Wednesday, January 5, 2011

Lawrence Summers Will Be Very Kind to Your Humble Blogger

Upon reading in the Boston Globe about Lawrence Summers return to Harvard and the focus of his research, it became clear that Mr. Summers will be very kind to your humble blogger.

His research on the financial crisis and information technology will lead him to brilliantly conclude that there is a desperate need for the type of disclosure proposed by your humble blogger and that it can be done.

He will provide the academic research needed to confirm Charles Taussig's common sense notion that the role of government is to insure that investors are able to access at low cost all the information they need to make a fully informed investment decision.  This is important to do since Taussig's common sense notion has been the basic building block for trust in and the valuation of securities on our capital markets since the Great Depression.

Mr. Summers will show that this common sense notion applies to both structured finance securities and financial institution balance sheets.  He will also show how the failure to apply the common sense notion of disclosure to structured finance and financial institution balance sheets contributed significantly to causing the current financial crisis and preventing a recovery from the financial crisis.

This common sense notion needs an individual of Mr. Summers stature to explain it to his fellow economists in both academia and government.  Many, if not all, of his fellow economists dismiss disclosure since it is assumed to work perfectly in the efficient market hypothesis or on the grounds that Joe Six-pack would not know what to do with the information.  Mr. Summers can explain that disclosure is not just for Joe Six-pack, but also for his investment managers and the experts, hired by firms like D.E. Shaw, who know how to use the information.

An excerpt from the Boston Globe article:
Lawrence H. Summers, the colorful and controversial former president of Harvard University, returns to the ivory tower this month to lead the Mossavar-Rahmani Center for Business & Government at Harvard’s John F. Kennedy School of Government, the university announced yesterday.
Summers, a renowned economist, is making his Harvard comeback after two years serving as the chief White House adviser on economic policy. He plans to teach a couple of classes this semester at the Kennedy School, where he had taught prior to taking a leave of absence for public service in early 2009. His teaching and research will focus on the public policy implications of changes in the global economy.
“The shock of the financial crisis, the shifts in the distribution of global economic power, and the changes being brought about by information technology combine to make this an unusually important moment to reexamine traditional assumptions about economic policy in the United States and beyond,’’ Summers, 56, said in a written statement.
On the other hand, Mr. Summers might easily miss the connection between information technology and the financial crisis.  In which case, he will have failed to learn a lesson from the recent financial crisis that a businessman who had no economic training and sold molasses would have been happy to teach him.

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