleague Christophe Chamley, presented this same program to a January Forum sponsored by the Financial Times, and has been shopping around ever since.

Last Friday, Blogger Glen Greenwald, writing for Salon, noted that Goldman Sachs' $135,000 paycheck to Summers occurred April 16 (2008), "when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government," adding that, "the $45,000 Merrill Lynch payment came 8 days after Obama's election."

Today, blogger "TraderMark", writing on "forexhound.com" does a detailed debunking of Summers' "part-time," one-day-a-week job at DE Shaw, for which he was paid the $5.2 million—"nice work if you can get it," he says. At Shaw, "traders joked that Mr. Summers was the first quant Treasury secretary because he had once ordered dollar bills to be printed with the transcendental number pi— 3.14159...— as the serial number." TraderMark also notes that Summers "has been doing an excellent job of keeping [Paul Volker, "our one hope to stand above the fray"] in some dusty closet."

Finally, the Wall Street Journal chimes in, with its own, cynical take on the debate. In order to quell the debate, says the Murdoch rag, Summers should just volunteer to pay taxes on his ill-gotten 2008 income at the new, higher, Obama rates, rather than the lower (officially applicable) Bush rates.