Economics

11 stunning revelations from Larry Summers’s secret economics memo to Barack Obama

A lengthy piece in The New Yorker looks at policymaking in the Obama White House. A key source for writer Ryan Lizza is a 57-page, “Sensitive & Confidential” memo written by economist Larry Summers—eventually to be head of Obama’s National Economic Council—to Obama in December 2008. Here’s some of what I learned about Team Obama’s thinking as the financial crisis was exploding, followed by quotes from the memo itself:

1. The stimulus was about implementing the Obama agenda.

The short-run economic imperative was to identify as many campaign promises or high priority items that would spend out quickly and be inherently temporary. …  The stimulus package is a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.

2. Team Obama knows these deficits are dangerous (although it has offered no long-term plan to deal with them).

Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding new offsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run.

3. Obamanomics was pricier than advertised.

Your campaign proposals add about $100 billion per year to the deficit largely because rescoring indicates that some of your revenue raisers do not raise as much as the campaign assumed and some of your proposals cost more than the campaign assumed. … Treasury estimates that repealing the tax cuts above $250,000 would raise about $40 billion less than the campaign assumed. … The health plan is about $10 billion more costly than the campaign estimated and the health savings are about $25 billion lower than the campaign estimated.

4. Even Washington can only spend so much money so fast.

Constructing a package of this size, or even in the $500 billion range, is a major challenge. While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.

5. Liberals can complain about the stimulus having too many tax cuts, but even Team Obama thought more spending was unrealistic.

As noted above, it is not possible to spend out much more than $225 billion in the next two years with high-priority investments and protections for the most vulnerable. This total, however, falls well short of what economists believe is needed for the economy, both in total and especially in 2009. As a result, to achieve our macroeconomic objectives—minimally the 2.5 million job goal—will require other sources of stimulus including state fiscal relief, tax cuts for individuals, or tax cuts for businesses.

6. Team Obama wanted to use courts to force massive mortgage principal writedowns.

The next step in the housing plan is responsible bankruptcy reform along the lines of the Durbin bill you cosponsored. This would allow bankruptcy courts to write down the principal of primary residences to the current market value. We recommend announcing this reform to begin immediately following the close of the enhanced Hope for Homeowners period.

7. Team Obama thought a stimulus plan of more than $1 trillion would spook financial markets and send interest rates climbing.

To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.

8. Greg Mankiw, economic adviser to Mitt Romney, was dubious about the stimulus.

Greg Mankiw is the only economist we have consulted with who refused to name a number and was generally skeptical about stimulus.

9. But the Fed was a stimulus enabler.

Senior Federal Reserve officials appear to be of the view that a plan that well exceeds $600 billion would be desirable.

10. IPAB was there at the very beginning.

There are two possibilities for making tough decisions on the long-run budget, which could be done either separately or together: creating an executive-branch “health board” (which focuses on one part of the issue) and a Congressionally chartered commission (which could focus more broadly).

11. The financial crisis wasn’t just Wall Street’s fault.

A significant cause of the current crisis lies in the failure of regulators to exercise vigorously the authority they already have.

64 thoughts on “11 stunning revelations from Larry Summers’s secret economics memo to Barack Obama

  1. Just think – after contributing to the demise of the economy, the worthless sack of fat Summers slunk back to his edu-tard enclave, and continues to ruin the minds of our youth. What a disaster.

  2. 1. Well, no s**t. Obama is still a politician. Do people think the GOP candidate will NOT enact his agenda? That GOP candidates won’t do things favoring, say, oil industries? What a worthless point to make.

    2. Obama knows things everyone else knows? Stop the presses! Who says he has no ideas on how to deal with them? Oh, I’m sorry, I forgot–the GOP won’t let us raise taxes. Or close tax loopholes. Or require gigantic corporations with massive profits to pay taxes. F**k me . . . the GOP has no right whatsoever to complain about debt until they can admit that tax increases and loophole-cutting are necessary. Just like how the Dems have, from the start, admitted that spending decreases are necessary. (And if you think they haven’t, go do some research.)

    3. So are we requiring all politicians to have 100% accurate estimates? Good to know. Next time a Republican doesn’t have a 100% accurate estimate, let’s tear him down!

    4. Is this supposed to be a criticism? It’s like you’re spitting out a random fact without any context. Next.

    5. Okay, isn’t this a GOOD thing? Yes, Democrats have never said that we could NEVER have spending cuts. They’re willing to compromise? Can we say the same about the GOP? NO.

    6. Once again, you fail to say why this is a bad thing. It also makes me question how much you actually know about the mortgage industry.

    7. Wow, the comment (in bold) is a HUGE, HUGE misrepresentation of the actual text. It’s just blatantly awful. Dishonest.

    8. . . . Your point being?

    9. See number 8.

    10. See number 8. Wow, this article is just getting worse and worse. And I didn’t think that was possible.

    11. NO F**KING S**T. Holy crap, I’m dumber now that I read this. Thanks, author. You’re horrible at . . . whatever you’re trying to accomplish here.

    • Wow! Did you just fall off the Occupy Wall Street propoganda wagon?
      You would fit in nicely in Greece, they think just like you do!
      You talk like an addict, the problem always is with someone else…
      You demand money to sustain your habits…nice job!!

    • So… you completely disregard the fact that this was a WILLFUL, PLANNED, CONSCIOUS action that Obama KNEW would be detrimental to the economy – and you nitpick at how paragraph summaries could be interpreted?

      You completely disregard that we trusted a man to uphold the Constitution and look out for the welfare of the nation – and instead he KNOWINGLY violated that trust. And you nitpick at details.

      You completely disregard the fact that so far, the Democrats’ track record of fraud/lying/theft is far, FAR worse than Republicans – Pelosi, Reid, Kennedy, Frank, Wiener, Obama, Geithner, etc, etc. – and you use the 5-year-old’s excuse of “But Johnny did it too!” to justify King Barack I’s utter failures.

      You are so goddamn pathetic, it’s not even amusing.

      • You completely disregard the fact that so far, the Democrats’ track record of fraud/lying/theft is far, FAR worse than Republicans

        This would imply they’re both fraudulent, lying theives — is there any difference — YES republicans do it less — therefore they are pure and best for us all — EGAD

        • The options have always been the lesser of two evils.

          Third parties are only spoilers that have zero chance of winning more than a Congressional seat some day in the future.

          Ross Perot guaranteed the election of Bill Clinton for two terms, by talking a significant percentage of votes from George H W Bush and Bob Dole, knowing he didn’t have a snow ball’s chance… Bush would have won without Perot and that would have changed history.

          Ralph Nader, who also had zero chance may have nixed it for Gore. Gore lost Florida in 2000 by about 500 votes. Nader received about 97,000 votes in Florida. If Nader hadn’t run, who do you think would have received those votes? Gore would have won without Nader and the Supreme Court would never have been involved.

          BTW, people forget that the Supreme Court only got involved because the Florida Supreme Court modified the election laws after the election.

          Debt and deficits have always increased at a lesser rate than when liberals are in control. Now Obama has increased the debt in three years than Bush did in eight years combined.

          So, yes, Republicans have many flaws but are the best choice in comparison with Democrats.

    • You spent all this time and energy showing the rest of us what a complete and utter fool you are. Not to mention a partisan hack as well as having quite a small and vulgar vocabulary.

    • Your mentor O’bow-man did say that he wanted to fundamentally transform America and so far he is succeeding on his promise. Mac, above, is right; he should have included you with the list of those dirt bags and be done with you. What sewer did you come out anyway? You portray a rat’s brain and think like a parasite so please go back to your environment…

    • Veritas–you nailed it, man. The enlarged amygdala crowd commenting here can’t quite overcome their mental defects. Forgive them, they know not how they perceive.

  3. I’m ready to see Obama, Holder, Pelosi, Geithner, Bernanke, Reid, Summers, Orszag and Frank arrested, indicted, tried for treason, found guilty, and executed. Hell, we could probably retire a goodly chunk of the deficit if we auctioned off places on the various firing squads!

    • Not to mention all of their accumulated properties, and combined wealth with the resulting sales being applied to the National Debt they all helped to run up.

    • This might be a solution in Hitlers Germany, but your idea reflects a tribal belief hat killing the enemy will solve problems or make life breed for you personally. If you actually read the full article on the political reality of being president at the newyorker.com you will see people from both liberal and conservative sides acknowledging that the gap in political positions is greater tan any time in 100 years and Obama attempts at bi partisan politics failed because of tea party radicals moving much farther to the right than any democrats moved to the left. The lack of politicians in the middle is one reason Obama was Hamstrung in his attempts to get compromise from congressmen. Obama was willing to move towards conservative budget cuts and deficit cuts even though he knew many liberals would be disappointed. republicans have consistently argued against regulation even when it is clear that companies like Lehman fraudulently reported their financial condition to governement agencies with Enron style off books accounting tricks. That is why they went from billions in cash to bankrupt in under a week when the truth of their financial condition was presented to the board of directors who were caught be surprise how fast a firm that earned $4 billion dollar profit could be out of business a few months later. What some people miss is that the game is rigged against any President by insider interests and changing President won’t fix that. The only solution to our present dysfunctional government is a President who can work with majorities in Senate and Congress to take action to improve the economy and reform a system that guarantees we will not get positive results.

      Hitler’s version of your idea drove away all the Jewish scientists that emigrated to the UK and
      US and gave us the the atomic bomb and victory in WW war II . The German’s received the benefits of balming all the problems on people they thought were different from them … lots of dead people , misery and financial collapse.

      • You, sir, are a kool-aid drinking liberal.

        The entire socialist agenda (read the Communist Goals 1963) has been in the implementation stage for quite some time, until we now have socialists and socialist lite for presidential candidates.

        The only solution is to give up the Keynsian policies that drove us here in the first place. Government borrowed money willingly to buy their own re-election, selling themselves to their new Masters, same as the old Masters, those who loan us the money. It has been outed, sir, and we all know of the crooked deals and shady politics, not only of the Democrats, but of those Republicans who have drank from the same trough, only to come away with the R beside their name, hiding behind it.

        The Tea Party did not move right. It was where it was all along, with the majority of America, independent of thought and action, and tired of being led astray by politicians who think promise is another word for lie. Tired of the legalized theft known as taxation, tired of the legalized theft known as “inflation”, nothing more than counterfeiting on a grand scale, but how is it counterfeiting when you’re the one who prints the real money?

        Grow up, stop looking for the free lunch, start paying your own bills, and require those around you to do the same. Charity is for temporary relief or they’re freeloaders. Nobody is owed anything. And if you want to be a citizen in this country, stand up and be counted, legally, and vote, legally.

  4. More evidence, though none is needed, that Obama doesn’t simply deserve to lose his job but should be tried and imprisoned for violating his fiduciary duties, his oath of office, malfeasance, and a host of other offenses.

    • Let’s identify all the fiduciary responsibilities that are being ignored in the private, and public and government sectors for the last thirty plus years. There is a blatant disregard for law and regulation that is destroying our nation from within, let’s not get one or two of these guys or gals let’s get them all. This idea of
      individuals and companies buying their way out has to end and those responsible or should have known what was going on wii have to pay the time like all the who have made mistakes with the law have to pay. Do the crime pay the time!

      • Let’s also be realistic about how concentrated the blame really is. All of us who thought we would get rich and retire early by flipping houses is part of the story, too.

        And can we agree that next time we let the irresponsible ones fail? Short of that, there really is no incentive for anyone to be prudent. We should push more transparency as well, so that if someone is offering a zillion dollars in CDS’s we know that they are actually worth something.

        Good general principals to take into the Greek bailout.

  5. ” A significant cause of the current crisis lies in the failure of regulators to exercise vigorously the authority they already have.”

    And Bush tried several times to make them exercise that authority. There was even legislation proposed in 2005 sponsored by John McCain to more closely regulate the GSEs but the Senate Democrats wouldn’t let it go through.

    The Democrats own this financial meltdown, every last penny of it. The Bush administration began hammering Congress in 2001 to more closely regulate the GSEs. There’s a time line video in YouTube that begins with the 2001 testimony and walks it all the way through to 2005. McCain on the Senate floor made a prediction of how it could shake out that turned out to be a prophetic.

  6. We knew all along this was about implementing an agenda and was done with the assumption that the economy would recover despite the ‘stimulus’. This is simply more evidence that proves that point.

  7. The blame game.
    Oh how we love it!
    Oh how it bites us in the backside.
    Oh how we justify our argument by dissing someone else’s.
    Just cut it OUT!
    Get back to work.
    Pitch in!
    Help out!
    Work in your communities to make local lives better.
    Stop pointing fingers.
    It gets you NOWHERE!

    • Nonsense. Keep pointing fingers until you find the genuinely guilty party(s) and punish them in the public domain. There must be consequences for bad behavior. Otherwise, the same people will keep doing the same thing, and others of the same mind will be emboldened to try.

    • So funny to suddenly not wish to point fingers by followers of the Blamer-in-Chief. For three years we’ve heard nothing but “it’s Bush’s fault” and now, after three years of failed policies and ruinous debt we don’t want to point fingers.

      When it comes to voting at the polls in November, you damn well better know who created the major mess we are in.

  8. Wow. The Stupid Party is going to have a field day pounding Obama with this stuff during the genral campaign . . . oh, wait . . . they’re known as the Stupid Party (by their friends) for a reason.

    Sigh. It was a wonderful thought, but the GOP doesn’t want to be branded as impolite and uncivil by the media they keep trying to be friends with.

  9. Attacking people with political beliefs or values different from you won,t create a single job for anyone but will help you feel bytes that you are tint and they are wrong. When the ship is sinking we might choose to stop arguing over the color of the captains shirt and figure out to work together so we don,t all drown while we argue over who is right or who is to blame for the hole in boat.

  10. This commentary smacks of too much left wing drivel. The facts are the facts. Accept them. They are being provided by a magazine that ardently supports Democratic candidates. Imagine how painful it was to print this article. I doubt former editorTina Brown would have had the courage.

  11. We had over 10 regulators regulating derivatives. More regulation isn’t the problem, but having regulators that don’t compete for information and funding from government is certainly a start.

    Another solution would be to stop doing idiotic things such as anti-liberty policies that halt’s global tourism and destroys global trade. The American tourist Trade has suffered a loss of $600 billion
    and should exceed $1 trillion very soon.

    So while politicians are very divided, somehow they managed to come together in a nearly unanimous, bipartisan agreement, and have no problem voting for policies the people overwhelmingly oppose such as the NDAA, the “patriot” act, the TSA agents and full body scanners and SOPA and PIPA.

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