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Harvard Mafia, Andrei Shleifer and the Economic Rape of Russia

Chronicles of Harvard University Russian Economic Team Scam

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Rubin Larry Summers Shleifer Elizabeth Hebert Jonathan Hay Nancy Zimmerman  
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In a narrow sense Harvard mafia is the team of experts who disastrously advised the Russian government on capitalism in the 1990s. Engaged by the U.S. to show the Russians how the West controls corruption, the advisers became models of what to avoid. Here is the Cambridge-Moscow-Washington story in a nutshell (Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country):

In 1992, Andrei Shleifer, a Harvard professor and a close friend of Summers since Shleifer's college days at Harvard, became head of a Harvard project that directed U.S. government money for the development of the Russian economy. Tens of millions of dollars in noncompetitive U.S. contracts flowed to Harvard for Shleifer's Russian work, and his team directed the distribution of hundreds of millions more. Through the mid-1990s, complaints accumulated in Washington about self-dealing and improper investing by the Harvard team, and by mid-1997, the Harvard contracts had been canceled and the FBI had taken up the case. For two years it was before a federal grand jury.

In September, 2000, the government sued Harvard, Shleifer, and others, claiming that Shleifer was lining his own pockets and those of his wife, hedge fund manager Nancy Zimmerman -- formerly a vice president at Goldman Sachs under Rubin.

Soon after, when Summers became a candidate for the Harvard presidency, Shleifer lobbied hard for him in Cambridge. Rubin assured the Fellows that the abrasiveness Summers had exhibited at Treasury was a thing of the past. They named him president--in spite of what was already known about his enabling role in the malodorous Russian affair, and the implausibility of a personality metamorphosis.

Summers did not recuse himself from the lawsuit until more than three months after his selection as president, and even then used his influence to protect Shleifer. The Fellows--including Rubin, whom Summers added to the Corporation--fought the case for years, spending upwards of $10M on lawyers. But in 2005 a federal judge found Shleifer to have conspired to defraud the government and held Harvard liable as well. To settle the civil claims, Shleifer paid the government $2M and Harvard paid $26.5M; Zimmerman's company had already paid $1.5M. Shleifer denied all wrongdoing, and Harvard disclosed nothing about any response of its own--a departure from its handling of misconduct by faculty farther from the center of power.

Summers remained close to Shleifer, yet claimed in a February 2006 faculty meeting to know too little about the scandal to have formed an opinion about it. This prevarication brought a gasp from the assembled faculty and solidified faculty opposition to the Summers presidency.

Rubin is now gone from his leadership role and his board membership at Citigroup, hauling away $126M from a firm that was $65B poorer than when he joined it, with 75,000 fewer jobs. But he remains on the Harvard board, in spite of the financial meltdowns at both Citigroup and Harvard and his poor oversight of the problematic president he persuaded Harvard to hire.

The Rubin network remains alive and well in the White House, including not just Summers but several other Rubin protégés. Among the strangest of these power loops is that the well-connected Nancy Zimmerman has turned up as a member of Summers's economic policy brain trust.

The story of Andrei Shleifer in Russia is a classic story of  "academic extortion":  betrayal of trust and academic principles by Harvard professor of economics (probably not without the influence of his wife, hedge fund manager Nancy Zimmerman, longtime friend of Summers). While the guy was just a pawn in a big game the issues of economists (and some universities ;-) corruption and relevance of  RICO statute such against such offences is a much bigger issue. 

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity." RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

... ... ...

On March 29, 1989, financier Michael Milken was indicted on 98 counts of racketeering and fraud relating to an investigation into insider trading and other offenses. Milken was accused of using a wide-ranging network of contacts to manipulate stock and bond prices. It was one of the first occasions that a RICO indictment was brought against an individual with no ties to organized crime. Milken pled guilty to six lesser offenses rather than face spending the rest of his life in prison.

But for some reason Harvard University had been charged with just breach of contract. Separately Shleifer and an associate, Jonathan Hay, were charged with conspiracy to defraud the U.S. government.  Later he was stripped of honorary title "Whipple V.N. Jones Professor of Economics"  due to ethics violation, but he managed to preserve his position at the university due to Summers protection (Larry Summers A Suicidal Choice - Mark Ames). 

How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer “were among each other’s best friends,” and Summers taught Schleifer “as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation.”

The furor about Andrei Shleifer shadow dealing in Russia contributed to the ouster of Summers from the Harvard presidency.

While related to economic rape of Russia, Shleifer's story has a wider meaning as an apt symbol of "post-modern" corruption at universities and especially in Harvard where students were actively indoctrinated in pseudoscientific theories which constitute a theoretical framework of casino capitalism.

The cynical view is that it may have been very the intent in best Mafiosi style (disaster capitalism like of thinking). Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback, “the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells.” Corruption and local oligarchy were natural allies of this process which was in essence the process of Latin-Americanization of post Soviet space.  They partially failed in Russia but fully successes in Ukraine, Georgia, Latvia and several other post Soviet republics.  The external debt of those is just staggering. As Professor Michael Hudson noted:

It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years. Throughout the Soviet Union the neoliberal model established “equilibrium” in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).

It's pretty funny that in 1993 Andrei Shleifer co-authored a paper about corruption":

Abstract

This paper presents two propositions about corruption. First, the structure of government institutions and of the political process are very important determinants of the level of corruption. In particular, weak governments that do not control their agencies experience very high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why, in some less developed countries, corruption is so high and so costly to development.

Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Compare this paper with the assessment of his own behavior in the article "On Post-Modern Corruption"(Economic Principals):

It is against this background that a seemingly unrelated matter, the Andrei Shleifer case, should be considered. Readers are all too familiar with the details of how a 31-year-old Russian expatriate, swiftly risen to eminence as a Harvard University economics professor, was put in charge in 1992 of a huge US government-financed, Harvard-administered mission to advise the Russian government of Boris Yeltsin on how to establish a market economy of their own -- until he was discovered in 1996 to be lining his own pockets, and those of his wife, his deputy and the deputy's girlfriend. At that point the mission collapsed.

Four years later, the US Attorney in Boston sued. Four years after that, Shleifer was found to have committed fraud and Harvard University to have breached its contract. Each was ordered to repay the government.

Perhaps the Shleifer story is no big deal, and not the symbol of post-modern corruption having spread to universities that I think it is. Yet there are similarities to the Congressional situation, I believe. The case against Shleifer case was a civil complaint, not a criminal charge. Cunningham was elected, Shleifer was hired. Each helped himself to some good old-fashioned graft, and each was found by a court to have done (in the words of the San Diego prosecutor) "the worst thing an Éofficial can do -- he enriched himself through his position and violated the trust of those who put him there." 

And just as the tactics of the House leadership are more alarming than the conduct of the lowly Cunningham, so the determination of Harvard's administrators to defend Shleifer for nine long years is more astounding than what Shleifer actually did. He was young and inexperienced. They had all the advice and time in the world. His culpability has been established. Theirs has barely been addressed. 

Here is some information about the events form Wikipedia article Andrei Shleifer:

Controversy

Under the False Claims Act, the US government sued Harvard, Shleifer, Shleifer's wife, Shleifer's assistant Jonathan Hay, and Hay's girlfriend (now his wife) Elizabeth Hebert, because these individuals bought Russian stocks and GKOs while they were working on the country's privatization, which potentially contravened Harvard's contract with USAID. In 2001, a federal judge dismissed all charges against Zimmerman and Hebert.[4] In June 2004, a federal judge ruled that Harvard had violated the contract but was not liable for treble damages, but that Shleifer and Hay might be held liable for treble damages (up to $105 million) if found guilty by a jury [2].

In June 2005, Harvard and Shleifer announced that they had reached a tentative settlement with the US government. On August 3 of the same year, Harvard University, Shleifer and the Justice department reached an agreement under which the university paid $26.5 million to settle the five-year-old lawsuit. Shleifer was also responsible for paying $2 million dollars worth of damages, though he did not admit any wrong doing. A firm owned by his wife previously had paid $1.5 million in an out of court settlement.

Because Harvard University paid most of the damages and allowed Shleifer to retain his faculty position, the settlement provoked allegations of favoritism on the part of Harvard's outgoing president Lawrence Summers, who is Shleifer's close friend and mentor. Shleifer's conduct was reviewed by Harvard's internal ethics committee. In October 2006, at the close of that review, Shleifer released a statement making it clear that he remains on Harvard's faculty. However, according to the Boston Globe, he has been stripped of his honorary title of Whipple V. N. Jones Professor of Economics[3].

Shleifer's involvement in Russia was investigated by David McClintick, a Harvard alumnus and journalist for Institutional Investor Magazine. His 30-page January 2006 article claims to show that "economics professor Andrei Shleifer, in the mid-1990s, led a Harvard advisory program in Russia that collapsed in disgrace." The article drew considerable criticism among Shleifer's colleagues, collaborators, close friends, and students. According to the Harvard Crimson[4], the university's daily newspaper, Shleifer's colleague and economics professor Edward Glaeser said that the Institutional Investor article "is a potent piece of hate creation—not quite 'The Protocols of the Elders of Zion,' but it's in that camp." But Glaeser later apologized for his statement[5].

Prominent role of Larry Summers in Andrei Shleifer affair shed very negative light on this  very controversial figure. Among key "mis-achievements" of  Bubble Boy Larry:

Old News ;-)

[Feb 10, 2010] From "You'll Work for Us" to Only Short-Listed: Underappreciating Harvard by Ken Houghton

Feb 10, 2010 | Angry Bear

While several good people—including several of my wife's relatives and one of our bloggers—graduated from Pravda-on-the-Chuck, I am saddened to note that their faculty's efforts in creating the Global Financial Crisis (GFC) has been muted.

Such, at least, can be fairly concluded by the nominees and final ballot for The Dynamite Prize in Economics, being held at the blog of the Real-World Economics Review.

Consider that N. Gregory ("Greg") Mankiw was not even nominated. The man who shepherded and shilled for the 2003 tax evisceration* in specific, and author of the textbook that corrupts more Econ 101 people than any other was not even nominated.

Then Michael Jensen—whose theories (purely by coincidence, to be sure) are used to justify shifting corporate profits on a massive basis from the company that makes them to the CEO who "runs" it—did not make the final ballot.

Even more than the damage done to their endowment—at least the guy who did that is on the final ballot, though for his general U.S. work, not his Endowment-during-his-divorce work—not being cited as responsible for the GFC, and therefore not being seen as Masters of the Universe, is saddening.

The remaining nominees are Very Worthy, to be certain (excepting Paul Samuelson, with whom people much have confused Robert). Vote early and often.

*It is remotely possible to make the argument that the 2001 cut was based on semi-legitimate (though silly) projections of surpluses. There is no such excuse for the 2003 abomination.

[Jan 18, 2010] Chicago GSB News Inaugural Initiative on Chicago Price Theory Conference - Buffett Is Wrong Money Managers Are Worth Big Paychecks

“And that’s where we are today: A record portion of the earnings that would go in their entirety to owners—if they all just stayed in their rocking chairs—is now going to a swelling army of helpers,” Buffett said in the letter. “Particularly expensive is the recent pandemic of profit arrangements under which helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses—and large fixed fees to boot—when the helpers are dumb or unlucky (or occasionally crooked.)”

... ... ...

Hedge fund managers can lock in investors for longer periods, said Nancy Zimmerman, principal at the hedge fund Bracebridge Capital. This allows for a greater scale on returns and a better alignment of interests between investors and managers. She questioned why all investments aren’t managed by people who are better aligned with the interests of their clients.

Zimmerman said she started her hedge fund 12 years ago with $55 million; it now manages $3 billion. She said she is as proud of her firm’s exponential growth as she is of its more low-key investments.

[Dec 11, 2009] Matt Taibbi- Obama’s Big Sellout By Edward Harrison

Dec 11, 2009 | naked capitalism

Taibbi assumes intent and damns the actors as a result. He writes as if Froman and Geithner openly colluded in some way to favour Citi. But you don’t need to prove intent, you only need to prove motive. I don’t care if Froman or Geithner ‘intended’ to favour Citi over other institutions; I care whether they were mentally predisposed to helping Citi and other large institutions at the expense of others because they ascribed unwarranted and disproportionate importance to them. Unfortunately, cognitive regulatory capture leads to crony capitalism just as outright corruption would do.

Selected Comments

earthtodc:

“cognitive regulatory capture leads to crony capitalism just as outright corruption would do”

WTF is the difference? This is not rocket science. There is a guy running from a burning building with arm fulls of cash, now on the phone calling his buddies to tell them to “get down here” and you want to worry about the intent of the original act of arson. All of the evidence is being destroyed anyway by the firefighters pumping gasoline into the fire.

charcad:

"Taibbi assumes intent and damns the actors as a result."

Nope. Taibbi knows the actors well. He’s seen them peform in person before. So have I.

Matt Taibbi had the best possible apprenticeship for this kind of MSM journalism: several years on the eXile.ru e-zine in Moscow in the 1990s during the Yelt$in era. There is no one who can do it better now.

Most of the same personalities who were on the USA end then are central players now in the Obama Administration. Taibbi knows this. Yves’ old alma mater at Harvard, Lawrence Summers and the whole Rubin gang were integral players, then and now:

http://en.wikipedia.org/wiki/Andrei_Shleifer

During the early 1990s, Andrei Shleifer was an advisor to Anatoly Chubais, the then vice-premier of Russia, and was one of the engineers of the Russian privatization. During that time, Harvard University was under a contract with the United States Agency for International Development, which paid Harvard and its employees to advise the Russian government. The results of privatization in Russia were criticized widely in Russia and western academic circles. Under Anatoly Chubais, privatization led to valuable Russian business assets being acquired at extremely cheap prices amid accusations of rigged auctions.

Boy, does this sound familiar! Real deju vu. Public assets flowing into private pockets. Subsequent lawsuit against Harvard University over Schleifer’s activities obligingly settled by one Lawrence Summers…

http://en.wikipedia.org/wiki/Michael_Froman

“Froman…spent much of his career within the United States Department of the Treasury,[2] where he served as Chief of Staff between January 1997 and July 1999, having previously held the role of Treasury Deputy Assistant Secretary for Eurasia and the Middle East. As Deputy Assistant Secretary his work related to economic policy towards the former Soviet Union and Central and Eastern Europe”

Taibbi (and I) were privileged to watch this entire gang’s work up close earlier. And if you missed 1990s Moscow then I’m sorry for you. It’s like having missed late 1920s Berlin. Definitely material for a “Cabaret” remake there. Gonzo journalism was the only kind able to effectively mirror gonzo times.

Well, don’t worry. All coming soon to your neighborhood for a live performance. Question is whether you’ll be able to afford to enjoy the show.

[Aug 4, 2009] "Mr. Bailout"

I think that calling his a clown is underestimation of his vast abilities. My God, is there any nonsense that a crooked  market fundamentalists can't say or do ?

[Aug 4, 2009] "Mr. Bailout"

That's a hardly  appropriate level of thinking for a Treasury secretary, of even for a freshman in college ;-). But in taking out a competitor end justifies the means... 

[Jul 19, 2009] "The Most Misunderstood Man in America"

Academic Mafiosi is still a Mafiosi :-). "Stiglitz, more than anyone on the Washington scene, was the biggest fly in the ointment of "free-market fundamentalism" pressed on the world in the '90s by Summers, Geithner and their mentor, former Treasury secretary Robert Rubin—advice that has now contributed to the worst financial crisis since the Great Depression"

Michael Hirsh wonders why the Obama administration hasn't consulted Joe Stiglitz more often on economic policy issues, and suggests the answer is an ongoing feud with Larry Summers:

Economist's ViewThe Most Misunderstood Man in America, by Michael Hirsh, Newsweek:

...Even in the contentious world of economics, [Joe Stiglitz] is considered somewhat prickly. And while he may be a Nobel laureate, in Washington he's seen as just another economic critic—and not always a welcome one. Few Americans recognize his name... Yet Stiglitz's work is cited by more economists than anyone else's in the world... And when he goes abroad—to Europe, Asia, and Latin America—he is received like a superstar, a modern-day oracle. ...

... ... ...

... Stiglitz's defenders say one possible explanation for his outsider status in Washington is his ongoing rivalry with Summers. ... Since the early '90s, when Summers was a senior Treasury official and Stiglitz was on the Council of Economic Advisers, the two have engaged in fierce policy debates. The first fight was over the Clinton administration's efforts to pry open emerging financial markets, such as South Korea's. Stiglitz argued there wasn't good evidence that liberalizing poorly regulated Third World markets would make any one more prosperous; Summers wanted them open to U.S. firms.

The differences between them grew bitter in the late 1990s, when Stiglitz was chief economist for the World Bank and took issue with the way Treasury Secretary Robert Rubin, and Summers, who was then deputy secretary, were handling the Asian "contagion" financial collapse. After World Bank president James Wolfensohn declined to reappoint him in 1999, Stiglitz became convinced that Summers was behind the slight. Summers denies this...

Selected comments

Chris Rich says...

I'm increasingly convinced that this is the outcome of a deal with the Clintons. Obama's economic team is mainly the Clinton government in exile with Volcker as a kind of garnish.

Maybe he was insecure over the inexperience accusations during the campaign.

My hope is he'll eventually get rid of them by mid term. Summers is still widely despised over at Harvard. Last month I was doing a paint job on the edge of the campus and overheard a facilities manager in a huddle with two contractors.

The manager was treating them to juicy details about Harvard presidents, past and present. The current one is liked but when talk turned to Summers the guy's voice dropped to a near whisper as if the trees were bugged.

Larry once made a complete pest of himself during a routine fire drill where he demanded to return to his office before the drill was finished in some spoiled brat outburst of exceptionalism.

The undergrad alumni is still seething over the aggressive risk investment policy Summers introduced after years of staid careful investing.

The outcome was a multi billion dollar endowment haircut and craters in lower Allston where there were supposed to be new buildings in a campus expansion.

[Jul 3, 2009] Those Who Think the "Left of Center" is Too Tough on N. Gregory Mankiw

Gregory Mankiw is another "interesting" Harvard professor of economics ;-)

should read Sensible Centrist J. Bradford DeLong on the difference in forecasting between the current Administration and the CEA under N. Gregory Mankiw.

Romer/Bernstein/Kreuger et al., 2008-9 edition:

As I understand matters, last December the median private-sector forecast had the unemployment rate topping out at 9% in the second half of 2009. The incoming Obama administration simply adopted that forecast. At the time I thought that was a mistake: (I thought that was a mistake: I thought they should have made a bifurcated forecast with a "good case" 80th-percentile scenario and a "bad case" 20th-percentile scenario; they should then have stressed that in the bad case we would need a large stimulus indeed to prevent high unemployment, and that in the good case we could restrain inflation via monetary policy.)
Mankiw et al., 2003 edition:
it would make it extremely difficult for things to happen like what happened to the Mankiw CEA over the winter of 2003-2004, when high politics appears to have reached down into the forecast, changed the table for payroll employment (and only payroll employment: the rest of the forecast is not out of line with contemporary professional forecasts), and produced an estimate for December 2004 (a) inconsistent with the rest of the forecast, and (b) high by 2.3 million in its estimate of payroll employment--all because Karl Rove and company thought it important to avoid headlines like "Bush administration forecasts 2004 payroll employment to be less than when Bush took office." (link from original)
The positive-spin version is that Mankiw plays politics better than the Obama Team.

[Apr 25, 2009] Why We Should Banish Larry Summers From Public Life -  by Naomi Klein

April 19, 2009 | washingtonpost.com

I vote to banish Larry Summers. Not from the planet. That wouldn't be nice. Just from public life.

The criticisms of President Obama's chief economic adviser are well known. He's too close to Wall Street. And he's a frightful bully, of both people and countries. Still, we're told we shouldn't care about such minor infractions. Why? Because Summers is brilliant, and the world needs his big brain.

And this brings us to a central and often overlooked cause of the global financial crisis: Brain Bubbles. This is the process wherein the intelligence of an inarguably intelligent person is inflated and valued beyond all reason, creating a dangerous accumulation of unhedged risk. Larry Summers is the biggest Brain Bubble we've got.

Brain Bubbles start with an innocuous "whiz kid" moniker in undergrad, which later escalates to "wunderkind." Next comes the requisite foray as an economic adviser to a small crisis-wracked country, where the kid is declared a "savior." By 30, our Bubble Boy is tenured and officially a "genius." By 40, he's a "guru," by 50 an "oracle." After a few drinks: "messiah."

The superhuman powers bestowed upon these men -- and yes, they are all men -- shield them from the scrutiny that might have prevented the current crisis. Alan Greenspan's Brain Bubble allowed him to put the economy at great risk: When he made no sense, people assumed that it was their own fault. Brain Bubbles also formed the key argument Greenspan and Summers used to explain why lawmakers couldn't regulate the derivatives market: The wizards on Wall Street were too brilliant, their models too complex, for mere mortals to understand.

Back in 1991, Summers argued that the subject of economics was no longer up for debate: The answers had all been found by men like him. "The laws of economics are like the laws of engineering," he said. "One set of laws works everywhere." Summers subsequently laid out those laws as the three "-ations": privatization, stabilization and liberalization. Some "kinds of ideas," he explained a few years later in a PBS interview, have already become too "passé" for discussion. Like "the idea that a huge spending program is the way to stimulate the economy."

And that's the problem with Larry. For all his appeals to absolute truths, he has been spectacularly wrong again and again. He was wrong about not regulating derivatives. Wrong when he helped kill Depression-era banking laws, turning banks into too-big-to-fail welfare monsters. And as he helps devise ever more complex tricks and spends ever more taxpayer dollars to keep the financial casino running, he remains wrong today.

Word is that Summers's current post may be a pit stop on the way to the big prize, Federal Reserve chairman. That means he could actually make "maestro."

Mr. President, please: Pop this bubble before it's too late.

Naomi Klein is the author of "The Shock Doctrine: The Rise of Disaster Capitalism."

Selected comments

Lariokie wrote:

If you have not read "Shock Doctrine" by Naomi Klein, you will not fully understand how critical her plea to get rid of Summers really is. Summers is no different from Phil Graham, whose disdain both as a Senator from Texas and the Uber-lobbyist for USB in Switzerland, for the middle class and common working people has driven the US and world economies into the ground.

Kevin Phillips' book, Wealth and Democracy precisely foresaw the financial sector coup that has taken place. In fact, every vibrant national economic power for the past four centuries has been co-opted and off shored by the extra-national financial elite who know no national boundaries and revere no government or constitution. They simply go where the resources and labor can most easily be exploited and expropriated, and the national governments most easily manipulated. They will usurp power at virtually any cost. They represent the greed that has become the world's most potent form of terrorism, from slavery to dictatorships around the globe. Alas, Obama is either oblivious to, or part of the scheme. Either way, we lose.

It was bound to happen to America sooner or later. The only true upside is the potential for this nation settling into a more humane, laid back, economic lethargy much as "old Europe" has since America donned the mantle of world economic and military hegemony. We can only hope.

rhideokim1 wrote:

This article goes hand in hand with Prof. Fukuyama's calling for an end to tenure. Summers is not the only economist with a "brain bubble," which an accurate, clever, and concise characterization. I would like to add: Ken Lay, Phil and Wendy Gramm, Alan Greenspan, and Ben Stein. Check out Steve Keen's "Debunking Economics."

jhough1 wrote:

The Summers quotations in the early 1990s came as he said that Russia should introduce pure markets, have shock therpy, decimate all government expenditures (including health care in a socialized medicine country), and postpone all industrial investment for five years until new market mechanisms and personnel (those produced by voucher privatization) were in place. It was not brilliance, but the most obviously foolish ideological nonsense. Absolutely obvious stupidity when China had been showing the way for 15 years on how to make a transition in a Communist country. Plain stupidity. It literally killed millions of people in places like Russia and Ukraine--literally as male life expectancy fell to 57 as a result. Read Stiglitz's first book on globalization. Stiglitz had Russian right and Summers was his bete noire.

Because the press will not cover the Administration accurately, it downplays Summers' power and the nature of policy. In gutting Sarbanes-Oxney, the Administration has de-regulated, not regulated. As economists as opposed as Paul Krugman and Martin Feldstein agree, Summers has induced the President to have a tiny stimulus. All the money has gone to a non-productive buying of bad debts at a time when people and business do not have confidence or creditworthiness to seek new loans in the next year or so--and should not. His top foreign economic policy adviser was a Citi VP under Robert Rubin with a big bonus last year. In the early 1990s privatization, this official was Summers' top man in charge of Russia and then in 1997 Rubin's undersecretary for foreign relations.

As a political scientist and a former supporter of Obama, I think it is unbelievably frightening. Read Hoagland, Ignatius, and Herzenhorn's article on the front page of the NYT Times, all today. They all say the same thing. The President has not shown the ability or willingness to make a hard economic decision standing up against even the Larry Kudlow's of this world who think we have a great President. He did not make a single major appointment that would be criticized by the right. Hoagland and Ignatius are talking about his failure to make a single decision in foreign policy except those on Iraq, Afghanistan, and defense spending that suggest a right-wing orientation. He has had his people create trying to create a feeling of euphoria about an economic upturn this fall--and has succeeded in producing a market bounce that Soros says flatly is a sucker rally.

If it all works out, fine. But what happens if it doesn't? I think a third party financed by someone like Soros and led by someone like Spitzer is the benign scenario. It is easy to imagine those that are worse.

twforg wrote:


When Summers was president of the World Bank, he asked: “Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]?”

Europeans are doing just that — dumping toxic and radioactive waste in Somalia. It is reported that “it costs European companies $2.50 per ton to dump the wastes on Somalia's beaches rather than $250 a ton to dispose of the wastes in Europe.”

Europeans and Asians are estimated take fish out of Somalia valued at more than $450 million annually—EU alone takes out more than five times the value of its aid to Somalia every year.

Somalia’s complaints to the United Nations have not been heeded.

Gatsby1 wrote:

You are so right, Naomi.

Obama made a huge mistake in hiring Summers. The man's ego is uncontrollable.

Besides, his ties to Wall Street are so obviously a conflict of interest that it is a disgrace that this man has the capability to continue throwing god money (ours) after bad to keep his Wall Street cronies from ever being accountable for ruining our financial system.

By the way, Geithner also has to go. Like Sumers, he is wedded to the welfare princes of Wall Street, particularly Goldman Sachs. In fact, it looks like Treasury exists purely to serve Goldman Sachs.

I cannot believe that Obama made the mistake of hiring that crew. It's not as if there were no other brilliant minds around (Nobel Prize Stiglitz comes to mind), with beter ideas than plundering Treasury coffers to ensure that (likely) insolvent monsters such as Citi and B of A continue to sc*ew up as usual.

Inner Workings » Blog Archive » What did Larry Summers do at D. E. Shaw By David Goldman

April 6th, 2009

Larry Summers traveled to Asia in the summer of 2007, just as the storm clouds gathered over the banking system, trying to sell AAA-rated structured securities to sovereign funds and other investors. Whether he was trying to unload D.E. Shaw’s assets or pitching a soon-to-be-busted D.E. Shaw strategy, I do not know — although the collapse of a Bear Stearns hedge fund engage in that strategy makes the latter surmise less likely.

 Louise Story reports in this morning’s New York Times:

A spokesman for Shaw said Mr. Summers’s main job was not to act as a salesman. But in the fall of 2007, as the financial crisis simmered, Mr. Summers traveled to Dubai for a series of meetings with Shaw’s marketing staff and potential investors. Bankers from across the region flew in for the event. Mr. Summers spoke at several lavish dinners and met with local parties involved in Shaw’s real estate investments in the area, people briefed on his trip said.

The account adds, “A White House spokeswoman says his actions supporting hedge fund regulation prove he is not biased.” Not quite true: regulation benefits the very large funds who can (for example) access non-recourse leverage from the Treasury, and makes it very difficult for challengers to overtake them. In a market in which returns are sparse unless one has a connection to a government, $5.2 million seems like a very reasonable price to pay for access. The TImes added:

At Harvard and at Shaw, Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House.

Among these insiders are Kenneth D. Brody and Frank P. Brosens, the founding partners of another hedge fund, Taconic Capital Advisors, for whom Mr. Summers did consulting work from 2004 to 2006.

Mr. Summers reached out to Mr. Brosens in December to discuss the Obama administration’s economic priorities. This year, he campaigned to have him run the federal office overseeing the $700 billion bailout program. Mr. Brosens withdrew his name from consideration last month.

Others in this inner circle include Nancy Zimmerman, a longtime friend and hedge fund manager in Boston; Laurence D. Fink, the chairman and chief executive of BlackRock, a large money management company that hopes to play a potentially lucrative role in the administration’s bank rescue plan; H. Rodgin Cohen, the chairman of the law firm Sullivan & Cromwell, who was briefly considered for a senior Treasury post; and three other top fund managers, Orin S. Kramer, Ralph L. Schlosstein and Eric M. Mindich.

And poor Sheila Bair gets beaten up in the blogs. Nobody said life was fair.

[Mar 29, 2009] Welcome to America, the World's Scariest Emerging Market -  By Desmond Lachman

washingtonpost.com

Back in the spring of 1998, when Boris Yeltsin was still at Russia's helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to "emerging markets" throughout Asia, Eastern Europe and Latin America, and I thought I'd seen it all. Yet I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time.

Selected comments

KathyWi wrote:

It's too bad that Mr. Lachman works for the American Enterprise Institute. It weakens his credibility.

He might have mentioned the Lawrence Summers - Andre Shleifer scandal which contributed in no small way to Summers' stepping down from the presidency of Harvard University. A bit of raping and pillaging, economically speaking, done by Mr. Shleifer. Shleifer cost Harvard a substantial sum (a million dollars or more, I believe) when he was convicted of fraud, while doing work for them in Russia and essentially lining his own pockets. He was 'advising' the Russian government and being mentored by Summers.

Did Mr. Summers know what his protege was up to? Don't know. The public relations effort to minimize this story has been pretty successful, despite it first appearing in a magazine. It is never mentioned as a reason for his leaving Harvard. Silly. Such a big mistake as making a few 'sexist' remarks is cited instead. Articulately expressed sexist remarks. In fact, those remarks turned out to be a convenient exit stragegy and deflected attention from what was a serious 'steal big' strategy on the part of Mr. Shleifer, in my opinion.

Google 'Shleifer' AND 'Schleifer' (since that seems to be another spelling of his name) 'Harvard' and 'Summers' and see how 'hot' this topic is (that is to say, not very).
 

3/26/2009 9:01:56 AM

[Mar 28, 2009] Letters Comparing the U.S. to Russia and Argentina - Salon

Actually, Our Corrupt U.S. Brain Trust of Neo-Market-Worship Ideology Helped Make Post-Soviet Russia What It Is

Since we're in the national mood for retrospection about the insanely deregulatory and shock treatment environment of 10-15 years ago, how about a look back at the Nation covering how the U.S. and the Harvard Institute for International Development did all it can to screw up the emerging Russian economy and grab all they could when they could?

We funded and encouraged yet another set of market worshiping, non-overseen arrogant twits to help screw over that developing country, in moves beginning under the Bush Sr. administration but increasing under Clinton, led by Larry Summers and Jeffrey Sachs. The Harvard Institute for International Development was the agency, and it was later sued by the U.S. government in a case settled in 2005.

The Harvard Boys Do Russia

By Janine R. Wedel | June 1, 1998 edition | The Nation | May 14, 1998

After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically.

The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.

The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According to The New York Times, he "may be the most despised man in Russia."

Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development.

Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved.

With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism."

Luzhkov was referring to H.I.I.D...

...The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest."

Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future.

Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades.

...H.I.I.D. had supporters high in the Administration. One was Lawrence Summers, himself a former Harvard economics professor, whom Clinton named Under Secretary of the Treasury for International Affairs in 1993. Summers, now Deputy Treasury Secretary, had longstanding ties to the principals of Harvard's project in Russia and its later project in Ukraine.

...H.I.I.D. projects were never adequately monitored by U.S.A.I.D. In 1996, a General Accounting Office report described U.S.A.I.D.'s management and oversight of H.I.I.D. as "lax." In early 1997, U.S.A.I.D.'s inspector general received incriminating documents about H.I.I.D.'s activities in Russia and began investigating.

In May [HIID's] Shleifer and Hay lost their projects when the agency [USAID] canceled most of the $14 million still earmarked for H.I.I.D., citing evidence that the two managers were engaged in activities for "private gain."

The men had allegedly used their positions to profit from investments in the Russian securities markets and other private enterprises. According to sources close to the U.S. investigation, while advising the Russian government on capital markets, for example, Hay and his father allegedly used inside information to invest in Russian government bonds...

...In early 1996, after [Chubais] was temporarily removed from high office by Yeltsin because he represented unpopular economic policies, H.I.I.D. came to his rescue by placing him on its U.S.A.I.D.-funded payroll, a show of loyalty that former U.S.A.I.D. assistant administrator Thomas Dine says he supported.

Western policy-makers like Morningstar and Dine have depicted Chubais as a selfless visionary battling reactionary forces. In the spring of 1997, Summers called him and his associates a "dream team." With few exceptions, the U.S. mainstream media have promulgated this view...

[Excerpted. Follow link for full text at Nation site.]

http://tinyurl.com/Harvard-Boys-Do-Russia

What's funny is that simultaneously we were allowing these same "best & brightest" to attack the long-term stability of U.S. economic interests domestically in the name of arrogant market boosterism.

So, at least a few people in Russia must feel better now that they know they weren't being singled out, that the same types of people and ideologies were also being unleashed upon the same U.S. which was foisting it upon them.

-- El Cid

The Summers Conundrum By Mark Ames

November 10, 2008 | Nation

And yet so far the debate over Summers has been largely confined to two outrageous moments in his career: his 1991 World Bank memo calling Africa "UNDER-polluted," and his more recent declarations, while serving as president of Harvard, about women's genetic inferiority in math and science. By themselves, these two incidents might be dismissed as merely provocative in a maverick-moron sort of way, as many of Summers' supporters argue; but in the context of Summers's track record, in which he oversaw the destruction of entire economies and covered up cronyism and corruption, his Africa memo and sexist declarations aren't exceptions but rather part of a disturbing pattern.

From the start, Summers has been on the wrong side of Obama's supporters. In 1982, while still a graduate student at Harvard, Summers was brought to Washington by his dissertation advisor Martin Feldstein, the supply-side economist, to serve on Ronald Reagan's Council of Economic Advisors. Those first years in the Reagan administration were crucial in the right-wing war against New Deal regulation of the banking system and financial markets--a war that Reagan's team won, and that we're all paying for today. Although Summers eventually identified himself with the Democratic Party--albeit the right wing of that party--nevertheless, as the New York Times's Peter T. Kilborn wrote in 1988:

He worked for 10 months as a top analyst in President Reagan's Council of Economic Advisers when his mentor, Martin S. Feldstein, was running it, and his colleagues don't recall him venting anti-Reagan heresies then....

"One of the ironies of this business is that Summers's economics are quite close to Feldstein's," said William A. Niskanen, who was a member of the Feldstein council.

It's ironic if you expected Summers to be a liberal Democrat--but par for the course in the context of Summers's real record. Some fifteen years after Summers's stint in the Reaganomics war room, he reappears as one of the key villains fighting to suppress the regulatory efforts of a top official, Brooksley Born, who was trying to call attention to the dangers of the unregulated derivatives, such as credit swap defaults, which today are considered the key to the current economic crisis.

But let's return to the Summers timeline. After his stint in the Reaganomics brain trust, he returned to Harvard to serve as one of the university's youngest professors. In 1988, he was Michael Dukakis's chief economic advisor, but when that campaign failed to bring Summers to power, he turned to America's great rival, the former Soviet Union, to try out his economic experiments. In 1990, Lithuania, a restive Soviet republic seeking independence, hired Summers to advise on that country's economic transformation. Poor Lithuania had no idea what it got itself into. This was Summers's first opportunity to tackle a country in economic crisis and put his wunderkind theories into practice. The results were literally suicidal: in 1990, when Summers first arrived, Lithuania's suicide rate was 26.1 per 100,000 and falling. Just five years after Summers got his hands on Lithuania's economy, life became so unbearable under the economic transition that the suicide rate nearly doubled to 45.6 per 100,000, worse than any other ex-Soviet republic in transition. In fact, it was the highest suicide rate in the world, suggesting something particularly harsh and brutal about the economic transition in that country as opposed to the others, where suffering and pain were common. Things got so bad that in 1992, after just two years of Summers-nomics, the traumatized Lithuanians voted the communist party back into power, the first East European nation to do so--even though just a year earlier Lithuanians actually died on the streets fighting communism.

Fresh off his success in Lithuania, Summers moved to the World Bank, where he was named the chief economist in 1991, the year he issued his famous let's-pollute-Africa memo. It was also the year that Summers, and his Harvard protégé Andrei Schleifer (who worked with Summers on the Lithuania economic transformation), began their catastrophic "rescue" of Russia's crisis-ridden economy. It's a complicated story involving corruption, cronyism and economic devastation. But by the end of the 1990s, Russia's GDP had collapsed by more than 60 percent, its population was suffering the worst death-to-birth ratio of any industrialized nation in the twentieth century, and the financial markets that Summers and Schleifer helped create had collapsed in what was then the world's biggest debt default ever. The result was the rise of Vladmir Putin and a national aversion to free markets and anything associated with Western liberalism.

But that's not all. Summers, through Schleifer, was also tainted with some of that country's corruption, which resulted in a US Justice Department lawsuit against Schleifer and others. While Schleifer was being paid by US taxpayers to advise the Russians on capital markets in the 1990s, his wife, Nancy Zimmerman, bought and traded Russian equities for a Boston hedge fund she ran--they even used Schleifer's US taxpayer-funded offices to run Zimmerman's Moscow-based hedge fund operations.

How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer "were among each other's best friends," and Summers taught Schleifer "as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation."

In 2000, the Justice Department sought $102 million in damages from Schleifer, one of Schleifer's Harvard associates and Harvard University in a conflict-of-interest suit resulting from Schleifer's role as the lead US adviser to Russia's economic reforms--questioning the way Schleifer and his wife profited from his position. Schleifer's Harvard team in Moscow was funded by USAID in a no-bid contract, and supported by Summers as soon as he moved into the Treasury Department in 1993. So Schleifer benefited from his relationship with Summers twice: first, by getting a choice contract as the US government's man in Moscow in the 1990s when Summers was in power in the US government, one that benefited his wife's hedge fund (earlier this year, Portfolio suggested that the Schleifers' hedge funds made them billionaires ). Then after Schleifer returned to Harvard to face the lawsuit, Summers, now president of Harvard, presided over a controversial settlement that all but let his protégé off the hook. Thanks to pressure by Summers, Schleifer kept his chair at Harvard, where he continues to teach today.

Summers's other favorite man in Russia was Anatoly Chubais--who consistently ranks at the top of Russia's " most hated man" polls. Chubais was executor of the Russian government's privatization program, in which state companies worth tens of billions of dollars were handed over to insiders for a fraction of their worth in blatantly rigged auctions. Summers praised Chubais as a "demigod" and called Chubais and his free-market cohorts "the dream team." In September 1998, after Russia's capital markets collapsed, along with billions in US-taxpayer-backed loans, Chubais boasted to a Russian newspaper, "We swindled them." By "them," he meant the Western and American aid institutions that funded his reforms.

In light of all of the corruption, cronyism and devastation that have marked his career, Summers' statements about an under-polluted Africa or intellectually-inferior women no longer seem like provocative eccentricities but part and parcel of the Summers shtick. And now there's talk that President-elect Obama may hand the keys to national treasury to Summers--meaning that he'll be in charge of overseeing a trillion-dollar taxpayer bailout of the entire financial industry, a process already rife with conflicts of interest, cronyism and corruption--as detailed by Naomi Klein.

The bailout, as currently implemented, threatens to devastate America's economy much as Russia's and Lithuania's were devastated before. The idea that this is exactly the right time and place to put Larry Summers in charge of our economy's future is so frightening that it makes the Sarah Palin vice presidential choice seem almost quaint by comparison. Let's hope the rumors are wrong.

Naomi Klein Joins Anti-Summers Campaign by: Matt Stoller

Nov 07, 2008  | Open Left

( - promoted by Chris Bowers)

As part of her campaign to stop the bailout profiteers, Naomi Klein has put our petition on her home page, joining 2800 of you who have signed up to protest Larry Summers as Treasury Secretary.  It came out today that Larry Summers warmly embraced deregulation as Treasury Secretary, as Dean Baker notes.  Summers fought aggressively against pro-regulatory elements within the Clinton administration to do the industry's bidding, so it's no surprise he's now a managing director at hedge fund and private equity group DE Shaw.

Kim Gandy of NOW has issued a critical statement bringing up a point I hadn't before considered. Matt Stoller :: Naomi Klein Joins Anti-Summers Campaign

"I'm torn on the subject. Part of me thinks his opinions on women's capacities for math and science don't have relevancy to financial markets. On the other hand, economics is a very math-heavy field. Does that mean he'd be less likely to include women in his own circle of advisers? I don't know the answer to that question; I don't know him. But I do wonder whether if his comments about women's lack of aptitude for math and science had instead been a comment or an opinion about African Americans having less capacity for math and science, would he be on anybody's short-list. That's a fair question to ask."

Summers certainly did this when pushing to keep derivatives free from regulations.  He was part of a gang of free marketeers which included Alan Greenspan, industry lobbyists, and Robert Rubin to keep a steel-spined lawyer, Brooksley E. Born, head of the Commodity Futures Trading Commission, from regulating derivatives even after the collapse of long-term capital management.

Born didn't back off on derivatives, either. On May 7, 1998, two weeks after her April showdown at Treasury, the commission issued a "concept release" soliciting public comment on derivatives and their risk.

The response was swift and blistering. Within hours, Greenspan, Rubin and Levitt cited their "grave concerns" in an unusual joint statement. Deputy Treasury Secretary Lawrence Summers decried it before Congress as "casting a shadow of regulatory uncertainty over an otherwise thriving market."

At least one major progressive group has plans to come against Summers shortly.  This possible appointment is a travesty.  As Ian Welsh notes, Obama should pick someone who got this right.

Sign the petition here.

... Crooks and Liars has more.

Andrei Shleifer Billionaire - Market Movers - Portfolio.com

Shleifer also reveals the sheer size of the funds which were founded by Shleifer and his wife, Nancy Zimmerman. Zimmerman's hedge fund, he says, now has $3 billion in assets under management, while LSV Asset Management, which was co-founded by Shleifer, has an astonishing $66 billion in AUM.

Which makes Warsh's tentative stab at Shleifer's net worth extremely modest: "together the pair, through their start-ups, may have amassed net worth of $40 million or more," he writes. Going on those AUMs alone, my guess is that the Shleifer-Zimmerman family has a net worth of vastly more than $40 million, and quite possibly something in the billion dollar range.

In fact, the $3 billion number for Bracebridge Capital, Zimmerman's fund, is two years old; if she's merely performed in line with other $3 billion funds circa 2006, my guess is she might well be at double that level right now.

Zimmerman founded Bracebridge in 1994 with $55 million; she's been in there since day one, collecting what we can reasonably assume to be 2-and-20. We can also assume, from the 50-fold increase in AUM, that her investment returns have been very good. And since she's the founder, we can assume too that the vast majority of her wealth has been (re)invested in Bracebridge.

The reason that hedge fund managers can get so magnificently wealthy is that they take their enormous fees, reinvest them in their own funds, earn high returns, and get paid even greater fees the next year. By the time a fund reaches $3 billion, it's not uncommon for the founding partner to be a billionaire. But in any case, if Bracebridge is at $3 billion and is making 2-and-20 on, say, 12% returns, then that works out at $132 million per year in performance fees. Even if less than half of that goes to Zimmerman personally, it's likely to have compounded to something in the billion-dollar range by now: after all, she's been in the business for 14 years, which is a long time to be compounding alpha.

As for Shleifer himself, Warsh reports that he sold his share in LSV "for a large but undisclosed sum several years ago". How large is that sum likely to have been? Well, LSV probably didn't have $66 billion under management back then, but on the other hand it was probably growing quite fast. Let's say that Shleifer had a 30% stake in the company, that when he sold out there was $30 billion of funds under management, and that he sold at a valuation of 4% of AUM. That would mean he received $400 million for his stake. (It's also fair to assume that the proceeds were invested well, and have grown substantially since then.)

The real numbers might be lower than that - or they might be higher, we don't know. But between Zimmerman and Shleifer, it's probably reasonable to assume that they could quite easily lose $40 million down the back of the sofa and not notice. These guys are rich

The Rape of Russia, by Anne Williamson

... ... ...

Academic Pigs at the Public Trough

"The new paradigm" economy concocted by the Harvard-connected Clinton Administration appointees in the U.S. Treasury, was designed to extend the federal government’s meddling hand worldwide through its control of the multilateral and bilateral public lenders, enabling government a free ride on the back of a re-structured U.S. economy grown vigorous and ever more innovative on account of the benefits the Reagan era’s low taxation, moderate inflation, reduced regulation and expanding world trade had delivered. The overall scheme works as follows:

Sell assistance programs on an alleged "free market" and "humanitarian" basis by awarding government grants to those academics who can be relied upon to supply the intellectual camouflage politicians and journalists then repeat ad nauseum to a distracted public, move the IMF and the World Bank to target, induce target to raise taxes, fine tune target’s central banking operations, encourage borrowing and debt creation through the target’s government and its national banks, allowing IMF lending to pay yields if necessary; induce target to privatize national property while building a flimsy, artificial "infrastructure" for an equities market good enough to attract high risk foreign investors. Once the target nation’s government flounders, step back and watch speculators assert discipline through a run on the target’s currency. The subsequent devaluation delivers, in turn, a flood of cheap imports to American manufacturers and producers.

The finishing touch on the swindle is to confiscate more money from G-7 citizens (the lion’s share from Americans) to pay for what is said to be an "essential" IMF bailout; thereby allowing Uncle Sam’s IMF minions to entrench themselves more deeply in the target’s government. Taxes are raised, the population struggles beneath indebtedness, government funding demands and the inevitable domestic inflation a devaluation delivers. Western neo-colonialists then bully the target over its rapidly compounding debt in order to extract yet more property. Once successful, the world’s insiders then turn around and deliver cheap shares from privatizations and initial public offerings into the maw of U.S. mutual funds and portfolio investors. US taxpayers get hit coming (foreign aid) and going (bailouts) and innocent foreigners’ property is finagled away either from, or on account of, inattentive and corrupt leaderships. The big winners are the world’s increasingly corrupt and cozy governing class, international bureaucracies and global banks.

What U.S. policy has wrought across much of the post-cold war landscape is a moral, political and financial abomination based on fraud, theft and deceit. In Russia the results of the Clinton Administration’s policies are the perpetuation of the longest depression of the 20th century in what is increasingly an unpoliced deadly weapons dump, the biggest swindle of national property since Vladimir Lenin muscled the country early in the century and the discrediting of the ideas of free markets and democracy.

The Chickens Come Home

But as the old saying has it, what goes around comes around. Unfortunately, all those dollars the Fed printed to get Bill Clinton re-elected in return for Alan Greenspan’s third appointment as central bank chief, are now returning to the United States in the form of manufactured goods and commodities with which U.S. producers can not compete on price.

When exchange rates fluctuate against one another as they do now, some countries will inflate more quickly than other countries. The G-7 are the only nations that try to co-ordinate their monetary policies and the effort usually ends up a failure over time. When one country inflates too quickly, the value of its currency will decline.

Some governments - especially those with an election on the horizon - actually want to devalue since national exporters, their goods now being cheaper, sell more goods. Global lenders like the IMF are also fond of devaluations because a rising national income from bargain exports leaves plenty in the national kitty for principal and interest payments to them. (Global direct investors who stick to the dollar, quasi-"good guys", fear devaluations, because their profits calculated in a devalued domestic currency buy fewer dollars for repatriation.)

But when exchange rates depreciate rapidly the specter of capital flowing out of a country appears. Foreigners and residents put their savings elsewhere. The currency goes into free fall, its value plummets, more investors flee and at the end of the cycle, interest rates skyrocket. This is exactly what happened in Asia in 1997, in Russia in 1998 and in Brazil in 1999.

One World, One Currency, One Tax Collector

Yet to curse the speculators is useless; since the 1973 collapse of Bretton Woods that broke the international link between the dollar and gold, the fear of the syndrome described above is the only remaining bit of discipline in the international system. How much better, the globalists reason, if there were to be one central bank and one fiat currency for everyone so that then national leaderships (and the financial oligarchies they sustain) could inflate and rob their own populations in unison.

In time, U.S. corporate profits will decline as a consequence of the IMF-induced deflation and share prices of all but premiere multinational corporations will follow suit. Alas, those Americans up to their necks in credit card debt may well be the next class of debtors to be rolled, and American farmers are already suffering serious losses from the collapse of farm commodities prices. In time, credit will dry up, government receipts will dwindle, the national debt will skyrocket and unemployment will increase. Eventually the government will inflate its way out of its accumulated debt.

Camdessus & Fischer: the Inmates Run the Asylum

Before concluding my remarks, I would like to recall one curious and mostly unremarked detail from 1994, that sticks out in this sad story like a boy’s unruly cowlick. In mid-July 1994 - at the very moment dollar-based Mexican tesobonos were being oversold to prosperous clients of Goldman Sachs and other U.S. investment banks, which, in turn, would lead to the 1995 Mexican bailout and the introduction of moral hazard into the world’s financial system - Michel Camdessus told a press conference that he intended to press for the creation of a new IMF facility to give members resources with which to defend themselves against speculative attacks in financial markets.

In other words, long before bailouts of entire countries became routine Camdessus wanted a new loan program to feed the last disciplinarians in the world’s financial system - currency speculators - so that national governments might become even more unaccountable to their citizens. At the time, The Economist slammed the proposal, saying it was "absurd and almost certainly unworkable," since Camdessus "bizarrely" was assuming the IMF would know more about economic fundamentals than the markets. And that assumption, The Economist noted, was the very assumption which had been the undoing of the USSR’s centrally planned empire. But Camdessus’ 1994 plan is the very one the Clinton Administration implemented and seeks to institutionalize.

So who wags the tail of the money dog? Citizens who labor to create wealth for themselves and their families or folks like IMF chief Michel Camdessus, a French socialist and lifetime bureaucrat, and his deputy, Stanley Fischer, who together are quite possibly the two most incompetent people on the planet? Sadly, it appears a once free people are slowly but surely being enserfed to globalism’s useless hors d’oeuvres eaters and incompetent lenders.

It doesn’t take a conspiracy theory to observe that the downward arc of citizens’ liberties, independence and civic competence and of American culture generally parallels the declining value of the U.S. dollar, which has lost 99 percent of its value since the founding of the Fed, and 75 percent of that debasement has occurred since the last link with gold established by Bretton Woods collapsed in 1971. From that perspective, it’s really not very surprising that at the end of the century, not quite a century after America instituted the Federal Reserve and thereby began the process that would deliver the power of creating unlimited debt to the political class, the White House is occupied by a couple who share not so much a marriage as they do a collection of felonies.

Throughout the 1990s, finance capitalism’s shills have been a "new paradigm" economy so glorious one might have thought Beatrice awaited us each and every one at the very lip of Heaven itself. Their brassy tune celebrated the defeat of the business cycle by globalization, productivity gains and computer technology. Inflation was tamed, the golden horns sounded, and we were to dwell eternally in lush fields of full employment, low interest rates and a booming stock market. And, insiders winked, foreign money once mugged by speculators would have nowhere else to go but directly into Wall Street’s money machine.

But what if - instead of Beatrice - what waits over our collective shoulder down Purgatory way is a repeat of the European currency instabilities of the 1930s, which culminated in the most vicious and widely-fought war in world history?

Mother Russia

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading Wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

But where, in a land in which today more of the people die each year than are born, lies the gain? History’s yardstick will measure out the answer, and I suspect it will not suit us.

[Jun 1, 2008] A Normal Professor by David Warsh

Economic Principals

First, a reminder of the outlines of the story. A kid, newly emigrated with his family from Russia, turns up at Harvard, still learning English, and is assigned J. Bradford Delong as a roommate. (Today DeLong is professor of economics at the University of California at Berkeley, where, among many other pursuits, he maintains a popular blog.) A year later, he is adopted as research assistant by MIT assistant professor Lawrence Summers, and begins a meteoric rise. He earns his PhD at MIT, demonstrating the advantages of an innocent eye with a remarkable thesis titled “The Business Cycle and the Stock Market.” He spends a year teaching at Princeton (where he acquires a disciple in  Edward Glaeser, then an undergraduate, today a Harvard professor), then goes on to Chicago. He meets and marries Zimmerman. Five years out of graduate school, Andrei Shleifer returns to Harvard and goes to Russia as head of Harvard team advising President Boris Yeltsin on behalf of the US government.

In 1997, he is discovered to be investing in Russia, along with his wife, deputy, deputy’s girlfriend, and their in-laws. He and Harvard are fired by the State Department, the project collapses, and its failure used to discredit both Yeltsin and US ambitions in Russia. He maintains that he was within his rights. In 1999, Shleifer wins the John Bates Clark Medal, awarded every two years to the most influential economist under forty. And, in 2000, the US Department of Justice abandons its criminal investigation of him and instead files a huge civil suit.  Harvard and Shleifer dig in their heels and begin a protracted battle. Summers, soon after president of Harvard University, stands by his protégé throughout.

In 2005, the government finally wins its case, including the return of $25.2 million from Harvard. Shleifer capitulates, paying $2 million in fines. Harvard deprives him of his endowed chair. The Russia case is closed.  But not before, in 2006, his handling of it helps cost Shleifer’s old friend Summers the presidency of Harvard.

So what’s changed?

First of all, Shleifer’s defenders, at least those who followed the case, now acknowledge he shouldn’t have been investing in Russia while officially advising its government. Moreover, most recognize the negative effect when a Russian expatriate with close links to the US Treasury Department (and, in anti-Semitic Russia, a Jew), is seen to be running a family business out of his USAID-financed Harvard office in Moscow. 

A little more attention has been paid to the role of wife may have played in egging him on. Shleifer’s long-promised defense of his actions has not materialized.

[Jun 2, 2008] Andrei Shleifer, Billionaire?

David Warsh has a great piece on Andrei Shleifer this week. Shleifer is known as a first-rate economist, and is also notorious for some shenanigans in Russia in the 1990s; Warsh makes a strong case that it's time "to close the book on Andrei's Shleifer's role at the center of Harvard's Russia scandal".

Shleifer also reveals the sheer size of the funds which were founded by Shleifer and his wife, Nancy Zimmerman. Zimmerman's hedge fund, he says, now has $3 billion in assets under management, while LSV Asset Management, which was co-founded by Shleifer, has an astonishing $66 billion in AUM.

Which makes Warsh's tentative stab at Shleifer's net worth extremely modest: "together the pair, through their start-ups, may have amassed net worth of $40 million or more," he writes. Going on those AUMs alone, my guess is that the Shleifer-Zimmerman family has a net worth of vastly more than $40 million, and quite possibly something in the billion dollar range.

In fact, the $3 billion number for Bracebridge Capital, Zimmerman's fund, is two years old; if she's merely performed in line with other $3 billion funds circa 2006, my guess is she might well be at double that level right now.

Zimmerman founded Bracebridge in 1994 with $55 million; she's been in there since day one, collecting what we can reasonably assume to be 2-and-20. We can also assume, from the 50-fold increase in AUM, that her investment returns have been very good. And since she's the founder, we can assume too that the vast majority of her wealth has been (re)invested in Bracebridge.

The reason that hedge fund managers can get so magnificently wealthy is that they take their enormous fees, reinvest them in their own funds, earn high returns, and get paid even greater fees the next year. By the time a fund reaches $3 billion, it's not uncommon for the founding partner to be a billionaire. But in any case, if Bracebridge is at $3 billion and is making 2-and-20 on, say, 12% returns, then that works out at $132 million per year in performance fees. Even if less than half of that goes to Zimmerman personally, it's likely to have compounded to something in the billion-dollar range by now: after all, she's been in the business for 14 years, which is a long time to be compounding alpha.

As for Shleifer himself, Warsh reports that he sold his share in LSV "for a large but undisclosed sum several years ago". How large is that sum likely to have been? Well, LSV probably didn't have $66 billion under management back then, but on the other hand it was probably growing quite fast. Let's say that Shleifer had a 30% stake in the company, that when he sold out there was $30 billion of funds under management, and that he sold at a valuation of 4% of AUM. That would mean he received $400 million for his stake. (It's also fair to assume that the proceeds were invested well, and have grown substantially since then.)

The real numbers might be lower than that - or they might be higher, we don't know. But between Zimmerman and Shleifer, it's probably reasonable to assume that they could quite easily lose $40 million down the back of the sofa and not notice. These guys are rich.

[Oct 15, 2006] Economist Andrei Shleifer demoted by Harvard 

It appears, now that his best friend, Larry Summers, is no longer Harvard president, that Harvard has finally slapped the wrist of superstar economist Andrei Shleifer for costing the university $26 million in fines, plus enormous legal fees. The Boston Globe reports:

Harvard strips economist of title for violating ethics rules
By Marcella Bombardieri. Globe Staff

Star Harvard economist Andrei Shleifer has been stripped of his honorary university title, following an investigation into whether he violated the university's ethical rules while advising the Russian government.

This morning, the entry for Shleifer in the on-line campus directory changed from "Whipple V.N. Jones Professor of Economics," to simply "Professor of Economics." A Harvard spokesman confirmed that the new title was accurate.

[By the way, that's a great name for an Old Harvard Man: Whipple VanNess Jones. He was founder of the Aspen Highlands ski mountain. (Does that make him a mogul mogul?) The name "Whipple Jones" was borrowed for a character on the soap opera The Bold and Beautiful]

The title, known as a "named chair," is an honor bestowed upon a distinguished senior professor. However, at Harvard, named chairs are generally not tied to salary, so the loss of the title doesn't mean that Shleifer will be penalized financially. The title "professor," indicates that he will retain tenure.

"I was a Professor of Economics last week, and I am a Professor of Economics this week," Shleifer said in a written statement. "My students, my colleagues and my work are what matter to me."

It is unclear if he faces other punishments. Shleifer was found by a judge to have conspired to defraud the federal government by making personal investments in Russia while advising the country on the United States' behalf. In a settlement with the U.S. Department of Justice, he agreed to pay $2 million. Harvard agreed to pay $26.5 million, and a former Harvard staff member, Jonathan Hay, agreed to pay between $1 million and $2 million.

Harvard's interim dean of the Faculty of Arts and Sciences, Jeremy R. Knowles, acknowledged this week that the university had concluded its investigation, and said "appropriate action" had been taken. But he said Harvard would not comment on the nature of the action. Shleifer issued a brief statement Thursday saying he was "delighted" to have the matter behind him.

Controversy over Shleifer hurt former President Lawrence H. Summers, because some professor suspected he had intervened on behalf of his fellow economist, a close friend, even though Summers recused himself from the case.

Neither his critics nor his supporters were pleased by the change in Schleifer's title.

"Does that place him in an extraordinarily embarrassing position? I don't think so," said mechanical engineering professor Frederick H. Abernathy, who has denounced Harvard's handling of the case. "If students put two or three lines in a paper without a proper quote, they are hauled before a [disciplinary] board and they are often given six month off."

Economics professor Lawrence F. Katz called the disciplinary action gratuitous.

"Andrei Shleifer is one of the finest social scientists on the planet, a huge magnet for students and a wonderful colleague," he said. "I don't think we should be playing games with names of chairs.

 

So, will the economics profession ever discipline Shleifer for his role in the looting of Russia, or is he too connected? In 2003, in the middle of the scandal, he was appointed editor of the Journal of Economic Perspectives by the American Economics Association. Fellow big name Harvard economist Edward Glaeser denounced prominent investigative journalist David McClintick's Institutional Investor report on Shleifer as "a potent piece of hate creation—not quite 'The Protocols of the Elders of Zion,' but it's in that camp."

[Aug 06, 2005] American Chronicle Multi-Million Dollar Harvard University Scam

Jim Kouri, CPP

Jim Kouri, CPP is fifth vice-president of the National Association of Chiefs of Police and served in law enforcement for over 25 years.     He writes for many police magazines such as Police Times. He's appeared as on-air commentator for over 100 TV and radio news and talk shows including Oprah, McLaughlin Report, CNN Headline News, MTV, Fox News, etc.  His book Assume The Position is available at Amazon.Com. His website is located at http://jimkouri.us

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Jim Kouri, CPP August 06, 2005 Harvard University is ordered to pay back over $20 million to the US government as part of a settlement deal resulting from a multi-million dollar scam. Two Harvard employees are also ordered make restitution bringing the total settlement to $31 million.

Two senior Harvard University advisors, Andre Shleifer and Jonathan Hay were paid under a US Agency for International Development grant to lead a project to provide advice to the nascent Russian economy on privatization following the fall of communism and the creation of fair and open markets and the rule of law. The US Attorney's Office alleged that instead, Shleifer and Hay used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests.

Under a settlement, the total repayments will exceed $31 million by Harvard University and it's two advisors. Specifically the settlement calls for Harvard to pay $26.5 million; Shleifer to pay $2 million; and Hay to pay between $1 million and $2 million. Also factored into the settlement amount total is $1.5 million already paid to the United States by FFIA, formerly known as Farallon Fixed Income Associates, LP, a company owned by Shleifer's wife, Nancy Zimmerman. In addition, Shleifer and Hay have agreed to be debarred by USAID.

The defendants were entrusted with the important task of assisting in the creation of a post-communist Russian open market economy and instead took the opportunity to enrich themselves. Such conflict of interest activities only serve to undermine important development programs, according to officials.

As evidenced by the hard fought five-year litigation of this matter, the US Attorney's Office is committed to protecting federal funding from misuse and ensuring the adherence to the requirements of government contracts.

Improper use of federal grant programs for the purpose of self-enrichment will not be tolerated," said Peter D. Keisler, Assistant Attorney General for the Civil Division. "[This] settlement demonstrates our commitment to fighting fraud and abuse against the United States wherever we find it."

The United States' case provided extensive evidence that, despite the clear terms of the agreements, Shleifer and Hay were making prohibited investments in Russia in the areas in which they were providing advice. The United States government further demonstrated that Shleifer and Hay were self-dealing by using their positions, as well as USAID-funded resources, to advance their own personal business interests and investments and those of their wives and friends.

Their self-dealing activities included using their influence over the Russian Securities Commission to which they were key advisors to secure for themselves and their wives the first ever launched and licensed mutual fund in Russia. The terms of the USAID grant strictly prohibited any investments in Russia by American advisors funded under the grant.

The Civil Complaint alleged, and the Court found, that while they were being paid by USAID, the two Harvard employees engaged in the following prohibited investments and businesses in Russia:

The United States alleged and demonstrated that Shleifer, Hay and Harvard University never disclosed any of these prohibited personal business activities and/or investments to USAID.

The Civil Complaint alleged that as a result of the misconduct of the defendants, USAID funds expended on the Project were diverted, abused and wasted. As a result of the defendants' misconduct, USAID suspended and ultimately terminated the HARVARD project in Russia.

Conflicts of interest and corruption attack at the core of what USAID strives to achieve for developing nations throughout the world and are certainly two of the most serious threats to the success of USAID sponsored programs," stated Acting USAID Inspector General Bruce Crandlemire.

Eight years of intensive investigation and tireless litigation on this case represents a firm and dogged commitment by the offices charged with the protection of federal dollars to the principle that power and influence does not provide a free pass to those who would attempt to exploit their positions of public trust for private gain."

After extensive summary judgment briefings, US District Judge Douglas P. Woodlock, in a one hundred-page opinion, found liability against Shelifer and Hay under the False Claims Act, and against Harvard University for breach of contract with USAID. At a federal civil trial, a jury found additional liability against Shleifer for his violation of the conflict of interest policy in USAID's contracts with Harvard.

Harvard's Best and Brightest Aided Russia's Economic Ruin By Sam Husseini & Janine R. Wedel

February 2000

Harvard's "Best and Brightest" Aided Russia's Economic Ruin

Institute that advised "reform" fed corruption

A 1992 front-page story in the Boston Globe (9/22/92), "Red Square Turns to Crimson," announced proudly that Harvard experts were advising Russia in its conversion to capitalism. "Privatization stands as the centerpiece of Russia's economic-reform program," wrote the Globe. It was an equation the "best and brightest" from Harvard would drum home again and again to the media: privatization equals reform. The piece quoted the head of the Harvard Russia project, Andrei Shleifer: "Once you work with Russians for two weeks, you become a free-market enthusiast."

As more becomes known about the laundering of Russian money in Western banks, many in the United States will likely try to hide behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that country's sorry conditions--with the Harvard Institute for International Development's Russia project (HIID) playing a major role.

Among those under investigation for criminal activity in both the west and Russia is longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia's economic "reforms." In the mid-'90s, Chubais and his clique of political and financial power brokers, known as the "Chubais Clan," were the darlings of the U.S. Treasury and international financial institutions--and of the U.S. establishment press.

HIID, together with the Chubais "dream team," as the Treasury Department's Lawrence H. Summers called it, presided over Russia's economic "reforms," many of them U.S.-funded, including privatization. But the so-called reforms were more about wealth confiscation than wealth creation. Privatization, which had substantial input from U.S.-paid Harvard advisors, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption and funneling of monies to Western banks.

Chubais was briefly on the HIID payroll, and he is currently head of Russia's electricity monopoly. In 1995, the Economist magazine (4/8/95) projected that Chubais would be president of Russia by 2010. But by 1998, the New York Times (3/24/98) conceded that he "may be the most despised man in Russia" since "his early efforts at privatization were widely viewed as vast federal gifts to inside operators at the expense of millions of workers who got nothing but promises they cannot redeem."

HIID was in the unique position of recommending U.S. aid polices in support of market reforms while being a chief recipient of the aid--as well as overseeing other aid contractors, some of whom were HIID's competitors. HIID, Chubais and their associates played a major role in promoting themselves and the "reforms" in the Western media; for example in a 1993 Washington Post piece (5/7/93), Shleifer complained that the Clinton administration was allowing privatization efforts to "fall through the cracks."

A New York Times "Economic Scene" column (4/20/95) led thus:

Is Russia poised for economic takeoff? After three years of on-again, off-again reforms and with the Pyrrhic military victory in Chechnya still fresh in the news, skepticism comes easily. But little by little, wary analysts are abandoning their caution. "Russia is a real market economy now," says Andrei Shleifer, an economist at Harvard who has advised the Russian government on privatization
Some of those associated with HIID allegedly profited directly from it. HIID helped established Russia's Federal Commission on Securities, roughly the equivalent of the SEC in the U.S. It was officially established by Yeltsin proclamation, and funded by the U.S. government through institutions run by those around the Harvard-Chubais coterie. The first mutual fund licensed by the Commission was headedt man in Moscow.

Hao have benefited from HIID's Russia connection. Harvard Management Company, the university's endowment fund, was allowed to participate in choice auctions of Russian government property, despite the fact that foreign investors were supposed to be excluded under auction rules.

In 1996, the GAO found that U.S. oversight over Harvard was "lax," and, following allegations in 1997 that Shleifer and the other Harvard principals used their positions and inside knowledge as advisers to profit from investments in Russia, the U.S. government cancelled the last $14 million earmarked for Harvard. Shleifer, now under investigation by the Justice Department, was dismissed by HIID. (Still, Shleifer, who is a protégé of Treasury Secretary Summers, received the Clark Award from the American Economic Association this year, an award that Summers, who has been the architect of economic policy toward Russia, received in 1993. The association's president-elect, Dale Jorgenson, said Shleifer's scandal "was not even mentioned" in their considerations--New York Times, 4/26/99.)

In Privatizing Russia, co-authored by Shleifer with Chubais associate Maxim Boycko, they acknowledge that "aid can change the political equilibrium--by explicitly helping free-market reformers to defeat their opponents." Richard Morningstar, U.S. aid coordinator for the former Soviet Union, concurred (Collision and Collusion, Wedel): "If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais."

Leonid Krutakov, Russian investigative reporter for the publication Moskovsky Komsolets noted that throughout the Yeltsin years, "both the foreign and domestic press created a central deception--a false set of 'alternatives.' The idea was pushed on both sides of that Atlantic that if you didn't support Chubais, you were supporting the communists." Krutakov, who has broken many of the scandal stories, noted (eXile, 10/23/99):

Obviously it's difficult to come into a country blind and just evaluate the situation instantly. You draw your conclusions from people you meet. Western reporters came in and talked to Chubais, and Chubais tossed words around like "market," "profit," "openness"--all the right words. And this was the only view point of view they heard that made sense, as far as they knew.

See FAIR's Archives for more on:
Russia

The real Larry Summers scandal?

I've written maybe 10,000 words in defense of Harvard President Lawrence Summers's much-denounced speech last year on why women haven't achieved gender equality with men in elite universities' math, science, and engineering departments. But that doesn't mean he's without flaw. Indeed, it looks like Summers was peripherally involved in the Scandal of the Century, the looting of post-Soviet Russia, or at least he dragged Harvard through the legal mud in a misguided attempt to protect a close friend who had gone over to the dark side.

Back in 1993, my elderly father would rant that those Harvard consultants who were advising the Yeltsin government on liberalizing the post-Soviet economy were ripping off the Russian people. Being a true believer back then in the Magic of the Free Market, I pooh-poohed his concerns.

Well, my dad was right and I was wrong. We all understand the superiority of the free market these days, but in any kind of market, it still matters very much who owns what. The "reform" of the Russian economy turned out to be one of the great larceny sprees in all history, and the Harvard boys weren't all merely naive theoreticians. Veteran economics journalist David Warsh's EconomicPrincipals.com reported in 2004:

The US government's long-running wrangle with economist Andrei Shleifer and Harvard University over Harvard's ill-fated Russia Project in the 1990s was resolved last week, in the government's favor.

A Federal judge ruled that, by quietly investing on their own accounts while advising the Russian government, Harvard professor Shleifer and his Moscow-based assistant Jonathan Hay had conspired to defraud the US Agency for International Development (USAID), which had been paying their salary.


Harvard had to pay $26 million and Shleifer $2 million in fines.

The Russian-born 45-year-old Shleifer is a superstar of the economics profession. Like Summers, he is the winner of the Clark Medal, the award for top economist under 40. Shleifer became the editor of Harvard's Quarterly Journal of Economics at the age of 28, and is now editor of the American Economic Association's Journal of Economic Perspectives.

Warsh's website reported in 2003:


"Then, too, Shleifer's oldest friend in economics is Lawrence Summers -- who, first as Undersecretary of Treasury for International Affairs, then as Deputy Secretary, was to all intents and purposes his ultimate boss during the period of the alleged transgressions, even though they were separated by several layers of governmental hierarchy."


Summers and Shleifer have vacationed together each year.

Recently, Institutional Investor printed a long expose by investigative reporter David McClintick (author of Indecent Exposure on movie executive/criminal David Begelman, who forged actor Cliff Robertson's name on checks) that begins:


How Harvard lost Russia
Source: Institutional Investor Magazine, Americas and International Editions
David McClintick

The best and brightest of America's premier university came to Moscow in the 1990s to teach Russians how to be capitalists. This is the inside story of how their efforts led to scandal and disgrace.

Since being named president of Harvard University in 2001, former U.S. Treasury secretary Lawrence Summers has sparked a series of controversies that have grabbed headlines. Summers incurred the wrath of African-Americans when he belittled the work of controversial religion professor Cornel West (who left for Princeton University); last year he infuriated faculty and students alike when he seemed to disparage the innate scientific abilities of women at a Massachusetts economic conference, igniting a national uproar that nearly cost him his job; last fall brought the departure of Jack Meyer, the head of Harvard Management Co., which oversees the school's endowment but had inflamed some in the community because of the multimillion-dollar salaries it pays some of its managers.

Then, in quiet contrast, there is the case of economics professor Andrei Shleifer, who in the mid-1990s led a Harvard advisory program in Russia that collapsed in disgrace. In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government.

Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of Summers.

In the following pages investigative journalist David McClintick, a Harvard alumnus, chronicles Shleifer's role in the university's Russia Project and how his friendship with Summers has protected him from the consequences of that debacle inside America's premier academic institution.

 


Summers's enemies within the Harvard faculty circulated copies of this article just before his resignation. (And here's another article by Warsh on Summers's costly defense of Shleifer.)

Warsh writes:


How did the defendants in the Russia project --Harvard, Shleifer, Hay and, though he was not charged with wrong-doing in the matter, Summers -- convince the [New York] Times, the [Washington] Post and the Financial Times that the collapse of [Harvard's] Russia Project was not a worthy story? What did they say, and how did they say it? To whom, and how often? Let me stress that there is absolutely no question of actual money ever changing hands -- of bribery. At the pinnacles of capitalism, the influence exchange is so deep and liquid that cash is almost never required, except, perhaps, within organizations, in the form of golden handshakes and the like.

Instead, the informal economy of capitalism is one of deference and respect, of favors today and the implicit promise of favors later, of jobs and dinner invitations and admissions to exclusive kindergartens.... Anyone who doubts that this informal economy extends to newspapers knows nothing about how newspapers work.

For at its heart, the Shleifer matter has always had less to do with the failure to export American values to Russia than with the inadvertent importation of Moscow rules to institutions in the United States. That's why Harvard's cockeyed defense is so alarming, why Shleifer's elevation to positions of ever-greater authority in the economics profession is worrisome. No one doubts that he is an original and productive economic thinker. The good news is that it was Shleifer who, as editor of the Journal of Economic Perspectives, published McMillan and Zoido's article on Montesinos [the corrupt Peruvian spymaster who paid much higher prices to suborn media owners than judges or politicians]. That's the bad news, too, since the editorship confers vast and global favor-trading power.

The worst thing of all is that, starting with his long-time mentor Larry Summers, Sheifer's friends don't seem to understand that they failed the young Russian émigré in the first instance, that they in turn have been betrayed and embarrassed. It is true, as Edward L. Glaeser and Claudia Goldin write in their introduction to the forthcoming "Corruption and Reform: Lessons from America's Economic History" that the United States "changed from a place where political bribery was a routine event infecting politics at all levels to a nation that now ranks among the least corrupt in the world." But it is also true that American aid-giving abroad in the 20th century (Herbert Hoover, George C. Marshall, Creighton Abrams) has been remarkably free of high level corruption -- until now.

 


Why didn't the press do a good job of covering Russian corruption and the Harvard scandal? Well, who was disproportionately involved in the corruption at both the Russian and Harvard ends? I, for one, had no idea until I read Amy Chua's 2003 book World on Fire about "market dominant minorities," that six of the seven "oligarchs" who paid for Boris Yeltsin's 1996 re-election in return for the privilege of buying ex-Soviet properties at absurdly low prices (e.g., Mikhail B. Khodorkovsky was put in charge of auctioning off Yukos Oil, which owns about 2% of the world's oil reserves -- he sold it for $159 million to ... himself) were Jewish. (Five Jewish on both sides of the family, one on one side). And that's in a country where the Jewish population is about one percent.

For some reason, the American media hadn't been very enthusiastic about publishing that highly interesting fact in the seven years following the 1996 Russian election. We all saw what happened to Gregg Easterbrook in 2003 over a triviality, so you can understand why the reticence about this gigantic story.

As I've said before in the context of exploring how Scooter Libby could serve as a mob lawyer for international gangster Marc Rich on and off for 15 years and then move immediately into the job of chief of staff to the Vice President of the United States, the problem is not that Jews are inherently worse behaved (or better behaved) than any other human group, but that they have achieved for themselves in America in recent years a collective immunity from anything resembling criticism. And being immune to criticism doesn't make human beings behave better.

Now, Warsh's website writes:

 

Gangsta-nomics

Clarifying the impact of Harvard University's Russia scandal and the Andrei Shleifer/Lawrence Summers affair on the economics profession (generally) and on Harvard (in particular) will take years. The outlines of one mechanism, however, already can be discerned. Tracing its workings through offers clues to what may be the controversy's ultimate resolution.

Just as opening the St. Lawrence River to the Great Lakes produced both great economic benefits (the North American Midwest could export grains, iron ore, machinery to the world on ocean-going ships) and some undesirable side effects as well (the introduction into the lake system of lamprey eels and zebra mussels), so sending a team of Harvard University experts to advise the Russian government of Boris Yeltsin in the 1990s improved markets in the former Soviet republic, but at the cost of importing to Harvard certain unattractive Russian folkways.

The most obvious of these is the tendency to view anti-Semitism as a powerful explanatory variable in the resignation of Harvard president Lawrence Summers.

Anti-Semitism was a puissant force at Harvard and most other American universities well into the 1950s, but has diminished dramatically in the past half-century, along with most other social concomitants of religious conviction/association. In Russia, it remains virulent. Harvard economic professor Shleifer, who grew up in Russia, often has been the victim of prejudice there. It has not harmed him in the US, nor his co-religionist Summers, especially in this instance.

Yet as Boston Globe columnist Alex Beam noted last week, Harvard professors Alan Dershowitz (law), Ruth Wisse (literature) and former lecturer Martin Peretz were quick to cite Summers' strong defense of Israel as a factor in what Dershowitz termed an "academic coup d'etat... by the die-hard left of the Faculty of Arts and Sciences." "The question I'm being asked," Wisse told Beam, (before praeteritio-otically dismissing it), "is, 'Was anti-Semitism the driving engine of the coup?'"

The traveler furthest down this road was Professor Edward Glaeser (economics), Shleifer's former pupil, long-standing friend and dogged defender, who told The Harvard Crimson that the act of circulating among the Harvard faculty an article in Institutional Investor by investigative reporter David McClintick was "a potent piece of hate creation -- not quite 'The Protocols of the Elders of Zion,' but it's in that camp.""
 

So far-fetched was that comparison that Glaeser spent the week apologizing to all and sundry -- especially after an article in The New York Times acknowledged the generally high regard in which the McClintick article is held by asking rhetorically, in its headline, "Did an Exposé Help Sink Harvard's President?"

 

I vaguely suspect, judging from the title "Gangsta-nomics" that Warsh might be trying to hint at something beyond what he explicitly says: that pro-Semitism was a motivating factor among many of Summers's most prominent advocates and may have had something to do with the mainstream media's reluctance to touch the issue of Harvard's role in Russian corruption.

Steven Pinker, who has become much more objective about Jewish issues in this decade, is an honorable exception -- he was clearly outraged by the ludicrous controversy over Summers's statements about sex differences.

But sex differences between men and women just aren't a strongly motivating political factor for most people -- lesbians being the main exception. We almost all have loved ones of the opposite sex, so the corruption of feminist academics who rip off universities isn't all that motivating -- after all, if Larry Summers has to promise $50 million worth of gender preferences for women to make up for his faux pas, well, who knows, maybe your sister or wife or mom or daughter or daughter-in-law will get a job she doesn't really deserve under the Summers Reparations, so it's hard to get too worked up over it.

In contrast, ethno-racial politics are less likely to divide families into payees and payers the way gender preferences do, so they tend to elicit a lot more organized passion. Thus, many of Summers's most adamant defenders were most outraged not, like Pinker and myself, because he was getting railroaded for telling the truth about women and higher math, but because he told an arguable untruth about supporters of Harvard disinvesting in Israel -- that the movement is motivated by anti-Semitism. (In reality, many of the supporters of Harvard divesting investments in Israel are Jews themselves. Personally, I think Israel divestiture is a bad idea, but then I was against South African divestiture, too, and for the same reasons.)

Further, Warsh's elaborate analogy about zebra mussels coming up the St. Lawrence Seaway might not really be about American intellectual life being mildly tainted by the Russian Jewish rational tendency to blame anti-Semitism for their troubles, but about something much more serious: that American intellectual life might have been corrupted by the vast amounts of money the mostly Jewish Russian oligarchs had to toss around to American academics and public intellectuals.

We American intellectuals cannot be bought, but our affections can be rented for a lot less than, say, a second rate soccer player.

Jake Rudnitsky writes in the eXile about how cheaply American politicians can be bought:

 

American politicians prove that they can be bought for a song compared to their Russian counterparts, in spite of the fact that the US economy is about 5000 times larger.

While [Jack] Abramoff and his cohort Michael Scanlon have nothing to be ashamed of, thanks to their Abramovich-esque lavish spending habits, the amounts that the politicians were bought with are downright laughable. The highest netting congressman was Arizona's J.D. Hayworth, who came away with just $101,000 for his war chest: and now he's got to give it all back, meaning it was little more than an interest-free loan. More typical were the pols who netted somewhere in the mid-30s, including reps from NY, Michigan and Ohio. Now all that money - totaling about $4.5 million - is making its way to neutral charities. Bush, for example, picked the American Heart Association.

What else do they have to show for it? The memory of watching the Redskins or the Wizards endure another losing season from Abramoff's skyboxes? A few nice meals at one of his fancy-pants restaurants or, for DeLay, Abramoff's favorite, a weekend golf trip to Scotland? Golfing in Scotland! Can you imagine a Russian politician agreeing to so much as show up for a cup of coffee if the payoff is a *** golfing trip to a rain-soaked dump! It begs the question, what's the point of being corrupt if it doesn't make your life much better?

Compare, for a moment, Republicans' woeful attempt at abusing power with another corrupt politician currently in the headlines: Leonid Reiman, Russia's IT and telecommunications minister. The Wall Street Journal wrote him up about a week ago after they got an insider close to Reiman to admit that he's worth about a billion dollars.

 

If Duke Cunningham's the most corrupt politician in federal history (although I doubt it), think about how far you can get with public intellectuals for even less money!

A reader writes:


I will not be surprised if in fifty years historians judge Clinton/Summers/Harvard/Yeltsin/Oligarchs as a worse (more damaging) scandal than Bush/Oil/Texas/Enron.

[Mar 25, 2006] Harvard's role in US aid to Russia - The Boston Globe

By Janine R. Wedel  | 

March 25, 2006

WHEN LAWRENCE Summers resigned the Harvard University presidency last month, his action was attributed in large part to difficulty in human relations. Whatever the true reason, when Summers's legacy is examined, he should be held to account for his role in a scandal with which he was intimately involved, both as a Treasury official and at Harvard. Yet the strange saga of Harvard's involvement in US aid to Russia in the 1990s is more than a scandal about Summers and Harvard. The case illustrates the overall failure of the US accountability system.

Ten years ago my article about the role of the US-funded Harvard advisers in Russia's economic reforms exposed their maze of networks. I analyzed the web of interconnections that enabled Harvard economist Andrei Shleifer, a friend of then Treasury official Lawrence Summers, and a close-knit group of Russians and Americans to largely shape US economic aid policy and Russian economic ''reforms" while managing virtually the entire nearly $400 million US flagship economic aid project. Summers helped Shleifer and Harvard gain noncompetitive government awards through arrangements that were highly unusual in foreign aid contracting at the time, according to US officials.

This maze of networks guaranteed the Harvard players their success in the 1990s. It also enfeebled the multiple investigations of their activities during the same period. Although the US Justice Department filed suit in 2000 (following a three-year investigation), alleging that Shleifer and Harvard had conspired to defraud the US government, the case came to a head only last summer with a negotiated settlement that required the university to pay $26.5 million in fines and Shleifer to pay $2 million. And despite being versed in Summers's entanglements, in 2001, the Harvard Corporation, with sole authority to hire and fire the Harvard president, appointed him the university's president.

The Harvard case points to the failure of modern democracy to adapt its monitoring and accountability systems to a new breed of players exemplified by Shleifer. These peripatetic players have gained influence in the reorganizing, networked world in which authority has been diffused by the profusion of government outsourcing contracts and the end of the Cold War.

The result is that accountability has been undercut by relationships between governments and contractors that are too tenuous, flexible, and ambiguous to be genuinely monitored. Shleifer, for example, played sometimes indistinct and overlapping roles as he lobbied in favor of his projects and advised both the United States and Russia while making investments for his own personal gain, all the while presenting himself as independent analyst and author. The endowment funds of both Harvard and Yale gained access to valuable investments through networks inhabited by Shleifer and/or his currency-trading wife. His investments in Russia, which he does not deny, included securities, equities, oil and aluminum companies, real estate, and mutual funds -- many of the same areas in which he was being paid to provide impartial advice.

Shleifer's defense in the Justice Department's lawsuit is revealing: Although US prosecutors charged that his investments violated federal conflict-of-interest regulations, defense lawyers maintained that he was a ''mere consultant," and thus not subject to these rules. Yet as director of the project, the buck stopped with him.

The system is virtually incapable of dealing with such players' infractions and lack of transparency in a timely fashion. It is not for lack of inquiries, including a 1996 Government Accountability Office investigation and a lawsuit brought by a US mutual funds firm working in Russia, which was settled out of court in 2002.

Traditional accountability frameworks are no match for the ways in which today's diffused authority provides new opportunities for players to brandish influence, evade culpability, and gain deniability, while writing the new rules of the game. While Shleifer must pay a settlement and legal fees, it is too late for the Russian people, who, instead of wise guidance, got corruption and a system wide open to looting. Until the United States devises better ways to track the networks and activities of these new players, it is destined to have an ever more untransparent and unaccountable system, with grave implications for democracy.

Janine R. Wedel, professor of public policy at George Mason University, is author of ''Collision and Collusion: The Strange Case of Western Aid to Eastern Europe."

© Copyright 2006 Globe Newspaper Company. ...

LaurenceJarvikOnline How Harvard Lost Russia

How Harvard Lost Russia

Author David McClintick, writing in Institutional Investor, details the intricate web of corruption, fraud, and abuse, paid for by the US government through USAID, that eventually cost America Russia's friendship--an NGO called the Harvard Institute for International Development (ht Johnson's Russia List):

Since being named president of Harvard University in 2001, former U.S. Treasury secretary Lawrence Summers has sparked a series of controversies that have grabbed headlines. Summers incurred the wrath of African-Americans when he belittled the work of controversial religion professor Cornel West (who left for Princeton University); last year he infuriated faculty and students alike when he seemed to disparage the innate scientific abilities of women at a Massachusetts economic conference, igniting a national uproar that nearly cost him his job; last fall brought the departure of Jack Meyer, the head of Harvard Management Co., which oversees the school's endowment but had inflamed some in the community because of the multimillion-dollar salaries it pays some of its managers.

Then, in quiet contrast, there is the case of economics professor Andrei Shleifer, who in the mid-1990s led a Harvard advisory program in Russia that collapsed in disgrace. In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government.

Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of Summers.

In the following pages investigative journalist David McClintick, a Harvard alumnus, chronicles Shleifer's role in the university's Russia Project and how his friendship with Summers has protected him from the consequences of that debacle inside America's premier academic institution.

ff duty and in swimsuits, the mentor and his protégé strolled the beach at Truro. For years, with their families, they had summered together along this stretch of Massachusetts' famed Cape Cod. Close personally and professionally, the two friends confided in each other the most private matters of family and finance. The topic of the day was the former Soviet Union.

"You've got to be careful," the mentor, Lawrence Summers, warned his protégé, Andrei Shleifer. "There's a lot of corruption in Russia."

It was late August 1996, and Summers, 42, was deputy secretary of the U.S. Treasury. Shleifer, 35, was a rising star in the Harvard University economics department, just as Summers had been 15 years earlier when he had first taken Shleifer under his wing.

Summers' warning rose out of their pivotal roles in a revolution of global consequence -- the attempt to bring the Russian economy out from the ruins of communism into the promise of Western-style capitalism. Summers, as Treasury's second-in-command, was the architect of U.S. efforts to help Russia. Shleifer's involvement was more intimate. Traveling frequently to Moscow, he was directing key elements of the reform effort under the banner of the renowned Harvard Institute for International Development.

Working on contract for the U.S., HIID advised the Russian government on privatizing its economy and creating capital markets and the laws and institutions to regulate them. Shleifer did not report formally to Summers but rather to the State Department's Agency for International Development, or AID, the spearhead of the U.S.'s foreign aid program.

Personal affection as much as official concern prompted Summers' admonition. He had come to know that Shleifer and his wife, Nancy Zimmerman, a noted hedge fund manager, had been investing in Russia. Though he didn't know specifics, he understood just enough to worry that the couple might run afoul of myriad conflict-of-interest regulations that barred American advisers from investing in the countries they were assisting.

Summers did not restrict his warnings to Shleifer.

"There might be a scandal, and you could become embroiled," Summers told Zimmerman. "You should make sure you're clear with everybody. People might want to make Andrei a problem some day. The world's a shitty place."

Summers' warnings proved at once prophetic and ineffectual. Even as Shleifer and his wife strove to reassure their friend, they were maneuvering to make an investment in Russia's first authorized mutual fund company. Within eight months their private Russian dealings, together with those of close associates and relatives, would explode in scandal -- bringing dishonor to them, Harvard University and the U.S. government. The Department of Justice would deploy the Federal Bureau of Investigation and the U.S. Attorney's Office in Boston to launch a criminal investigation that would uncover evidence of fraud and money laundering, as well as the cavalier use of U.S. government funds to support everything from tennis lessons to vacation boondoggles for Harvard employees and their spouses, girlfriends and Russian pals. It would, in the end, be an extraordinary display of an overweening "best and brightest" arrogance toward the laws and rules that the Harvard people were supposed to live by.

Says one banker who was a frequent visitor to Russia in that era, "The Harvard crowd hurt themselves, they hurt Harvard, and they hurt the U.S. government."

Mostly, they hurt Russia and its hopes of establishing a lasting framework for a stable Western-style capitalism, as Summers himself acknowledged when he testified under oath in the U.S. lawsuit in Cambridge in 2002. "The project was of enormous value," said Summers, who by then had been installed as the president of Harvard. "Its cessation was damaging to Russian economic reform and to the U.S.-Russian relationship."

Reinventing Russia was never going to be easy, but Harvard botched a historic opportunity. The failure to reform Russia's legal system, one of the aid program's chief goals, left a vacuum that has yet to be filled and impedes the country's ability to confront economic and financial challenges today (see box, page 77).

Harvard vigorously defended its work in Russia, but in 2004, after protracted legal wranglings, a judge in federal district court in Boston ruled that the university had breached its contract with the U.S. government and that Shleifer and an associate were liable for conspiracy to defraud the U.S. Last August, nine years after Summers and his protégé took their stroll along that Truro beach, Harvard, Shleifer and associates agreed to pay the government $31 million-plus to settle the case. Shleifer and Zimmerman were forced to mortgage their house to secure their part of the settlement.

Russia's struggles today certainly don't result entirely from Harvard's misdeeds or Shleifer's misconduct. There is plenty of blame to share. It is difficult to overstate the challenge of transforming the economic and legal culture, not to mention the ancient pathologies, of a huge, enigmatic nation that once spanned one sixth of the earth's land surface, 150 ethnicities and 11 time zones. The Marshall Plan, by comparison, was simple.

Summers wasn't president of Harvard when Shleifer's mission to Moscow was coming apart. But as a Harvard economics professor in the 1980s, a World Bank and Treasury official in the 1990s and Harvard's president since 2001, Summers was positioned uniquely to influence Shleifer's career path, to shape U.S. aid to Russia and Shleifer's role in it and even to shield Shleifer after the scandal broke. Though Summers, as Harvard president, recused himself from the school's handling of this case, he made a point of taking aside Jeremy Knowles, then the dean of the faculty of arts and sciences, and asking him to protect Shleifer.

Months after Harvard was forced to pay the biggest settlement in its history, largely because of his misdeeds, Shleifer remains on the faculty. No public action has been taken against him, nor is there any sign as this magazine goes to press in late December that any is contemplated.

Throughout the otherwise voluble university community, there has been an odd silence about the entire affair. Discussions mostly have taken place sotto voce in deans' offices or in local Cambridge haunts, such as the one where a well-connected Harvard personage expressed deep concern, telling II: "Larry's handling of the Shleifer matter raises very basic questions about the way he governs Harvard. This is fraught with significance. It couldn't be more fraught."

The silence is now beginning to break, thanks to the leadership of academic worthies like former Harvard College dean Harry Lewis, who is finishing a book about the university to be published in the spring by Perseus Public Affairs. Lewis agreed to show II the manuscript, in which he asserts, "The relativism with which Harvard has dealt with the Shleifer case undermines Harvard's moral authority over its students."

Recommended Links

Shleifer

Andrei Shleifer
Degree A.B. 1982
High Point Esteemed Harvard economics professor and advisor to the Russian government, Cambridge, Mass., and Moscow
Now Chairless Harvard professor, Cambridge, Mass.
The Charges International insider trading
The Story When Harvard was given a government grant to help the nascent post-Soviet Russian economy, star economist Shleifer, his wife Nancy Zimmerman, and fellow Harvard staffer Jonathan Hay set up a scheme to invest heavily in companies and entities on which they were advising.
The Hubris Thinking you can take advantage of the people who beat the Nazis and produced Ivan Drago. Shleifer was one of the most cited economists in the world and an oft-mentioned candidate for the Nobel, but will forever be remembered for puerile miscalculation.
The Penance Harvard paid back $26.5 million; Shleifer and Hay repaid $2 million each. Both were also disbarred from the U.S. Agency for International Development.
By Any Other Name Shleifer is still on the payroll of the Economics Department, though he was demoted from “Whipple V.N. Jones Professor of Economics” to plain-old “Professor of Economics.”

Larry Summers

Rubin

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