Cholesky Decomposition: Solving a System of Linear Egos

Consider a dinner table--a matrix if you will--of elements consisting of the world's prominent Economic Minds

I swore I wasn’t going to read The Promise by Jonathan Alter. Even the title oozes that smarmy assurance of a member of the Oborg fluffing brigade and the faith it takes to join a cult of personality. Then I got caught up in an excerpt with a title that could not be ignored by any practitioner of the dismal science. It’s over at the Slate’s The Big Money and under the siren title of “Why Paul Volcker Was Frozen Out of the Obama Administration”. I have to admit to having been awed by Volcker during my young career when the extremely volatile fed funds rate gave me heartburn and euthanized the very sick Savings & Loan where I was working.

While the title implies it’s mostly about Volcker, it’s actually mostly about the extremely volatile La La Summers and his “abrupt manner” and the dynamics of Obama and his economic advisers. What’s pretty amazing is the article says that Summers had mellowed since his tenure at Harvard. You wouldn’t know it as you read–and if you believe–this narrative. Doesn’t this just sound like the boss that every one prays they never get?

Summers’ friends claimed he had mellowed by the time he entered the Obama White House, and it was true that he had learned to take ribbing. Obama teased Summers for repeatedly falling asleep in meetings, for sweating in winter, and for attaching probabilities to everything. Summers’ habit of finding a cloud around every silver lining led the president to privately dub him “Dr. Kevorkian.”

Inside the White House, David Axelrod was among the few representing the so‑called populist side of the argument, and a joshing debate broke out. Axelrod asked Summers, “So, what does your plutocrat constituency make of this, Larry?”

“It’s good to be hearing what Che thinks,” Summers replied.

There was evidently even some stunning moments between La La and Dr. Christie Romer who is the chair of the Council of Economic Advisers. La La is of course well known for thinking women don’t have what it takes to deal with the really big questions and equations. Take a gander at this exchange.

When Christie Romer was brought in to be the chair of the Council of Economic Advisers, Summers tried to exclude her from important meetings. Romer fought back, even suggesting to Summers that sexism might have played a role in her exclusion, a serious charge given that he was fired as president of Harvard for perceived sexism.

“Don’t you threaten me!” Summers yelled.

“Don’t you bully me!” Romer shouted.

Evidently Rahm Emmanual had to work this one out.

So, remember that dinner at the White House of all those economists where we wondering if some one put something in Paul Krugman’s coffee? It’s outlined there too. It also shows how Obama couldn’t possibly be considered a socialist because both Noble Prize winners Krugman and Joseph Stiglitz were arguing for nationalizing of Citigroup and Bank of America. Oh, and here’s the decription of Valerie Jarret’s boss who is supposedly too intelligent and bored all the time to be bothered with ordinary people. This is a guy sitting with a group of clearly brilliant people. Rather than fully discussing the topic at hand, Obama wants the easy solution and turns off the conversation so that it’s all about where he is in this ordeal.

The dinner had been so hastily arranged that Stiglitz didn’t even get invited until the morning of the event. Over a lettuce salad from the White House garden and roast beef, the group held a spirited two-hour discussion. Obama grew slightly impatient when the conversation grew too technical or backward looking. He wanted to know what the economists would do if they were in his shoes. The answers from Krugman and Stiglitz—which amounted to taking over Citigroup (C) and Bank of America (BAC) for a brief time before breaking them up—hardly made Obama wish that he had hired these economists rather than Summers, who had considered the same idea but seemed more appropriately dispassionate in his analysis of it. If Obama had done what Krugman, Stiglitz (who had earlier said nationalizing the banks was the “only answer”), and plenty of other progressives wanted, it would have cost the government perhaps another trillion dollars and quite possibly caused a disastrous run on those banks.

And speaking of Valerie Jarret, guess who was the gatekeeper for Volker?

Volcker could always go through Valerie Jarrett if he needed to see Obama, but he didn’t want to abuse the privilege. After hearing from Obama often during the campaign, Volcker’s phone stopped ringing. He wryly told friends he was nothing more than a “wax figure” for the White House.

So, this is an even more telling excerpt that let’s you know what we’re dealing with in this White House with this set of advisers and this President.

Of the major players, only Volcker (who didn’t consider himself a player because he didn’t hold a government job) thought the whole financial system was conflict-ridden and dangerous. Contrary to much reporting, he did not advocate reinstating the Glass-Steagall Act. But he did favor segregating commercial and investment banking from proprietary trading. Advising clients while trading in one’s own accounts, he felt, was an obvious conflict of interest (the laughable claims of bankers that they had internal “Chinese Walls” notwithstanding) and an inherent source of instability. Why should core banking operations be subjected to such risk? Paul Volcker, principal author of what was once thought of as heartless Reaganomics, was now the most populist of the bunch!

Like I said, I wasn’t going to read Alter’s book, but he has my attention now.