Explaining Economic Crashes: A Lesson in Austrian Business Cycle Theory

The story of Iris Mack and Larry Summers

Larry Summers was a World Bank economist in the 1990s before serving as Clinton’s Treasury Secretary, where he played an instrumental role in deregulating* the financial industry (of course fully free markets and full deregulation is the remedy as opposed to Summers’ brand of crony-deregulation). Obama later appointed Summers as Director of the U.S. National Economic Council, a post he served from 2009 to 2010 (Summers was also widely considered to be Obama’s top-choice as Fed Chairman before Yellen was nominated). In between his service to Clinton and Obama, Summers was President of Harvard University. In 2002 Summers was warned by the brilliant Harvard money-management analyst Iris Mack about risky derivatives gambling with Harvard endowment funds. Mack was then promptly fired. Sure enough, the endowment Harvard fund went on to lose billions. Summers eventually left Harvard after a “no-confidence” vote by Harvard faculty, following his misogynistic comments about the under-representation of women in science and engineering, and his controversial battles with Cornel West. This makes it cynically interesting that the “Hope and Change” President Barack Obama tabbed Summers to direct the U.S. National Economic Council and later considered him as a nominee as Fed Chairman. What does this say about “Hope and Change” and the revolving door between banks, politics, and academia?

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Iris Mack

For the record, Dr. Mack went on to endorse Ron Paul for President, saying Paul was the only candidate running who had a clue about economics and the financial situation of the U.S. Mack was the second African-American female to earn a doctorate in applied Mathematics from Harvard, taught at several institutions including MIT, ran her own consulting firm, and obtained her own patent, “Coupled Modes with Random Propagation Constants.” Mack also has undergraduate degrees with Honors from Vassar College in Mathematics and Mathematical Physics.

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You’d think President “Hope and Change” would have appointed Iris Mack, who had a proven track record of success, foresight, and integrity, rather than the failed, morally-questionable, and combative Larry Summers, as Director of the U.S. National Economic Council, right? Or better yet, you’d think that President “Hope and Change” would have nominated Iris Mack as Chairwoman of the Fed. “”Hope and Change,” right?

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*Also keep in mind that the Fed’s inflation and credit inflation is the primary driver of wealth redistribution from the poor and middle class to the already-wealthy and politically-connected (think the 2008 bailouts). It is also the root cause of the widening “inequality” so breathlessly covered by the mainstream media over the last few years (see Murray Rothbard’s The Case Against the Fed).

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Citations:
Block, Walter. 2010. Austrian Thymologists Who Predicted the Housing Bubble.
FDIC 2004. FDIC Outlook. In Focus this Quarter: Housing Bubble Concerns and the Outlook for Mortgage Credit Quality.
Alan Greenspan. Remarks by Chairman Alan Greenspan: The mortgage market and consumer debt At America’s Community Bankers Annual Convention, Washington, D.C. October 19, 2004; Remarks by Chairman Alan Greenspan: At the annual convention of the Independent Community Bankers of America, Orlando, Florida. March 4, 2003; Testimony of Chairman Alan Greenspan: Monetary policy and the economic outlook, Before the Joint Economic Committee, U.S. Congress. April 17, 2002.
Krugman, Paul. 2002.The New York Times, Dubya’s Double Dip.
Dana Milbank. 2010. The Washington Post Economist Christina Romer Serves Up Dismal News at Her Farewell Luncheon.
New York Fed, 2004. New York Federal Reserve Board, Are Home Prices the Next “Bubble”?
Sanchez, Dan. 2013. Krugman’s Call for a Housing Bubble. mises.org
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