It was disappointing to see so many stories about the incomes earned by many top Obama officials in the year before they entered public service, and to watch them go viral without any context.
Much of the press focuses on financial ties between Lawrence Summers and Wall Street, which came in the form of his position as managing director at the hedge fund D.E. Shaw. Absent, though, is information about his divestments and disassociations. Summers severed ties with all his previous firms and divested from his own portfolio all but treasuries and mutual funds held in trust. He also divested his angel share in Big Think.
Unlike the Wall Street firms at the heart of the current crisis, D.E. Shaw creates real value for its shareholders; it was among the top 10 most profitable hedge funds last year. Moreover, it hasn’t needed a bail out or any form of federal intervention. That D.E. Shaw sought to bring Summers on board to leverage his reputation as a top global economist and keen macroperspective—he predicted much of the current crisis before most other observers—suggests it was developing a studied long view and then accounting for it through its trades. To the extent Summers contributed to this successful strategy, his salary is more than justified.
In fairness to Summers, it is also important to note that he is not a man of extravegant taste—indeed, he wasn’t even rich until two years ago. I first met Summers when I was a sophomore at Harvard and reported on his then infant presidency for WHRB, the campus radio station. His total immersion in the life of the mind was plain to anyone who encountered him, as he literally wore its emblems—a pizza sauce stain on his tie left over from late night brain food or his habit of missing awkward patches of moustache during his morning shaves. Just a few weeks ago, the U.S. auto unions tried to politicize the fact that Summers drives a 1995 Mazda Protege, which is a far cry from the private jets that transport auto industry CEOs.
I would later get to know Summers personally in the context of his contributions to and investment in Big Think. There were two traits I saw first hand in Summers that are supremely relevant here. First, he puts his money where his mouth is—upon making his first million, his impulse was to reinvest in small start-ups like ours whose missions aligned with his vision of the future. Second, his dedication to government service informs his religious observance of ethics regulations. When he called to tell me that he would have to divest of Big Think because of his new post in the administation, he ended the call on a somber note for me that left no doubt as to where his loyalties lied: “I’m afraid I can be less helpful to you now than if we had never known each other at all.”
The real story here is not the venal motivations of key members of the Obama administration—even Paul Krugman has acknowledged that. The problem here, if there really is a problem, is how the administration has calculated what it will take to get Wall Street on board with sweeping change, whether there might be better ways that are also politically viable, and the difference in cost to the taxpayers between these approaches. If Summers has seriously erred anywhere it is in his assessment of how practical constraints, such as Wall Street’s ability to manifest its policy grievances in the form of destabilizing market volatility, effectively limit the best deal in theory for the taxpayer.
To ascertain whether a course that is fairer to taxpayers might be possible, we need journalists to back their bold headlines with full analysis and better direct public support in favor of policy nuances that could save us trillions in needless pay offs to financial interests—mega bonues are just the tip of the iceberg. Until we have a more informed and textured public discourse on these admittedly complex issues, the best course is to do precsiely what most of these articles imply we should not—prevent Wall Street from holding up reform, and holding us all hostage, by simply paying it off.