Your Humble Blogger Asked Larry Summers a Question He Did Not Like

A funny thing happened at the INET conference. First, I got to ask Larry Summers a question because Martin Wolf, who was moderating the session, is a good sport. Normally, at this sort of event, only At Least Semi Big Names get to interact with Big Names. Yours truly is a minimum of a rank or two below At Least Semi Big Names.

You will find our question at 55:35.

Second, my recollection of his long answer (which ducked my question, as various people remarked to me that evening and the next day) seems to not all be on the tape, which led me to think I was losing my mind. I distinctly recall two parts, the first being a bit of a detour that led to a diss of the question. In that, I recall him citing someone (I didn’t recognize the name, but I may also not have heard it clearly since I was at a table in the back) and then mentioning “socialist” and “communist” or “socialism” and “communism”. I was gobsmacked by that. In the second part, he posed his own question, which had very little do do with what I had asked, and answered that.

But when I went to look at the tape, lo and behold, no mention of either dirty word that I thought I heard I pinged a couple of buddies who were at the speech, neither remembers Larry’s answer.

But there is a clear editing break at just after 60:30 where the camera changes and at least a word appears to be missing. So maybe I have an over active imagination or maybe that bit was edited out for not-nefarious reasons (like Larry got lucky and and that bit got mangled between the two cameras).

And someone drew the same inference I did, regardless of whether the s/c words were uttered. From Stephan Richter on The Globalist (hat tip Amar Bhide):

For example, when the irrepressible Yves Smith asked Larry Summers about whether banking risks in the United States could not be helpfully diminished if its large institutions were run (read: compensated at the top) more like utility companies, he immediately aborted any effort at an intellectually honest answer by making it sound as if she were proposing to bring state socialism to banking.

A man who reportedly earned millions for having advised hedge funds one day a week for a year shortly before serving in the Obama Administration (and who is quite likely, now that he’s out, to do so again), he ought to have been patriotic and intellectually honest enough to provide a real answer.

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  1. attempter

    You can see how unused such an insulated career criminal is to having to answer a real question, and how corroded his allegedly brilliant intellect has become, that faced with such an idea he regresses to a mindset and name-calling you could easily find among the most uneducated right-wing yahoos. That’s their “master of the universe”? He’s supposed to be one of the “best and brightest”? He’s just a mediocre hack.

    The fact is, Larry Summers has been, by any objective civics measure, a complete failure at everything he’s ever done. As an economist, as a college president, as a political official, everything he’s ever thought, said, and done has been a complete disaster. The only way his career makes any sense at all is if you theorize that he’s been a conscious, systematic criminal throughout. Then it all does make sense, and all the evidence fits. He’s been not only one of the most important, but one of the most typical cadres of kleptocracy.

      1. Dave of Maryland

        The Peter Principle presumed competence. What we have here are backstabbing little fuckers. Summers, Geithner, Obama, Bush, Cheney, Rumsfeldt, etc. People presume intelligence rises to the top perhaps, I think, because they have seen themselves sidelined, passed over, by those whom they **presumed** were their intellectual superiors.

        I am, myself, the intellectual superstar. I know from bitter experience that when intelligence goes beyond generally accepted levels of comfort, that such people are deliberately sidelined. And it’s so easy to do. Intellectuals like me fall for the same sucker traps, over & over again.

        Women especially should know this, as men routinely sideline them in precisely this way. But it happens to brainy men, too.

        Society will not rise above its level of mediocrity, and if, by some chance a great leader comes about (combing intelligence & ruthlessness), as soon as he is gone, his work will be trashed. Think FDR.

        So of course if you ask Summers a real question, he will dodge it. He never had the brains. He never wanted the brains. He has brains enough to see that brains, per se, are a trap. He, like college dropout GW Bush, play brainy people against each other. Beat them every time. Such people are contemptuous of intelligence, and all their experience confirms that belief. GW Bush, a certifiable idiot, got to run the world for eight years. I merely run a mail order bookstore. GW Bush is, in fact, far smarter than me. We should all take lessons from him, and I am deadly serious.

        Now do you understand?

    1. drb48

      Yes to all of that and yet he and his ilk are running the world. It’s an insiders game and he’s a player and we’re not.

  2. skippy

    WOW…talk about academic brush off, he was visibly uncomfortable, near seething in his destine.

    Skippy…phallic jealousy is never pretty.

  3. alex


    That was an extremely good question you asked (and it’s not easy to pick one really good question in such a situation).

    One suggestion I might make with the benefit of 20:20 hindsight is that you should clarify that “public utility” means a utility used by the public, and heavily regulated in return for its guaranteed support, but not necessarily a utility owned by the public. At least I presume that’s what you mean – please correct me if I’m wrong.

    Larry “I R a genyus even if I’m always wrong on policy” Summers gave a ridiculous answer when he said it was a poor approach because you dislike TBTF, as though TBTF were anything other than an established fact. Of course we all know Summers fought so hard against TBTF, so perhaps he can be forgiven. His comparison to the pre-1990’s Indian financial system was also absurd, as the obviously more appropriate comparison is to the US financial system from say, 1940-1970. But that worked so well that we really should ignore it. History can be so inconvenient.

    1. alex

      I also loved Summers’ reference US Steel. That company, for all of its rust belt association, still produces something of value – steel. That’s a better product than debt with scam ratings, which destroys the world’s economy. And whatever bailouts US Steel or the steel industry have ever gotten wouldn’t amount to a rounding error compared to the bailouts of our wonderfully productive and innovative finance industry.

  4. craazyman

    He changed the question from “utility banking” to “finance”, made it a straw man, then demolished it.

    Then he says you don’t want government taking over the “finance” system. Well. I think it did. Didn’t it? I mean, where did Wall Street get it’s bonuses if not from the government?


    These public Q&As never produce honest discussions. They’re just opportunities for stump speeches.

    But anyway, it was amusing — in that darkly comic, sardonic, depressing way that makes you wonder about the limits of mankind’s capacity for self-delusion when the clever manipulation of breezy abstractions passes for deep thought.

    1. Paul Handover

      Craazyman wrote, “But anyway, it was amusing — in that darkly comic, sardonic, depressing way that makes you wonder about the limits of mankind’s capacity for self-delusion when the clever manipulation of breezy abstractions passes for deep thought.”

      The real reward from reading Yves’ reports is the quality of writing that many comments offer. Possibly unfair to pick this one out because so many are fabulous, but this one is classic! Just wonderful.

      1. craazyman

        Ooops. You’re too kind.

        I really, really screwed up! Yves question did say “financial sector actors as utilities”. Now that I watched it again. Not sure why I thought it was “banking”, which would have been more precise, perhaps.

        I owe Mr. Summers an apology for this one.

        I flew off the handle again and went off half-cocked. Sometimes I’m just in my own little world, I guess. This is what happens when I haven’t had my 3 glasses if Cote du Rhone and 0,5 mg Xanax before I start thinking about this stuff.

        1. Yves Smith Post author

          “Regulating as utilities” is not a strange concept. It has to do with entities controlling critical infrastructure that is often subject to network effects. And the question clearly talked about backstopping, bailouts, and other forms of government support to the sector.

          Think of how water and power companies are usually regulated. They are subject to strict service standards, regular inspections, sometimes obligations to provide minimum levels of services, and often price regulations (rate increase approvals or return on capital limits).

          The idea is they have a state supported franchise and therefore can’t be considered normal private sector companies

          I used the term “financial sector” to include trading firms and platforms, although pretty much all of them are now banks.

          1. alex

            ‘“Regulating as utilities” is not a strange concept.’

            It sounds pretty radical in an era when many people wouldn’t understand the irony of pinning an “I Like Ike” button to a Che Guevera T-shirt. A pinko’s a pinko, right?

            BTW, what are your views on the Divine Right of Kings, royal monopolies and exempting the aristocracy from taxation? I have to ask because there are radicals lurking everywhere these days.

          2. David Hewitt

            Perhaps the Bank of North Dakota would be a useful, if extreme, example of utility banking. It would go beyond government regulation to set revenue caps and approval of rate increases for a natural monopoly in the private sector. The state actually operates a bank that is an entity of state government. By all accounts, BND has been very successful, and weathered the Great Recession virtually unscathed. From all I have been able to gather, I would like to have a Bank of Wisconsin.

  5. financial matters

    Yes, great question! Making these functions more of a utility is their worst nightmare. They lose the opaqueness and complexity that is their modus operandi to take people to the cleaners and make large bonuses.

    A more jaded view of globalization for your consideration…
    Falling Debt Dynamite Dominoes, The Coming Financial Catastrophe
    Feb 22, 2010
    By: Andrew_G_Marshall

    Some of the key individuals that took part in the dismantling of Glass-Steagle and the expansion of ‘financialization’ were Alan Greenspan at the Federal Reserve and Robert Rubin and Lawrence Summers at the Treasury Department, now key officials in Obama’s economic team.

    Stripping away the disguise of derivatives
    By Satyajit Das
    February 17 2010

    As the so-called Greek Job highlights, simple borrowing and lending can be readily disguised using derivatives, exacerbating risks and reducing market transparency.

    They Saved the Big Banks But Kind Of Lost The Economy Doing It

    Simon Johnson

    In truth, “too big to fail” is not the worst thing we should fear – our financial institutions are now on their way to becoming “too big to save”.

    If we continue to allow banks to grow, as they have over the last 30 years – and did again through the latest boom-bailout-rescue cycle – we head towards a day when Mr. Geithner or his successor will try to save the financial system and will fail.

    You might think that is a good thing and for sure it will bring on a big change in creditor attitudes and presumably much stronger regulation. But, just as in the 1930s, first we will have to dig out from under a lot of economic rubble – and we’ll lose a lot more than 8 million jobs.

    1. financial matters

      Actually maybe their worst nightmare would be more of an acceptance of Ellen Brown’s “Web of Debt” exposure of the ‘man behind the curtain’.

  6. John Merryman

    I don’t sense that he ducked it, so much as that he simply has never thought outside the box. Martin Wolf changed it to a question of finance, because utility banking simply no longer exists. They are all branches of the larger casino.
    The problem is that it is hard to really peel apart someone’s integrated mindset and get them to understand where you might be coming from, in just a question or two. Larry Summers understands the past. He necessarily sees the future as a continuation of it. The reality is an integration of form and energy. If the form can be flexible enough to continue to absorb more energy than it loses, the future is an evolving continuation of the past. When more energy is building up outside that form and it is breaking down, then the future becomes a reaction to the past. Re: revolution. What I found most interesting about this exchange was the applause the question generated, from what was obviously not a normally revolutionarily inclined crowd of people.

    1. skippy

      Electrons functioning as price, masquerading value, do enable a mental paradox.

      Skippy…Larry has ergot breath, a cave beckons, greatness is only a stones throw.

    2. John Merryman

      Another possible question might be: With the extensive deregulation of finance and a persistently loose monetary policy, is it at all obvious that the very nature of capitalism has mutated from the efficient allocation of resources to wagering on the creation and destruction of asset bubbles?

      1. skippy

        John Merryman says: “is it at all obvious that the very nature of capitalism has mutated from the efficient allocation of resources to wagering on the creation and destruction of asset bubbles?”

        More signage on the logic train tracks — efficient allocation of resources — code for in_my_pocket after a wash.

        wagering on the creation and destruction of asset bubbles? —- straight into my pocket, fk the wash, I’m TBTF.

        Skippy…fiance…where…where is such a thing, but in the minds of self made gods.

      2. Mickey Marzick in Akron, Ohio


        “efficient allocation of resources”? Since when and for whom? CUI BONO?

        The definition itself assumes that resources are SCARCE and always will be, constrained by nature, but are they? Hence, the ideolgy of scarcity – economics – was born to legitimate artificially-induced scarcity! But we have to move further upstream to the institution of private property to realize that scarcity is MAN MADE. By definition, private ownership precludes someone else from using what you or I own without our consent. Selling it to you for your utilization is altogether different.

        It matters little whether there are one trillion or so barrels of proven oil reserves in the ground and perhaps another two or three trillion in oil shale or tar sands to suggest that the adherents of peak oil mistake the end of cheap oil for the tank is running dry argument. Likewise with many other natural resources. But ownership – CONTROL – over these resources is the difference!

        Let’s not kid ourselves, the scarcity is artificially-induced by state-owned oil companies and their private counterparts who “efficiently” allocate the supply of this resource by price predicated on the institution of private property. The invisible hand of the market jerking us off again, right? Of course in the process, a hefty sum is to be made by some in CONTROLLING – efficiently allocating – THE SUPPLY of this resource, right? Why is banking any different?

        So to forgive LARRRRRRY for not thinking outside the box is tantamount to forgiving oneself for being unable to do the same. Believe me, you’re not alone.

        But the suggestion that TBTF anything, not just banks, should be treated as public utilities rather than privately structured investment vehicles for looting is what had LARRRRRRRY blathering about socialism and communism. Maybe Yves’ question got LARRRRRRRY to thinking/speculating about how if banks could be utilitized and regulated for public benefit why not take it few steps further – energy and mining companies… The epiphanonymous moment that sent LARRRRRRRRY into thinking the unthinkable. Did he shit himself? Was HE the only one thinking the unthinkable? What about the audience? What was that smell?

        Before you know it Marx’s predictions about the ever increasing concentration and centralization of capital into fewer and fewer hands controlling the economy would make these organizations ripe for “nationalization” and/or utilitization to ensure the efficient allocation of resources based on human need – not private ownership [profit]. VOILA: SOCIALISM, if not communism, brought about by “reformist-minded capitalists” without the proletariat even having to take to the barricades.

        It just doesn’t make cents to LARRRRRRRY or anyone else who can’t bring himself/herself to think outside the box!

        1. John Merryman

          The issue boils down to what succinct question might cause Larry Summer’s neurons to entertain thoughts not compatible with his mindset. Safe to say, two sacrosanct groups would be “capitalists,” ie those captains of industry utilizing the current economic paradigm and “financiers,” the bankers providing this economy with its medium of exchange and extracting their pound of flesh for doing so.
          Since Larry was instrumental in the deregulation of finance, you would be asking him if he is aware that his efforts are instrumental in the imminent destruction of the system he presumably champions.
          If Larry felt he was addressing a truly aggrieved capitalist and not someone he could dismiss as a closet Marxist Leninist, if would require him to consider the direction the current situation is going, from his within his own conceptual box, not just dismiss it with whatever historical example he can conjure up to best fit what he thinks.

          1. Mickey Marzick in Akron, Ohio

            Since LARRRRRRY thinks of himself as an orifice of economic wisdom, perhaps asking him if he was a FUCKING IDIOT in light of the financial collapse he helped to orchestrate instead would “jolt” him out of his mindset.

            Would that be succinct enough or would LARRRRRRRY’s mindset be too obtuse to understand the question?

    3. DownSouth

      John Merryman,

      There’s perhaps only one thing more disgusting than people like Summers, and that’s people like you.

      So Summers didn’t duck the question, “he simply has never thought outside the box”?

      How long do you expect the American people to fall for these Sargeant Schultz acts as they’re systematically reduced to debt slavery?

      What Summers did and continues to do is deliberate, intentional and malicious. These “oh he didn’t know what they were doing as they marched these people off to the death camps” defense is getting just a little bit tired.

      Perhaps Martin Luther King said it best when he counseled, “it is as much a moral obligation to refuse to cooperate with evil as it is to cooperate with good.”

      1. Tao Jonesing

        How does that saying go?

        Confirmation bias is human. Applying confirmation bias to confirm confirmation bias is divine.

        Or something like that . . .

        1. DownSouth

          I’m trying to push the debate in the very opposite direction as those here who are running interference for Summers.

          As David Sloan Wilson remarked: “From an evolutionary perspective, there is only one gold standard for judging religious thought, rational thought, or any other form of thought—-what does it cause people to do?

          I think if we prove incapable of disciplining Summers and the rest of the banking miscreants, it’s goodbye democracy and hello banana republic.

          Here’s how Wilson describes the gold standard of thought beginning with ancient hunter-gatherer societies and running through the Protestant Reformation:

          According to Chris Boehm, small scale societies are above all moral communities. They are unified not by having the same genes but by having the same sense of what is right and the means to enforce it.


          [I]f you can’t get rid of cheating by excluding the behavior (discipline) or the person if necessary (excommunication), you can forget about creating a cooperative society.

          There has been considerable recent scientific research indicating that there’s much truth to be found in these gold standards of ancient wisdom, as this from Hillard Kaplan and Michael Gurven indicates:

          We propose that multi-individual negotiations result in the emergence of social norms that are collectively enforced. We base this proposal on a result obtained by Boyd and Richerson, and treated more recently by Bowles and Gintis, in which cooperation is modeled with punishment. These four researchers found that cooperation can be stable in large groups, if noncoopertors are punished and if those who do not punish noncooperators are also punished.

          1. John Merryman

            I’m not running interference for Larry Summers. I’ve been having these sorts of discussions for decades and everyone has to be approached from the point of understanding their own conceptual biases, if you actually want to engage their thought processes. We are not looking for an entire preview of rule making and bending throughout the course of human history, but simply what basic question might cause him to have to think.

          2. DownSouth

            John Merryman said: “…everyone has to be approached from the point of understanding their own conceptual biases, if you actually want to engage their thought processes.”

            The only thing that’s going to “engage their thought processes” is being stripped of all their ill-gotten gain and frog marched off to prison in an orange jump suit.

            You are either running interference for Summers, or you are extremely naïve and innocent.

          3. John Merryman

            And who exactly is going to frog march Larry Summers off to prison? Eric Holder?

            At this point, the only thing that will really effect any change is the monetary system being blown up to save the financial system. Which would be like destroying the foundation to save the house.

            I respect your adherence to morality, but it is “extremely naïve and innocent.”
            Nature is bottom up. We build our societies as large as the internal dynamics of trust and reciprocal behavior will allow. Beyond that and the parasites take over and destroy them. Then we start over at the bottom and keep them small enough to maintain stability. As this stability spreads, the economies of scale allow society to grow larger, until the rot sets in again and it dies back again.

            People like Summers are the social equivalent of cancer cells. They lose sight of their larger economic function and simply want to grow. What you don’t get is that it is not immoral, but amoral. From their perspective, the larger society exists to feed them, much as your garden exists to feed you.

            If it wasn’t for bad things happening, we would all be little amoebae swimming around the muck, because there would be no reason to get out. When the scavengers come through and wreck havoc, it is a sign that the society has allowed weaknesses to manifest, much as computer viruses expose weaknesses in programs.

            What Larry Summers and company are showing us is the weaknesses inherent in a privately run, but publicly guaranteed economic circulatory system. We should thank them for that. Then maybe cut off one finger and not allow them anywhere near banking again. We won’t have to take their money back, because the old money will have lost all value, thanks to their efforts.

          4. Tao Jonesing


            I understand what you are trying to do, and I applaud you for it.

            At some point, attempting to explain why somebody did something wrong becomes nothing more than excusing the wrongdoing in the first place.

            My crack about confirmation bias was a poor attempt to describe the cognitive mechanism that produces apologists.

          5. John Merryman

            By that logic, any attempt to understand flawed logic and bad behavior becomes an apology for it. So what do we do? Cover our ears and whistle loudly wherever anything bad happens?
            If you read any history, you will notice that an awful lot of bad behavior comes from overreacting to previous bad behavior, so maybe we need to keep fine tuning our understanding of it.
            We think of good and bad as some form of polar moral absolutes, but they are basic biological binary code. We are attracted to that which is beneficial and repelled by what is detrimental. What is good for the fox, is bad for the chicken, yet there is no clear line where the chicken ends and the fox begins. Life recycles, whether we like it or not.
            The same biological processes which govern the host, also govern the parasite and there is no line between symbiotic relationships and parasitic ones, it is just a matter of degree. When that scale gets pushed all the way over to one side, the host either eradicates the parasite, or dies and new organisms that have developed immunity to that parasite replace it.

          6. Tao Jonesing

            @John Merryman,

            Ah, I see. Thirty months have elapsed since Lehman collapsed, triggering a global financial crisis that some saw coming as early as 2005-2006. Dozens of books have been written on the topic, including one by our humble blogger.

            Apparently, however, we need a lot more time to understand what happened. We wouldn’t want to act precipitously.

            In the meantime, statutes of limitations run and criminals move on to committing new crimes, comfortable that people like you will prevaricate and dissemble until the evidence has disappeared and fresh concerns have overtaken our senses and our waking memories, thus displacing any thoughts of the financial crisis caused by criminals that no one prosecuted because people did not want to make things worse.

            What you don’t seem to understand is that the utter lack of action has made things far worse than throwing criminal in jail would have.

          7. Transor Z

            These kinds of exchanges are why I often quickly skim through the comments on NC, which is a shame since there are often gems buried amidst the dogmatic monologues, which scan like a somewhat more cerebral version of the broken-record attempts to thread-bully a particular orthodoxy that you find on Zero Hedge.

            Fine. We get it. The Revolutionary Council has convened and found Larry Summers guilty of financial cronyism and economic war crimes against the lower classes.

          8. DownSouth

            @John Merryman

            So now your defense of Summers has completely flip-flopped?

            Your first attempt to exculpate Summers was the “he couldn’t possibly have known what was happening to all those people he was herding onto the cattle cars” defense.

            Now you’re invoking the inevitability defense, also known as the Clayton Williams defense. “Rape is like the weather,” the Republican candidate for Texas governor said. “If it’s inevitable, just lay back and enjoy it.”

            To which I respond: No thanks, I’m not into the negative nihilism that you and Williams are peddling.

            Furthermore, in order to buy into your historical determinism and defeatism, I’d have to believe that everything that’s taken place since the advent of agriculture is for nothing. To cite the evolutionary biologist David Sloan Wilson:

            Cultural evolution can be seen in part as a Darwinian machine in action, highly managed but nevertheless genuinely open-ended in its outcome. Confront a human group with a novel problem, even one that never existed in the so-called ancestral environment, and its members may well come up with a workable solution.

            @Transor Z said:

            Fine. We get it. The Revolutionary Council has convened and found Larry Summers guilty of financial cronyism and economic war crimes against the lower classes.

            I hope you realize there’s not a whole lot of difference between that and accusing someone of being a communist or socialist in order to not have to respond to their actual concerns.

          9. Transor Z

            I hope you realize there’s not a whole lot of difference between that and accusing someone of being a communist or socialist in order to not have to respond to their actual concerns.

            Don’t flatter yourself by comparing your intellectual chops to Yves’. You killed a lot of electrons in this thread flogging Merryman with party-line orthodoxy on Summers. That’s not discussion; it’s monologue.

            I’m not the first person on this blog to find your commentary over-long and tedious.

          10. John Merryman

            These little things take time to work out. Just because our lives are short, doesn’t mean the process cares. It took many centuries to go from privatized politics to politics as public trust and that process is still going on in various parts of the world. We might well be peeling this crony finance onion for another hundred years or much more. Suck it up and quit whining.

          11. jonboinAR

            Are they criminals? If they have adjusted the laws over the past 30 years so that what they do violates no part of the code, well, they may be parasites, but are they criminals? In other words, how do we prosecute them, for what exact infraction? It’s just that all the “throw them in the pokey!” talk sounds like blowing off steam. Is not what we actually need to do is write more beneficial laws and then provide enforcement? That takes patience and stamina. That’s what they’ve done (I think). Of course, when you’re rich enough, you just pay people to exercise patience and stamina for you (Their advantage).

          12. Tao Jonesing

            @Tranzor Z,

            Your response is somewhat laughable.

            I fully understand the weakness of the human animal that lead to the cognitive paralysis displayed by John Merryman and others such as yourself.

            But last time I checked, the concepts of right and wrong were a fundamental part of the human condition that existed millenia before communism and its concept of a “Revolutionary Council.” Under any standard, Larry Summers has consistently been on the wrong side of the right-wrong divide. You can apologize for him all you want, but you cannot change that fundamental fact.

            And, FYI, I completely understand why Mr. Summers thinks the way he does. More than you can ever know. But that does not make him any less wrong or culpable for the policies he’s championed for decades. Only weak-minded, weak-kneed fools succumb to analysis paralysis. Unlike you, Larry Summers is not a weak-minded, weak-kneed, fool. Unfortunately for us all, because of people like you and John Merryman, everybody BUT Larry Summers suffers for his poor judgment.

          13. alex

            @Transor Z said: Fine. We get it. The Revolutionary Council has convened and found Larry Summers guilty of financial cronyism and economic war crimes against the lower classes.

            Well said, Citizen Z.

            @DownSouth (in response to Z): I hope you realize there’s not a whole lot of difference between that and accusing someone of being a communist or socialist in order to not have to respond to their actual concerns.

            The whole problem with armchair revolutionaries is they have no sense of humor.

          14. attempter


            Morality is not synonymous with technical legality, and the latter certainly isn’t the measure of crime. Technically, no legalistic crimes were committed at Auschwitz.

            If they have adjusted the laws over the past 30 years so that what they do violates no part of the code, well, they may be parasites, but are they criminals? In other words, how do we prosecute them, for what exact infraction?

            That’s why we need nothing less than a new Nuremburg. Even leaving aside the fact that the banksters have rigged the “laws”, now as in the 1940s we’re dealing with a level of crime no normal code of law is set up to deal with.

          15. John Merryman

            Civil laws are malleable. Nature’s laws, such as gravity, are not. When we reach those periodic episodes in human affairs, where those in control of the civil process start the slide down the slippery slope of breaking the laws they are supposed to enforce and then covering it up by adjusting those laws, the process runs a fairly predictable, but bloody and messy course. Much like an avalanche doesn’t stop until it establishes a new equilibrium.

          16. jonboinAR

            @Attempter, @John Merryman, I’m just wondering if it’s practical to SERIOUSLY discuss prosecuting members of the financial elite at this time or is it more an expression of rage at their acts. (I don’t know. I’m asking.) I mean, at least, no one’s seriously considering prosecuting Summers I don’t imagine, but more intellectually shunning him and pointing out the harm caused by his views and policies as Ms. Smith began at the symposium and has been continued here.

            I think my point is that in order to reform the system we have to be in it for the long haul. It’s certain laws that have to be written, passed, and then enforced. Am I correct?

          17. attempter

            I’m expressing one of the goals, as well as one of the measures of a successful liberation. Whether or not one agrees with that goal is a measure of whether or not one really wants this liberation, or is merely throwing a tantrum like you said.

            I agree that such a consummation would occur only after a successful power transformation, so for people to do nothing but keep saying it’s necessary would be merely ineffectual rage. One practical step toward that particular goal, however, would be to start drawing up indictments using the same form as at Nuremburg. For now this would be primarily an educational exercise. It seems that most people still don’t understand that this is a kleptocracy, and what that means.

          18. John Merryman

            Personally I tend to take a more long term, analytic view that the basic monetary paradigm has to change.
            We treat money as a form of commodity, which banks provide. The reality is that it is a multiparty contract.
            We operate under the assumption that money denote real wealth and so the operating function of the financial system is to create capital. In other words, the entire productive economy and all potential resources are tasked to the goal of creating and maintaining as much essentially illusionary wealth as possible.
            Even though money is not a commodity, but a contract denoting value, it is still subject to the laws of supply and demand and it is demand, the ability to effectively borrow money and be able to sustainably increase value, which determines how much supply.notational wealth, the entire economy can hold
            In our current mindset, enormous, unsustainable borrowing is required to maintain this illusionary wealth. So we are contantly blowing up asset bubbles on borrowed money, having the public sector borrow as much as possible, etc.
            It eventually blows up, as money is drawing rights to value and production and there is far less f that then there is money. Of course, lot of wealth is destroyed, when debt is defaulted on, but then there are a bunch of useless buildings etc. than a lot of resources have gone into building.
            I could go on, but my point is that this system doesn’t need to be reformed, by throwing a few miscreants in jail. It has to be replaced entirely, by a system where people understand a publicly guaranteed currency is really a form of public commons, not just a public banking system. That way people will be far more careful what value they do take from social relations and natural resources to convert into currency. It would go a long way to slowing down the economy, while strengthening local economic relations, social networks and preserving resources.
            So from my perspective, I have no problem with the current batch of knuckleheads leading the entire economy off a cliff, to keep their butts out of jail. When you want to start fresh, why not let the powers that be destroy their own system?
            The real test will be that when it does blow up, how effectively can such local, public currencies be put in place and working, so that the current private monopoly doesn’t get going again.

  7. Jp

    A very provocative question. The obvious answer is that none of our utility CEOs are doing “gods”work and drawing 50 million annual salaries!

  8. Matthew Johnson

    Summers sounds like a babbling idiot while answering your question! No sign of his supposedly brilliant intellect anywhere to be seen…

  9. Peter Gray

    Yves, it was a great question.

    On reading your post, I went back to the YouTube clip on the INET site again, and played thru that part several times. Agreed, there is a blip in the audio at that point, but it seemed to me that what Summers was saying, before & after the blip, was reasonably contiguous.

    But it also seems, as John Merryman says, that Summers had never given the question any serious consideration previously.

    I think there was a period, in the very early days of the Australian Commonwealth Bank, where it was run as a utility (of sorts), and very successfully so.

    1. DownSouth

      Peter Gray said: “…Summers had never given the question any serious consideration previously.”

      Why do you and John Merryman make excuses for these kleptocrats, as if they had never thought any of this stuff through?

      No impartial society determines the rewards. The men of power who control society grant these perquisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centres of power in an industrial society. Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of the men of power to hide the nakedness of their greed…


      The stupidity of the average man will permit the oligarch, whether economic or political, to hide his real purposes from the scrutiny of his fellows and to withdraw his activities from effective control.
      ▬Reinhold Niebuhr, Moral Man & Immoral Society

      1. Tao Jonesing


        I should get my copy of Moral Man & Immoral Society on Tuesday. I’ll add it to the DownSouth wing of my library.

        1. Deus-DJ

          MMIS should be required reading for EVERYONE…reading Bowles, Turchin, and David Sloan Wilson is also required reading after you read MMIS, to understand the power of group selection.

      2. Peter Gray

        DownSouth, what makes you think that saying “that Summers had never given the question any serious consideration previously” is excusing him? The man supposedly put a lot of effort into considering the future of the Financial System – or should have.

  10. ambrit

    Mz Smith;
    First: How do you prefer to be adressed? Not so much a PC issue as a comfort zone issue.
    Second: These are the people running “our” government and economy? If I didn’t know better I’d swear the man was “channeling” Sir Humphrey from ‘Yes Minister!’
    Third: Don’t feel too bad about the Ministry of Truth at work. You see it all the time on the local level. If the stories I’ve read about ‘selective reporting’ are even somewhat true, the type of ‘cosmetic editing’ you describe would be standard operating procedure in todays culture. It used to be that “The winners wrote the history.” Now the new paradigm is “The writers of the history win.”
    Fourth: So many people seem to have forgotten, or never learned, that History itself is a dynamic force all on its’ own. Most systems are too complex to be easily grasped, let alone directed. The best strategies are those that use natural forces to ‘influence’ outcomes. Willful ignorance and adherence to artificial ideologies are not survival strategies.
    Happy Easter!

    1. nonclassical

      “Most systems are too complex to grasp”?..which leads us to
      U.S. government nonsense regarding TBTF; “It’s all too complex-we’ll take care of it for you”.

      Sorry Ambit-I’d rather work through the complexity..

      hisorical documentation does provide similar and-or relative comparison. None of this is “too complex”; Basic avoidance excuses are just that…TRUTH is-will always be the issue, and can be ascertained to a high degree of reality..

      1. DownSouth

        The social sciences are full of scenarios about the lives and minds of our ancestors prior to the advent of civilization. Rousseau imagined a noble savage corrupted by society. Hobbes imagined a brutish savage that must be tamed by society. Freud imagined a guilty savage whose patricidal act somehow became embedded in racial memory. Economists imagine a selfish savage, sometimes even referred to as Homo economicus, who becomes civilized only by appealing to his self-interest. It is worth asking why these origin myths are necessary when they have no more basis in fact than the Garden of Eden. My guess is that they play a practical role in the belief systems that create and sustain them, much as the distorted versions of history in the four Gospels. In any case, we are on the verge of replacing these scientific creation myths with more authentic knowledge about our species as a product of genetic and cultural evolution. This knowledge can almost certainly help us build bonds of mutual trust, which in turn can promote the benign application of knowledge by mutual consent.
        ▬David Sloan Wilson, Evolution for Everyone

        1. ambrit

          Dear Down South;
          The question as I see it isn’t that some solutions are imaginable, but that the “mutual trust and cooperation” needed to even attempt the experiment is the prime stumbling block. If I read you right you are advocating an essentially positive view of human nature. I happen to agree with you, but “time and randomness” often interfere with the processes attempted. Given the competition from the “eternally damned” sin nature crowd, robust political will is required to oppose the forces of entropy. It almost boils down to a basic competition for the soul of mankind.
          The basic problem with the social use of TRUTH I have is in regard to the definition of the aforementioned you use. I personally know people who, having abandoned their critical faculties, apply one form of Truth or another, depending on socialization and other factors. If you’re talking about “the numbers don’t lie” kind of truth, I’ll concede the point. But here is exactly where the theory of limits comes into play. How you define an acceptable outcome makes all the difference. I’ll admit, words like hubris and arrogance apply here. Yes, by all means, work through the complexity, but be very aware of the constraints, as I see you are already. That old joke is even better today than it ever was; “Hi, we’re from the Government. We’re here to help.”

  11. too silly for words

    don’t post this –
    but i’m glad i’m so stupid – i couldn’t sit and listen to Summers for 2 minutes while i was trying to find your interesting contribution, let alone be in the same room with him rabbiting on for an hour – talk about shifty arrogance – he’s a very important economist? come on, you’re having us on y

  12. lambert strether

    Well, Summers is a predator sensing a far-off threat, and like the other member of our ruling kleptocracy, he’s not only a thief (that come with the territory) but a liar, and a bad one. Film at 11.

    The threat that Summers senses would be, of course, state banks. Last I checked, the Bank of North Dakota compensated its officers for what they’re worth (as opposed to what they can loot), and hadn’t crashed the world economy. Of course, if you’re into domestic policy driven by Shock Doctrine, as our kleptocrats, including Summers are, mot crashing the economy is a bug, not a feature.

  13. Larry Wolfowitz

    Mobsters and gangsters always start up with their “socialism this, communism that” rhetoric to defend their wake of aggressive surface mining. Isn’t “humbly” interviewing fat bastard sort of a tounge in cheek embrace of criminal royalty? People killed themselves in Lithuania, Russia, etc. Millions in the US are either massively inconvenienced, economically destroyed, and yes, suicidal. Either way, they don’t have their houses no mo’.
    Larry Summers: massive collapse and the accompanying rape and pillage all without missles or bombs. What a guy!
    The academic Don met with the full approval of the Pentagon (or was dispatched by the Pentagon) and therefore was welcomed by the charming obedience of the current Obummer mirage/administration.

  14. purple

    The private sector is much better at allocating capital, right ? There’s no other reason for a private banking system.

    Doling out more home loans to mechanics with 5 houses isn’t all that smart, but they knew they would be bailed out and they were.

  15. Tom Crowl

    Great question!

    His answer like the paradigm he operates under is bogus, dishonest and self-serving.

    But his answer doesn’t matter as much as that smattering of applause accompanying your question.

    I believe (hope?) that’s a sign of a shifting landscape.


    Larry Summers is a criminal, and that’s that…..

    I only hope that he lives long enough to face charges of treason and be compelled to answer the questions of The American People in a Court of Law….

    In the mean time let’s just keep him squirming with anxiety…

    Best regards,


    1. Susan Truxes

      Yves, That was astonishing. Your question was so free and clear. And clearly it did not fit in with the agenda which I sensed was to be focused on exchange rates in a globalized world of debt controlled by the big banks. Is this what the first Bretton Woods attempted to do on a much more innocent scale? The only things big banks should be going into are pollution mitigation; world health problems, and maybe food production, and transportation. And clearly, all these necessities fit the requirement of utilities. But instead of that, all sorts of other things are funded and gambled away, the money is black-marketed or simply stolen outright. Larry Summers knows this and that is why he mumbles. Everything a bank could reasonably finance to help individual citizens could better be done by state banks and thrifts, in the US and around the world. Here’s one big problem then: the big banks have looked to individual citizens to be their greatest source of income and if they were prevented from this predation they would not be such big banks.

  17. Max424

    Yves, you’re advocating for the Too Big To Fail, didn’t you know?

    Of course, what the oh-so-brilliant Larry Summer didn’t hash out, after he unceremoniously lumped you in with the Too Big To Fail crowd; something has to be Too Big To Fail.

    Right now, we are generously applying Too Big To Fail to certain large areas of the private sector (like oil, coal, health, defense; and most especially, to finance). Meanwhile, we have a Too Small To Succeed public sector.

    It should be the other way around. Our country should be the one reaping the benefits of Too Big To Fail.

    Note: In my opinion, the non-public financial sector should be left to its own devices. If they want Capitalism — and destruction, creative or otherwise — I say give it to em.

      1. Max424

        Good point.

        I should have said: “After we separate, after we’ve ripped off the last of the financial sector’s malevolent tentacles; let’s give it to them!”

        But alas, the idea of separation seems impossible now. And that’s why I’ve become — much to this formerly hopeful man’s surprise — an unrelenting cynic, and a committed purveyor of doom.

  18. rjs

    i once had some hope that INET would accomplish something, reading you and exchanging with rebecca wilder after the london conference…but seeing this conference giving time to such as larry summers has convinced me its just another belly button gazing exercise…

    1. readerOfTeaLeaves

      Whoa. I completely disagree with you, and here’s why: last weekend, I was able to play quite a few of the INET videos in the background while doing other things, and I thought some of the info was a huge breath of fresh air and made me mildly optimistic.

      Obviously, the INET site (which is excellent) is not set up for people to leave ‘rankings’ in the way that iTunes and Netflix and Amazon allow people to leave ‘recommendeds’. But you are missing some terrific info.

      My ‘recommendeds’ include: the Keynote by Lord Adair Turner.
      And so far the ‘Sustainable Economics’ videos have been superb. Really, really encouraging to see this topic taken seriously and the ideas were exciting to hear.
      I’d also put in a good word for Gordon Brown’s presentation; no matter what you may think of former PM Brown, the big picture stats that he provides about global demographics are well worth hearing.

      Also, the RealNewsNetwork had a very interesting interview at INET with an expert on global food supply, so the fact that this kind of conversation is starting to burble is, to my mind, a huge relief and basis for optimism.;

      I remember seeing Yves ask a question in the Summers video, although my own recollection of the Summers presentation was that he had no conceptual explanation for criminal activity, tax havens, or dark money. Therefore, his economic explanations struck me as fundamentally clueless; witty, academically brilliant, but clueless in terms of human nature. All the more reason to view Yves’ question as the kind of thing that an economic epidemiologist might ask, per: “Ummm, Larry, I really have to question your diagnosis. Do you not know what a virus is…?”

      Again, I highly recommend the Sustainable Economics videos at INET.
      Also, the interviews with John Fullerton at the INET website.
      Terrific stuff.
      Gives me hope.

      1. Anonymous II

        Someone mentioned tax havens. There’s a new book,
        “Treasure Islands”, by Nicholas Shaxson.

        I read the prologue on the African country of Gabon
        under Omar Bongo, a corrupt dictator who helped
        some influential French people.

  19. Chris Rogers

    I must disagree with you equating yourself to a minnow – only a few months back you and a few other well known bloggers were invited for a chat with the Treasury Secretary – I read several accounts of this meeting.

    As for asking Mr. Summers what was in effect a good question, ie, running banks like utilities, or perhaps you were thinking of Laurence Kotlikoff’s take on Limited Purpose Banking – something the Bank of England has expressed an interest in.

    One has to laugh at his answer or lack of answer – by bringing into the equation ‘Socialism’ and ‘Communism’, I was already under the impression that the US TBTF’s were backstopped by the US Federal Gov’t and that ‘Socialism’, is fine as long as all share in any losses the big boys produce, not so fine when it comes to sharing the rewards and paying taxes to the government.

    I believe the word we are looking for is HYPOCRISY, rather than ‘nationalisation’, although effectively once the big broker dealers had FDIC coverage extended to them, they were ‘nationalised’, or at least the rather huge losses they incurred were.

    Still, good to see that the ‘free market’ and capitalism are safe with Summers et al, for a moment I thought the USA had changed into a Socialist paradise, or at least one for the very 1% of your society – the rest can eat cake as they say.

  20. Jane

    When he was describing the Indian system prior to 1990 as ‘an experiment’ in finance as a public utility (1:00:46 – 1:02:02), Summers said:

    “The government tends to feel that if it controls the financial system it should encourage it to buy the debt of the government; keep interest rates low, towards that objective. That then has a set of implications for deposit rates. That then has implications for the availability of credit to business. And so track record of public utility operated financial systems in terms of allocating capital to entrepreneurs who are going to succeed with it rather than to incumbents who are failing with it has, to my knowledge, been very, very poor.”

    Isn’t that a description of how the banking system works today in the US? Even down to ‘allocating capital to incumbents who are failing’?

    Wasn’t that the point of your question? The US banking system is, in reality, set up as a public utility so why not just acknowledge the fact and move it back into public hands?

    As others have commented; it doesn’t appear he has ever thought about the question in relation to the US system.

    1. DownSouth

      Jane said: “….it doesn’t appear he has ever thought about the question in relation to the US system.”

      Here we have another one running interference for Summers.

      The intent here is rather obvious: to reduce his crime from one of commission to one of omission, a far less serious offense. As Hannah Arendt—-who knew a thing or two about making excuses for criminals—-wrote: “The reason for the insistence on a duty to forgive is clearly ‘for they know not what they do’ and it does not apply to the extremity of crime and willed evil.”

      Do you think people can’t figure out what you, John Merryman and Peter Gray are up to?

      Just consider the evidence:

      1) Summers has lived and breathed this stuff night and day for decades. Others, given their cheers, immediately knew the import of Yves’ question. And yet we’re expected to believe Summers is some bumpkin who came riding into town yesterday on the back of a hay wagon?

      2) If Summers had never thought about the question before, would he give the answer he did? Is the answer he gave consistent with someone who had never considered the question before or wasn’t immediately aware of its implications?

      In spite of all the rationalizations being offered for Summers’ thuggish behavior, people need to keep in mind this gem of ancient biblical wisdom:

      Make a tree good and its fruit will be good, or make a tree bad and its fruit will be bad, for a tree is recognized by its fruit.▬Matthew 12:33

      1. Jane

        Wow! What page are you reading from??

        Summers comment was inane if he was trying to say the US banking system shouldn’t be made into a public utility because the description he gave of the banking system as a public utility pretty much described the current US banking system. A clear indication his thinking is based on ideology and completely laughable.

      2. Peter Gray

        DownSouth, at best you are leaping to unwarranted conclusions. Please see my response above:”DownSouth, what makes you think that saying “that Summers had never given the question any serious consideration previously” is excusing him? The man supposedly put a lot of effort into considering the future of the Financial System – or should have.”

        This “Great Recession” has, for me, turned what should have been a nice, quiet, modest retirement into a nightmare of uncertainty, with potential penury hovering just over the horizon. Believe me, I’d love to see a whole bunch of the Wall St “Financial Engineers” in gaol.

        But that is not the point. Yves thinks that the Summers Video may have been edited, and that is the issue she has thrown open for discussion.

        The broader issue is whether or not we have a coherent, agreed theory of Economics which can be used as a guide for the formulation of Policy, and the evaluation of Policy actions.

        We don’t. We are still stuck with “ask 2 economists a question, and get 3 answers”.

        INET is a real effort to move Economics forward to the point where it is more useful, and I applaud that effort. I think it was appropriate for Summers to be there. If you don’t understand the man’s arguments, you can’t rebut them!

        1. attempter

          The broader issue is whether or not we have a coherent, agreed theory of Economics which can be used as a guide for the formulation of Policy, and the evaluation of Policy actions.

          If you’re serious about that, we can start with the fact that the institution of “property” is rationally incoherent, morally depraved, and doesn’t work in practice at doing any of the things it’s claimed to do.

          No theory which doesn’t oppose the prior theory, and no policy based upon that obsolete and evil notion, can be coherent. It’s simply going through the motions of pretending to want change but really wanting nothing to change.

          If you don’t understand the man’s arguments, you can’t rebut them!

          How hard is it to understand and rebut the argument that the purpose of society is to be mined and dumped upon by big banks and corporations, and that government should be nothing but bagman and goon for these rackets?

    2. curmudgeonly troll

      ha! yes, that’s why it’s such a great question and non sequitur answer – 1) what are banks doing today? buying Treasuries! certainly not expanding loans to the private sector 2) what’s a greater resource allocation problem, building empty McMansions, or financing the government? 3) why would backstopping and regulating critical components of the financial system exclude a strong unregulated sector?

      Why am I not convinced that we have to backstop the banks, but we don’t get to influence them in any way, and they should keep paying themselves big bucks risking the public’s money?

  21. MIchaelC

    The irony of his non answer to your question, that finance as utility inevitably leads to bad crony capitalism, as opposed to the crony capitalism we’ve got now, was rich.

    I recall the communist/socialist remark was in response to an earlier question. Felix Salmon remarked on it in his piece on the conference. And, I heard it on the version posted at the INET site.

      1. alex

        Great link!

        Some choice lines from Summers in there:

        It’s common in a moment like this to go into a general bash on economics. And everyone who hates economics … because they don’t do math

        Which explains the widespread hatred of the general public for physicists. You know Larry, the subject where they routinely do math that makes economics look like kids counting on their fingers. Even more onerous, their results are expected to jibe with reality!

        everyone who doesn’t like economics has piled on at this moment to regard this crisis as a repudiation of economics. And I don’t think that’s right

        How unfair! Just because most economists (including Summers) missed a little thing like the global financial implosion. But they sure are smart at math, ain’t they? And the neo-classicists missed the Great Depression too. Oh well, third time’s a charm.

        Of course another approach would be to laud the economists who did predict the Great Meltdown (e.g. Dean Baker and Steve Keen) and deride as self-important incompetent hucksters and worthless mathematical masturbaters those economists who didn’t (e.g. Larry Summers, Alan Greenspan, and a cast of thousands). I’m looking forward to the day when Summers and Greenspan admit they’re worthless ignorant asses and promise to learn at the feet of their betters.

        1. Yves Smith Post author

          Keen in particular goes to some lengths to point out in his book that he is mathematically pretty expert (by econ standards) AND that economics limits itself to particular types of math and has REFUSED to embrace more sophisticated techniques that are better suited to modeling complex phenomena.

          So he anticipates and rebuts Larry’s argument.

        2. Tao Jonesing

          I love Steve Keen, but at the end of the day he is just a different species of apologist. Deriding mainstream neoclassical economists as “self-important incompetent hucksters and worthless mathematical masturbaters” prevents us from recognizing that such economists are, in fact, willful liars whose lies serve to aid and abet crimes on a daily basis.

          When you label evil as stupid, you make evil seem hapless but benign when it is, in fact, purposful and malign.

  22. Salviati


    I think you have wasted your breath asking that charlatan a serious question. He does not deserve such civility. The notion of speaking truth to power is futile, the powerful know the truth and openly display contempt of it in their actions.

    Perhaps the saddest aspect of the status quo is that a jester like Summers can speak at length without being laughed off the public stage, let alone cream pieing him for being the clown that he is.

    I am not saying that you are the person to do it. I think you have done more than your fair share to expose these scoundrels. Rather, it is our collective failure to transform knowledge of their criminal deeds into appropriate action to correct the situation. Its going to require Americans to take risks, but the future of our children are at stake regardless.

  23. François

    I agree with many of the comments here. I don’t think it matters very much whether some of the response was removed or not. There really wasn’t any chance he was going to answer your question seriously in any chance, so whether some of his non-answer was edited out doesn’t much matter.

    But as someone who is used to asking tough questions you must also be used to getting non-answers too, I would think.

    In short, no surprise.

  24. Gene O'Grady

    I spent some time before and after telephone deregulation in the US in the headquarters of one of the divested regional companies as a flunky, but a fairly intelligent flunky with eyes. It was quite obvious that one of the key motives behind divestiture for most of our officers (many of whom I frankly had a great deal of respect for) was that in the deregulated model their personal income was no longer capped. And that this motive was much more blatant in the group that took over around 1987 than in the original divested officer group around 1982. The earlier officer group, of course, did a lot better job. The later group got their names in the paper more often.

  25. Seth

    My favorite part of the Larry Summers appearance was the fawning introduction with its comprehensive pre-apology to the effect that “he has been in government and had to make REAL decisions, unlike YOU pathetic lot”. And “we’re lucky such a big shot graces our event with his presence”. Frankly an Institute with a goal of NEW economic thinking should be careful to prevent such an establishment tool from darkening their door.

    While I had the impression that Soros had reasonably ‘virtuous’ intentions with this institute, it has been a magnet for the establishment. It’s a paradox: rich guys aren’t capable of doing anything to undermine their own private power. The more they try, the more they get swarmed by sycophants ready to mouth praise of the funder’s pet theory while essentially repeating the same old party line.

    Yves, you can’t expect an honest response from a public figure like Summers. You are attacking the basis of his power. You might have gotten a more interesting response by asking a less direct question. Of course, Summers’ answer would then have required some interpretation.

    Or if you had asked him about the wisdom of the traditional Glass-Steagall boundaries between styles of banking, he might have been less able to scamper away to the relative safety of talking about Indian banking in past decades. You can bet he would have told the standard just-so story about returns to scale and being competitive in global markets, etc. But he couldn’t have claimed that you were talking about something crazy that had never even been considered on our shores.

  26. Sluggeaux

    Ms. Smith,

    As a Californian, I must take issue with the premise of your question to the smarmy Mr. Summers, because here rather than treat banks as utilities, we treat utilities as banks.

    Have you forgotten that the most scandalous misdeeds and abuses by Enron’s traders (and others) were perpetrated after California’s utilities were “privatized” by the grifters and grafters in our state government? This very week we learned that the CEO of Pacific Gas and Electric, ostensibly a regulated utility, has taken his enormous $39M+ pension in the wake of a gas line explosion which killed 8 and destroyed 39 homes. That CEO is a former cellular telephone executive who came to the utility just as Enron was looting California’s budget surplus and is guaranteed a pension at age 58 after a mere 6 years in his current position. The looting of our public resources by the Masters of Business Administration continues unabated, while teachers and police officers are demonized for their modest retirement benefits.

  27. John James

    To my knowledge, the overall core issue and macro environment has never been publically explored:
    1. Given the generalized global economic/political structure, what is the optimal age distribution of a population? What public policies (should)address that issue.
    2. As industrialization(in its most broad sense)becomes globally ubiquitous, how will the policies and ramifications of those policies of more advanced nations be exercised and structurally responded to by the more rapidly growing “emerging” nations, as they approach scale.
    3. Given the concept of the “Machine Age”..(Jacques Barzun) are we inexorably on a path of global fascism (in the classical definition)?
    4. Will Emerging Makets (BRIC, PetroStates, etc), continue to buy into the existing global monetary management structure(overwhelmingly weighted to the US/W. Europe) or, will they participate while alternatively creating a mechanism which is more favorably weighted to their ascendence? If so, what is that structure and timing?
    Increasingy I find the commentary of our public policy managers(Summers, et. al) to be irrelevant as they typically defend events created by the financial/corporate class while being guided by them in their response. The contortions to explain actions is even more amusing as, they pretend to have some control over events to which they are mere props.

  28. F. Beard

    “Credit” creation in a government enforced monopoly money supply is theft of purchasing power from all money holders including and especially the poor since they are rarely considered “credit-worthy” themselves.

    So how would making banking a public utility fix that? Because the stolen purchasing power would be used for the benefit of the poor from whom it was stolen?

    How about this solution instead – that we eliminate the government enforced monopoly money supply that allows the poor to be looted?

    1. Susan Truxes

      What I don’t understand is how, if we make banks into utilities, it will really change anything except their earning power. (The thought that made Larry Summers so uncomfortable he couldn’t compose a proper sentence.) And also perhaps the banks’ ability to offshore, black market and all the other stuff. But how will it help us thrive. It will keep interest rates down, but Bernanke does that pretty well already and to no avail for the majority of the population. Clearly money itself is a useful thing. I don’t know if it can be considered a commodity. I agree this has put us where we are today, making money a commodity. I get lost in this. So I think we need dedicated banks. Dedicated to intended purposes. And in this way they can be better controlled.

      1. F. Beard

        Clearly money itself is a useful thing. Susan Truxes

        The money solution is from Matthew 22:16-22 – separate government and private money supplies.

        That would allow the government to issue money for its needs – taxes, fees, and government spending – and allow the private sector to develop monies for its needs without the inevitable distortion of a single, manipulated, government enforced monopoly money supply for all debts.

        Both sectors should prosper. The private sector would have stable money supplies beyond the reach of politics and the government sector would have a healthy private sector to tax – a win-win situation.

        But if Progressives insist on a single, one-size-fits-all money supply, then the danger is that the fascists will force that money supply to be PM based to preserve and probably increase their own purchasing power at all costs to everyone else.

        1. Susan Truxes

          I agree we need such a firewall. I think two separate currencies would create a firewall at least until there was some reason to exchange one for the other. But still a firewall in that it would really slow the money wheel down. Force accountability. Is it progressives who insist on just one source of money? I’ve always considered myself a progressive. Conservative progressive. I guess I’ve never paid much attention to the discussion until now. Its pretty mind-boggling what deregulation did. There certainly was nothing progressive about that.

          1. F. Beard

            I think two separate currencies Susan Truxes

            There would be 1 or 51 (if all of the States got into the act) government currencies and any number of private currencies. Perhaps cities could issue, spend, and collect in taxes their own tax tokens too.

            would create a firewall at least until there was some reason to exchange one for the other. Susan Truxes

            Since free market exchange rates would prevail at all times between tax currencies and private currencies then the stealth inflation tax would be abolished.

            Force accountability. Susan Truxes

            Yes. Government itself would have a strong incentively to spend wisely or else lose purchasing power in its fiat.

            Is it progressives who insist on just one source of money? Susan Truxes

            Just about everyone does. The concept is still alien even though it was given 2000 years ago. And even Ron Paul, who advocates private currencies, can’t seem to imagine anything but PMs for that purpose. But common stock is an ideal private money form – far superior to PMs (precious metals).

  29. Justicia

    Summers is quite a piece of work. I had the pleasure of listening to him speak about “responsible capitalism” and the role of long-term shareowners in Atlanta last week. And he said the words with a straight face. But not a word about moral hazard in the financial system or how high frequency trading has made a mockery of the idea of ‘long-term’ investing.

    1. craazyman

      Sometimes You See the Hints of Things to Come If You Connect the Dots

      Wow a lecture on responsible capitalism. maybe he’s being pulled toward a Saul of Tarsus moment. Once the Gnosis pries open a crack in the mind it grows like a mustard seed.

      that would be quite an amusing storyline.

      he quits his job and does a mea culpa for past errors and becomes a global evangelist for utility banking, breakup of TDTRs, and the restoration of Glass-Stegal like separations.

      ha ha ha

      He repudiates 50 years of academic economics. Disavows the notion of “efficiency”. Admits economies don’t tend to equilibrium. Concedes people aren’t rational and never will be.

      And gets his chakras balanced once a week before channeling sessions.

      I’ll give him a job on my staff at the Institute for Contemporary Analysis where New Economic Thinking is really going on — after a few glasses of red wine usually — but he won’t make a hedge-fund like salary. In fact, he may have to offer some financial support to get us up and running, but he can have the corner office. I’m not picky.

  30. Elliot X

    If Larry had been invited to guest host CNBC’s squawkonthestreet for three hours in the morning, and one of “the talent” such as Joe, Becky or Karl had asked him a real question like that, he probably would have passed out from the shock.

    Same thing if he appeared on All Things Considered and Robert Siegel asked a hard question for once in his life.

    Would it be fair to say that Larry “the porcine Merlin” ezra-kleined his response to your question?

    (from the new verb “to ezra-klein” or simply, “to klein”, defined as “to shill for the banksters”)

  31. Roger

    Aren’t reporters allowed to bring their own recorders to these things? Isn’t that what reporters do?

    Someone must have a copy of Summer’s answer on their PDA or recorder.

    Then you make a you-tube archive for posterity.

  32. Jim Sawyer

    Hello Ms. Smith,
    Today I listened to the recent Bretton Woods INET conference discussion between Larry Summers and Martin Wolfe, and note your prescient question/comment near the end, with regard to treating finance as a “Utility.” Since this term coincides well with my own work (I have been searching for an appropriate term, which you supplied), do I cite you? Someone else?
    Also, I believe Summers’ response focused more on the allocation of finance, whereas I wonder perhaps if you were touching instead upon the very definition of what capital is, and what it is not (finance)?
    Jim Sawyer, Economist
    Institute of Public Service
    Seattle University

    1. Yves Smith Post author

      I’m hardly the first person to advocate this line of thinking, but you can cite me as someone who has discussed it rather than an originator. You can argue that discussions of “narrow banking” which first came from Irving Fisher in the 1930s, are the precursor (although I doubt he used the expression “utility” back then, I’m not 100% certain).

      1. Cedric Regula

        This article describes pretty well the difference between commercial banking (sometimes called utility banking) and investment banking (now called casino banking, private equity, and maybe hedge fund). Of course they passed Glass -Steagall in 1933 along with other acts like FDIC to support commercial banking and ring fence finance and financial speculation. Then Summers was key in dissolving it and other impediments to “financial innovation” for which he apparently takes credit for finally killing that Zombie steel company. Rather funny that Summers choose to re-define utility banking as nationalized banking (it’s not). Like we don’t have the T-Reserve already? Well, at least we saved the pay scale.

        But then Summers rolls out that “entrepreneurial” word. Without 21st century banking, we would still have steel telephones, all black, made by AT&T. Nothing new would ever happen in biz. Like no entrepreneur ever was able to do an IPO before 1999? Microsoft never happened in 1986? A bunch of Amsterdam financiers sitting around in the downtown pub in Amsterdam during the 17th century never financed the East India Trading Company? Com’on Larry.

        1. Seth


          “Like no entrepreneur ever was able to do an IPO before 1999? Microsoft never happened in 1986?”

          The first lesson taught in MotU school is “how to take credit for every creative act since the dawn of time.” Bankers understand that it doesn’t matter who *does* the creative stuff — only who gets PAID for it. Which is usually a bunch of bankers.

  33. slothrop

    Deftly handled Yves, with your inimical diplomatic style.

    I wonder however if more effective wouldn’t have been “Larry, why’d you bail out your friends?”

    Note Summers’ body language after the question. After taking his finger out of his mouth he repositions into an aggressive posture, head swaggering and fingers deliberating. Obviously threatened.

    I could not listen to that pathetic answer literally two minutes in.

  34. LeanBenson

    INET ? new economic thinking? really? maybe with a small correction: summers sitting on the back of the room and Ms. Susan Webber answering (or not) his questions

  35. bob

    The finger in the mouth after the question- Priceless.

    Classic “lying” tell, as in “how do I lie my way out of this”.

    Beside this tell, the man holds himself with the class and elegance of a Gorilla.

  36. Ep3

    Well nice knowing u yves, now larry’s gonna do a political hit on you and take u down. U could see him squirming the whole time you asked your question. Then during his long and incoherent answer, I wanted to blow my brains out with boredom.
    The guy is just scum. “Britian enjoys a boom over the next years”? Wtf? Austerity grows the economy. Whoopee!

  37. BF Saul Mortis

    Long passed the period when wealthy landowners stopped offering harvesting jobs to the peasants, deathsquads were mobilized with US funding, to herd and slaughter:

    ‘During the Salvadoran civil war, death squads (known in Spanish by the name of Escuadrón de la Muerte, “Squadron of Death”) achieved notoriety when far-right vigilantes assassinated Archbishop Óscar Romero for his social activism in March 1980. In December 1980, three American nuns and a lay worker were raped and murdered by a military unit later found to have been acting on specific orders. Death squads were instrumental in killing thousands of peasants and activists. Funding for the squads came primarily from right-wing Salvadoran businessmen, and landowners. The death squads involved were found to have been soldiers of the Salvadoran military, which was receiving U.S. funding and training during the Carter and Reagan administration.-

  38. Hugh

    Larry Summers is a brilliant man because our kleptocratic elites say he is. And he is in their view because he says what they want him to say. He is the perfect example of the echo chamber effect. Of course, they could have gotten many another to play the role of kleptocratic enabler, apologist, and stooge, but Summers had one thing that was brilliant and that was his connections. Summers is the nephew of two Nobel prize winners in economics: Paul Samuelson and Kenneth Arrow. Nevertheless, his was a hardscrabble existence early on or at least as much so as one could get as a child of two professors at the Ivy League University of Pennsylvania. Yes, that is sarcasm. He was born into the elite and with his pedigree in economics he was destined to advance far and fast in that field and be acclaimed for his brilliance despite his intellectual mediocrity. But I don’t mean to leave the impression that it was his cerebral limitations which led him to enable Enron, repeal Glass-Steagall, and deregulate derivatives. It is rather his deep identification with and allegiance to our kleptocratic elites which set him on and kept him on his career path in facilitating and covering for their crimes.

    I would second the criticism made by others here that INET undercut its credibility by inviting Summers. It concedes a degree of validity to the Establishmentarian position (kleptocracy) which it does not deserve. It is rather like having James Inhofe speak at a serious conference on global warming.

  39. Blurtman

    Why play the game and expect straight answers from this compromised and possibly incompetent person? You only continue to prop him up on his pedestal. Yes, getting ahead frequently is less about being competent, but more about knowing how to get ahead. Why confuse the two?

  40. Glen

    Yves, thanks for representing the American walking wounded – those losing jobs, homes, pensions 401Ks, any real future, all just to feed the insatiable greed and fiscal insanity of the kleptokrats, with Larry being one of the head crooks.

    I’d love to see Larry face off against Bill Black in a no holds barred discussion of what it takes to fix the banks.

    1. Chris Rogers

      I think William black, Laurence Kotlikoff and the likes of Dean Baker would have a feeding frenzy if sharing a podium with Mr. Summers.

      No doubt, this would be enjoyable for some – clearly not Mr. Summers though!

  41. anon2

    John Merryman: “I respect your adherence to morality, but it is “extremely naïve and innocent.” Nature is bottom up”

    Patrick Bateman: Do you know what Ed Gein said about women?
    David Van Patten: Ed Gein? The maitre ‘d at Canal Bar?
    Patrick Bateman: No, serial killer, Wisconsin, the ’50s.
    Craig McDermott: So what did he say?
    Patrick Bateman: “When I see a pretty girl walking down the street, I think two things. One part wants me to take her out, talk to her, be real nice and sweet and treat her right.”
    David Van Patten: And what did the other part think?
    Patrick Bateman: “What her head would look like on a stick… “

  42. Art

    Notice how Summers’s thinking follows these lines: if central banks keep interest rates low, savers won’t save, which means, according to Summers, that entrepreneurs won’t be given access to credit. In other words, he seems to be espousing loanable funds theory, i.e. banks are reserve constrained.

    This is simply not how banking works. Banks make loans and then go and find the funds to meet their reserve requirements after the loans are made. If the banking system does not have sufficient reserves to meet its reserve ratios, the Fed will buy bonds and inject reserves in order to make sure the ratios are met. That is the only way the Fed can control the Fed Funds rate.

    Maybe this is why Summers was not made Fed Chairman: He doesn’t understand banking.


    Great question, Yves.

  43. Philip Pilkington

    Very clever answer — disingenuous to the point that you barely even notice how.

    Summers claims that the private sector is more ‘efficient’ at allocating capital — classic nonsense. What happens when an institution is inefficient at allocating capital? Well, you get losses, right? Major losses. And what happened back in ’08 (and many times before)? The private financial sector incurred heavy losses.

    Saying that it’s efficient at allocating capital flies in the face of all the evidence that’s been accumulated in the past two years.

    What Summers is really saying is no more than the cliche that the private sector is ‘efficient’ while the public sector is ‘inefficient’. That trite BS is what really lies behind his answer. Sad…

    1. rps

      “…what happened back in ‘08… The private financial sector incurred heavy losses.”

      Short version:
      What happened in ’08 the private financial sector FAILED and the public sector-taxpayer- BAILED THEM OUT.

      “It does not require many words to speak the truth.” Chief Joseph Nez Perce

  44. rps

    “Men who look upon themselves born to reign, and others to obey, soon grow insolent; selected from the rest of mankind their minds are early poisoned by importance; and the world they act in differs so materially from the world at large, that they have but little opportunity of knowing its true interests, and when they succeed to the government are frequently the most ignorant and unfit of any throughout the dominions.”
    Thomas Paine

  45. Rock

    Ms. Smith

    I appreciate what you are doing, and I would like to give you a couple of pointers which may assist you in the future.

    First, the question you asked Larry was not the question you wanted to ask, and second, it was delivered in a manner which would allow anyone to reply in a manner which you did not want.

    You must realize that when you ask a question, it must be delivered accurately, without stuttering, without hesitation. You must rehearse your question in front of a mirror before the event, because you will know without a doubt the information which will be presented, and how your question will fit into that information and presentation. So prepare the question, and deliver it 100 times in front of a mirror.

    When you get to the event, if someone else asks the question, applaud, and drop it, but record the answer.

    Second, you must frame your question so it does not allow for misinterpretation. For example,you should present the evidence, then frame the question “don’t you agree that xxxxxxxx.” That puts the person being questioned on the defensive, and that person must argue against your evidence in order to answer the question in a direction you don’t want. This puts him at the disadvantage if you’ve done your homework.

    Third, you must use words that in the English language, can’t be misinterpreted. For example, “actor” is a word which may have application, or it may have indirection. I was an actor, and I did not have any commitment to my persona. So your choice of that word was inappropriate, you wanted (I believe) to indicate commitment on the part of the corporations or management. The use of “actor” permitted the audience to question the commitment of the individuals you were identifying.

    I hope these pointers help you in your great efforts in the future.

    The very best of regards


  46. Chilango

    I thought the answer was pretty good and he answered it directly.

    “What is the case for not treating financial sector actors as utilities?”

    He answered that:
    1) Some cases historically proved troublesome (India);
    2) In theory, government controlled banks would tend to allocate more capital to governments than businesses and consumers.

    His answer may not be right but he stated an appropriately simplified answer given the constraints of the forum.

  47. Hal Horvath

    Yves: “…What is the case for not treating financial sector actors as utilities?”

    Martin paraphrases as so: “Should we regard the financial sector as simply a humble utility, and regulate and presumably pay its executives accordingly. Or should we continue to…support it as though it was a utility and pay it as though it was a …go-go ___”

    Ok, folks — a lot of utilities in the US are simply fully public, owned and operated by cities.

    This is commonplace.

    Summers did answer one possible sense (a plausible meaning) of the question as being about whether to have banks as public utilities (after meandering) very clearly.

    In other words, he answered exactly (eventually) one of the ways Martin Wolf paraphrased the question.

    He said, with plenty of “uhs” :

    “…but to take over all the process of financial intermediation through the public…sector…we would still have US Steel as one of our flagship companies, and I don’t think you would likely have seen the kind of dynamism that we have seen in this country (US)”

    Now, could he have imagined the question in a difference sense?

    It is a reasonable possible sense of the question — Martin Wolf reasonably took it that way — and was genuinely addressed.

    Many here would take the sense of the question as I do as being something akin to “shouldn’t we regulate banking in some way analogous to how we often have regulated utilities in the US?” That is, still private, but highly regulated.

    But I take the question in that sense because I’ve read economic blogs for 5 years (and articles in The Economist, etc. for 25 years), and have a sense of the current worldview in blogs so that I recognize the likely meaning of the word “utility” in this context.

    It’s a context difference.

    Nothing more.

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