Obama nominates Jim Yong Kim as U.S. choice for World Bank president

The only other candidate in the running at present is the Nigerian Finance Minister Ngozi Okonjo-Iweala. In a surprise move another top candidate Jeffrey Sachs withdrew and threw his full support behind Kim.

By tradition since 1944 an American has always been head of the World Bank and a European head of the IMF. This year there is a more open nomination and selection process. However, it looks as if the tradition will probably prevail. Sachs had the support of many developing nations. Perhaps many of them will now back Kim.

Jim Yong Kim was never a top candidate of those mentioned as being considered by Obama. Lawrence Summers was thought to be the likely U.S. candidate. However many were critical of the choice including some Europeans. Europe is expected to support the U.S. choice.

According to this BBC article Kim is a leading figure in global health. He worked in the WHO as director of the HIV/Aids dept. He also founded a health charity. Kim moved to the U.S. when he was five and grew up in Muscatine Iowa. He has an MD and PhD in anthropology from Harvard. He became president of Dartmouth College in 2009.

The choice is welcomed by many. It is certainly a victory for those who did not want to see Summers become bank president. Others see it as more than that. See this article. Robert Naiman wrote this to me in an email:""If you care about access to basic health services in poorcountries, it's a big victory. If you care about breaking down barriers to access to essential medicines in poor countries, it's a big victory." We will see.

I just wonder what Sachs' aim is in all this. He touted himself as eminently qualifiied for the job and had others write glowing reviews about his qualifications but then at the last moment he withdraws and supports Kim! Were there behind the scenes negotiation? Meanwhile there is one developing world candidate, the finance minister of Nigeria still in the running but she may turn out to be another part of what seems to be a concerted effort to show that the tradition has really changed while in fact she has no chance of winning. She is supported by three African countries. For more see this article.

Lawrence Summers on Obama's Stimulus Package

Much of this sounds very positive. It remains to be seen how transparent and accountable the program will be. Certainly the Bush financial bailout was almost completely opaque although the auto bailout in contrast has many strings attached.
There is no mention of the possible inflationary effects all this spending will have once the economy begins to turn around. The US will be in debt big time! At least the stimulus package will begin to rebuild US infrastructure and as Summers notes this will bring long term benefits.


Washington Post - December 28, 2008<http://www.washingtonpost.com/wp-dyn/content/article/2008/12/26/AR2008122601299.html>Obama's Down PaymentA Stimulus Must Aim for Long-Term Results

By Lawrence Summers

When President-elect Barack Obama takes office, he will face what may well be the bleakest economic outlook since World War II. Economic forecasts have been revised significantly downward over the past several months; today, many experts believe that unemployment could reach 10 percent by the end of next year and our economy could fall $1 trillion short of its full capacity -- which translates into more than $12,000 in lost income for a family of four.As difficult as these conditions are, however, the Obama administration also inherits an economy with great potential for the medium and long terms. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national challenges and put our economy on a solid footing for years to come.In this crisis, doing too little poses a greater threat than doing too much. Any sound economic strategy in the current context must be directed at both creating the jobs that Americans need and doing the work that our economy requires. Any plan geared toward only one of these objectives would be dangerously deficient. Failure to create enough jobs in the short term would put the prospect of recovery at risk. Failure to start undertaking necessary long-term investments would endanger the foundation of our recovery and, ultimately, our children's prosperity.Our president-elect understands both the peril and the promise of the situation and the importance of responding to changing conditions. That is why his economic team is crafting a broad proposal, the American Recovery and Reinvestment Plan, to support the jobs and incomes essential for recovery while also making a down payment on our nation's long-term financial health.A key pillar of the Obama plan is job creation. In the face of deteriorating economic forecasts, Obama has revised his goal upward, to 3 million. For one thing, significantly fewer positions would be created in the absence of any recovery plan. Second, more than 80 percent of these 3 million jobs will be in the private sector, including emerging sectors such as environmental technology. This is a bold goal. But economists across the political spectrum recognize that it is far less risky to stand firmly against the forces propelling our economy downward than to be timid in the face of a mounting crisis.The Obama plan represents not new public works but, rather, investments that will work for the American public. Investments to build the classrooms, laboratories and libraries our children need to meet 21st-century educational challenges. Investments to help reduce U.S. dependence on foreign oil by spurring renewable energy initiatives (many of which are on hold because of the credit crunch). Investments to put millions of Americans back to work rebuilding our roads, bridges and public transit systems. Investments to modernize our health-care system, which is necessary to improve care in the short term and key to driving down costs across the board.Laying the groundwork for recovery and future prosperity will require shedding Washington habits. We must measure progress not by the agendas of interest groups but by whether the American people experience results. We must focus not on ideology but on drawing the best ideas from all quarters. That is why, for example, in key sectors such as energy, Obama is pushing for both public investments and the removal of barriers to private investment. It is also why his plan relies on both government spending and tax cuts to raise incomes and promote recovery.The president-elect has insisted that investments proposed in the recovery plan meet standards much higher than has been traditional. There will be no earmarks. Investments will be chosen strategically based on what yields the highest rate of return for the economy and monitored closely not just by officials but also by the public as government becomes more transparent. We expect to evaluate and to be evaluated rigorously to ensure that Washington is held accountable for how tax dollars are spent.Some argue that instead of attempting to both create jobs and invest in our long-run growth, we should focus exclusively on short-term policies that generate consumer spending. But that approach led to some of the challenges we face today -- and it is that approach that we must reject if we are going to strengthen our middle class and our economy over the long run. Far from being an excuse for inaction or delay, the magnitude of the work ahead is all the more reason to begin that work.---The writer served as Treasury secretary in the Clinton administration and will head the White House National Economic Council in the Obama administration

Summers and Hedge Funds

These two articles give some of the background of Summers insofar as he was associated with Hedge Funds. His work and pay are both secrets it seems. The Hedge Funds as a group were active in lobbying against their regulation and regulation of derivatives. The latter are often part of the toxic wastes floating about in the paper sewage generated by bright financial entrepreneurs as a source of profit.

Summers and Hedge Funds
By Ken Silverstein
After being named as Barack Obama’s top White House economics adviser, Lawrence Summers resigned from his post as a managing director of D.E. Shaw & Co, a leading hedge fund. “Neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid, Politico reports. A 2007 article in Institutional Investor’s Alpha says only that Summers was hired to work “with the senior management team to find new ways to generate profit and manage risk.”D.E. Shaw is a member of the Managed Funds Association, the leading lobbying organization for the hedge fund industry. The MFA was founded last year and since then has spent about $3.5 million lobbying the federal government, according to federal disclosure records. Its priorities include blocking regulation of hedge funds and financial instruments like derivatives. The MFA also opposes higher taxes on hedge funds and their managers. Incidentally, David E. Shaw, the founder of Summers’ recent employer, earned about $210 million last year.Top lobbyists at the MFA include former Louisiana Congressman Richard Baker, previously of the House Financial Services Committee, and Roger Hollingsworth, who was hired in August. Hollingsworth was hired from the Senate Banking Committee, where he served as deputy staff director and senior policy advisor to Committee Chairman Christopher J. Dodd,” says his bio. (Hollingsworth is a one-man revolving door. Before going to work for Dodd, he lobbied for the Securities Industry Association, and before that he worked for Democratic senators Jon Corzine and Charles Schumer.)The MFA spent a few million more on lobbyists from eight outside firms it retained. The roll call of former officials working for the association include, at one firm alone, Senator Don Nickles; Rachel Jones Hensler, tax policy director for the Budget Committee under Nickles; Hazen Marshall, staff director for the Senate Budget Committee; and Brian Wild, a former top aide to Vice President Dick Cheney. The list goes on and on.The MFA and people affiliated with it donate lavishly to politicians as well, overwhelmingly to Democrats. Trey Beck, the managing director of D.E. Shaw who helped hire Summers and who is also a board member of the MFA, gave more than $40,000 to the Democratic Senatorial Campaign Committee in recent years (not to mention $2,200 to Moveon.org in 2004).“As citizens, we’re delighted that President-elect Barack Obama has selected Larry Summers to head the National Economic Council,” D.E. Shaw said in a newly released statement.The MFA is surely delighted as well.<http://harpers.org/archive/2008/11/hbc-90003922>


And here is another post about Summers and Hedge Funds:



<http://www.politico.com/news/stories/1108/15995.html>Summers has ties to prominent hedge fund
By: Eamon JaversNovember 28, 2008 12:08 PM EST
On the same day Lawrence Summers was announced as President-elect Barack Obama’s top White House economics adviser, the veteran economist said he would resign as the part-time managing director of one of the nation’s largest and most successful hedge funds, D.E. Shaw & Co.But even as Summers takes the lead of economic policy thinking for the Obama White House, which has promised to be one of the most open and transparent in history, neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid.In a press release issued Monday, D.E. Shaw said only that Summers had been working on “various strategic initiatives, high-level research and advising the executive committee on the overall business.”Whatever he did for the hedge fund, Summers seems to have impressed his bosses.“As citizens, we’re delighted that President-elect Barack Obama has selected Larry Summers to head the National Economic Council," said D.E. Shaw managing director Max Stone in the statement. “Larry is an enormously gifted economist, and has already made major contributions to this country as a public servant, a researcher, and an academic leader.”As a treasury secretary under President Bill Clinton and a former president of Harvard University, Summers would have been enormously valuable for the hedge fund that prides itself on bringing together top talent from a wide range of backgrounds.D.E. Shaw was founded in 1988 by David E. Shaw, a former computer science professor at Columbia University, and is known as a major “quant” fund that specializes in using advanced mathematics and computer software to generate trading strategies.The aggressively nerdy firm brags that its 1,600 employees include the 2003 U.S. women's chess champion, a life master bridge player, a “Jeopardy” winner, as well as writers, athletes, musicians and former professors. One early employee was Jeff Bezos, who went on to greater renown as the founder of Amazon.com.In 2007, Shaw personally earned an estimated $210 million, reports Alpha magazine, and he spent a chunk of it on contributions to prominent Democratic politicians during the 2008 presidential cycle, including more than $3,000 to Barack Obama and $6,000 to Hillary Rodham Clinton, according to the Center for Responsive Politics.Overall, the hedge fund’s employees skew heavily Democratic, contributing more than $200,000 to political candidates in the 2008 campaign cycle, according to the center. Only $2,000 of that went to a Republican: Sen. Pat Roberts of Kansas.The hedge fund also has gotten much more involved in Washington policymaking in recent years, contributing to the Managed Funds Association, the trade group that has led the charge on resisting increased regulation and taxation of hedge funds in Washington.In 2007, the fund sold a 20 percent stake to Lehman Brothers, which filed for bankruptcy in September.One knowledgeable hedge-fund observer says Summers’ work at D.E. Shaw partly involved conducting research into emerging markets – those volatile but potentially lucrative stock exchanges in remote areas of the world.It’s not clear exactly what Summers would have been interested in. But a recent area of interest among hedge funds has been identifying ways the switch to electronic markets will create new liquidity on those exchanges, providing arbitrage opportunities for savvy American investors who can use the newly sped-up processes to take advantage of mismatches in prices.Summers, the observer said, provided valuable research to the firm. “This wasn’t a vanity job,” the observer said. “The Lawrence Summers connection makes sense – their approach is to get the best and brightest and figure out what to do with them.”The firm’s core specialty is in statistical arbitrage, which involves buying and selling huge numbers of stocks in very short amounts of time, ranging from mere seconds to several days. But how they make those decisions is very closely held information.“That’s where they get very secretive and squirrely and won’t tell you what they’re doing,” the observer said.A spokesperson for the Obama transition team declined to say what Summers had done for the hedge fund and how much he had been paid. But the Obama camp likely knows the answers, since the vetting questionnaire for applicants for administration posts requests tax returns and other detailed financial information, including the applicant’s net worth, real estate holdings, business partnerships, even gifts.Lightly regulated hedge funds are not required to file detailed information on their financial performance with the Securities and Exchange Commission. So, it’s difficult to estimate how well or poorly D.E. Shaw has weathered the global financial crisis in recent months.One person familiar with the industry says that investors generally believe that the firm has not had a disastrous year – which stands in stark contrast with many funds that have seen their value plummet. “Basically they are riding out the storm – so far,” the expert said.Executive compensation and lavish perks have become a hot-button issue in the midst of the economic calamity. In recent days, the insurance giant AIG announced that its CEO will accept only $1 in annual salary in the wake of that firm’s taxpayer bailout.And the Big Three automakers hinted that their CEOs won’t use their private jets next week to travel to Washington and plead for a government bailout, a symbolic response to criticism of their use of the jets to commute to the last round of congressional hearings.

Critique of Summers

This seems a reasonable criticism of Summers. Dean does by the way think that there should be some steps taken to help people who may lose their homes but not speculators as Summers bailout would seem to do. I assume Summers would claim that the bailout might serve to calm the markets and prevent even further stock losses and create confidence.

Summers Calls for Bailing Out the Wall Street Boys

By Dean Baker | bio
In a Financial Times column whose logic escapes me, former Treasury Secretary Larry Summers calls for having the huge government created housing intermediaries, Fannie Mae and Freddie Mac, step in and start buying up more mortgages and mortgage backed securities. Summers’ says “if there is ever a moment when they should expand their activities it is now, when mortgage liquidity is drying up."

Let’s check the scorecard. The value of hundreds of billions of dollars of mortgage backed securities has just fallen through the floor because investors now realize that a very high percentage of the mortgages that back these securities will go into foreclosure. Now, why do we want a government agency to buy assets that are rapidly losing their value?




At the moment, it looks to me like we are seeing high-flying speculators getting nailed for making really stupid investment decisions. Being a mushy headed liberal sort, I like to see the government reach out to help people who are trying to get an education, who have lost their job, or need health care, but making really stupid investment decisions is not on my list. Perhaps Summers could write another piece explaining why it should be.

Summers begins his column by listing prior financial crises, starting with the stock market crash in 1987, and puts the current mortgage meltdown in this context. While I would not suggest a one-size fits all approach to financial crises, the government’s role in most of the crises on this list can be seriously questioned. For example, did the response to the 1987 stock market crash lead investors to believe that the Fed would/could bail out the stock market, and thereby lay the basis for the huge bubble of the 90s? In the same vein, did the Fed’s involvement in the unwinding of the Long-Term Capital Management’s position give a green light to investors to speculate in hedge funds, knowing that the Fed would step in to prevent the worst outcomes.

Bailouts have both immediate and long-term effects. When the immediate effect is to transfer taxpayer dollars to some of the richest people in the country that is bad news. If the long-term effect is lead investors to believe that they can engage in risky investments and the government will come to their rescue if things go badly, this is even worse news. So, I’ll take a pass on Larry Summers bailout.

Lawrence Summers on the Credit Crunch

I do not feel qualified to comment on this but at least Summers not only gives his analysis of the causes of the problems but also possible solutions.


This is where Fannie and Freddie step in
By Lawrence Summers
Financial Times
August 26 2007

Over the past 20 years major financial disruptions have taken place
roughly
every three years, starting with the 1987 stock market crash; the
Savings &
Loans collapse and credit crunch of the early 1990s; the 1994 Mexican
crisis; the Asian financial crises of 1997 with the Russian and
Long-Term
Capital Management events of 1998; the bursting of the technology
bubble in
2000; the potential disruptions of the payments system after the events
of
September 11 2001 and the deflationary scare in the credit markets in
2002
after the collapse of Enron.

This record suggests that by 2007 the world had been overdue a major
disruption. Sure enough the problems of subprime mortgages –
initially seen
as a confined issue – went systemic as the market began to doubt the
creditworthiness of even the strongest institutions and rushed to buy
US
Treasury debt. Financial crises differ in detail but, just as there are
plot
cycles common to literary tragedies, they follow a common arc.

First there is a period of overconfidence, rising asset values and
growing
leverage as investors increase their faith in strategies that have
enjoyed a
long run of success. Second, there is a surprise that leads investors
to
seek greater safety. In the current case it was the discovery of huge
problems in the subprime sector and the resulting loss of confidence in
the
ratings agencies. Third, as investors rush for the exits, the focus of
risk
analysis shifts from fundamentals to investor behaviour. As some
investors
liquidate their assets, prices fall; others are in turn forced to
liquidate,
further driving prices down. The anticipation of cascading liquidations
leads to more liquidations creating price movements that seemed
inconceivable only a few weeks before. The reduced availability of
credit
then has a negative effect on the real economy. Eventually –
sometimes in a
few months as in the US in 1987 and 1998; sometimes over a decade, as
in
Japan during the 1990s – there is enough price adjustment that
extraordinary
fear gives way to ordinary greed and the process of repair begins.

Only time will tell where we are in this cycle. There have been some
signs
of returning normalcy over the past week, but we cannot judge whether
they
represent a false spring or the end of a crisis phase. There may be
further
shoes to drop in the financial sector. The impact on consumer
confidence and
spending that has driven US expansion over the past several years
remains
unknown.

While it is too soon to draw policy lessons, we can highlight questions
the
crisis points up. Three stand out.

First, this crisis has been propelled by a loss of confidence in
ratings
agencies as large amounts of debt that had been very highly rated has
proven
very risky and headed towards default. There is room for debate over
whether
the errors of the ratings agencies stem from a weak analysis of complex
new
credit instruments, or from the conflicts induced when debt issuers pay
for
their ratings and can shop for the highest rating. But there is no room
for
doubt that – as in previous financial crises involving Mexico, Asia
and
Enron – the ratings agencies dropped the ball. In light of this,
should bank
capital standards or countless investment guidelines be based on
ratings?
What is the alternative? Sarbanes-Oxley was a possibly flawed response
to
the problems Enron highlighted in corporate accounting. What, if any,
legislative response is appropriate to address the ratings concerns?

Second, how should policymakers address crises centred on non-financial
institutions? A premise of the US financial system is that banks accept
much
closer supervision in return for access to the Federal Reserve’s
payments
system and discount window. The problem this time is not that banks
lack
capital or cannot fund themselves. It is that the solvency of a range
of
non-banks is in question, both because of concerns about their economic
fundamentals and because of cascading liquidations as investors who
lose
confidence in them seek to redeem their money and move into safer, more
liquid investments. Central banks that seek to instil confidence by
lending
to banks, or reducing their cost of borrowing, may, as the saying goes,
be
pushing on a string. Is it wise to push banks to become public
financial
utilities in times of crisis? Should there be more lending and/or
regulation
of the non-bank financial institutions?

Third, what is the role for public authorities in supporting the flow
of
credit to the housing sector? The lesson learnt during the S&L debacle
was
that it was catastrophic to finance home ownership through insured
banking
institutions that borrowed short term and then offered long-term
fixed-rate
home mortgages. Now a system reliant on securitisation, adjustable rate
mortgages and non-insured financial institutions has broken down.

I am among the many with serious doubts about the wisdom of the
government
quasi-guarantees that supported the government-sponsored entities,
Fannie
Mae, the Federal National Mortgage Association, and Freddie Mac, the
Federal
Home Loan Mortgage Corp , as they have operated in the mortgage market.
But
surely if there is ever a moment when they should expand their
activities it
is now, when mortgage liquidity is drying up. No doubt, credit
standards in
the subprime market were too low for too long. Now, as borrowers face
higher
costs as their adjustable rate mortgages are reset, is not the time for
the
authorities to get religion and discourage the provision of credit.

This crisis could have a silver lining if it leads to the careful
reflection
on these vital questions.

The writer is the Charles W. Eliot professor at Harvard University