Monday, October 27, 2008

David Warsh with Big Questions and Big Stories

David Warsh has just published the silver anniversary issue of Economic Principals. I have been reading him from the start, when his column was at the Boston Globe. Twenty-five years ago, his column was the first item I turned to, in the big, thick Sunday Globe. The memories come back, as if it were only yesterday. He is not an Austrian, but he is a damned honest, sincere, interesting and informative writer. We definitely need more people like him (or at least hope, he carries on for another 25 years!)

His silver anniversary issues comes out with rockets blaring and asks these important questions:
How deep has been the opposition between the Federal Reserve Board and the US Treasury Department these last fifteen months? Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson have presented a generally united front. But what goes on behind the scenes? What of their staffs? The sheer opacity of Paulson’s initial plan to buy and hold troubled securities, and the clumsiness with which it was presented, has yet to be explained. What was the process by which it was developed and internally reviewed?

Warsh is on to something here. In early Congressional testimony, Bernanke's view of how the mortgage bail out would proceed was decidedly different from Paulson's. Bernanke testified that the bailout would result in mortgages being bought at "value at maturity". Paulson said they would be bought at discounted market value. The next day in further testimony, Bernanke fell in line with Paulson. Paulson's plan proved a non-starter. Indeed, WSJ reported that it is a dirty little secret that Paulson's Plan to buy up mortgages would not work and indeed would cause more problems for banks, and that is why Treasury shifted to infusing capital directly into banks. And, then, of course, there is the fact that Goldman Sachs and Morgan Stanley become bank holding companies, and each receive a $10 billion infusion from Treasury. What Just Happened? is the title to Warsh's column, yes indeed.

Warsh also broke wide open Harvard University’s Russia scandal of the 1990s.

Warsh writes:

No column I ever wrote cost more than “The Thing’s a Mess,” the first installment, in 2002, of many columns over the last six years about the collapse in 1997 amid charges of corruption of Harvard University’s USAID-sponsored mission to advise the government of Boris Yeltsin. I knew I was damaging several longstanding relationships with economists whom I admired by calling attention to the details of the US Justice Department’s ultimately successful attempt to recover damages in Boston’s Federal District Court.

Since then I have gotten used to it, and in more than twenty pieces, I have given a pretty good account of how Harvard professor Andrei Shleifer was found to be investing in Russia, along with his wife, deputy, and deputy’s family, in violation of his contractual obligation to provide disinterested advice, and how his close friend and mentor Lawrence Summers sought unsuccessfully to distance himself from the lawsuit, but not from Shleifer, first as Treasury Secretary and then as president of Harvard, as the matter plowed on to its ignominious conclusion. The episode was widely covered in Russia, and became part of the rich lore of Russian resentment
of US policy in the aftermath of the Cold War.

Warsh also writes of the reception he received from the usual suspects about his breakthrough story:

But you would never have a clue that any of this [the Russia episode] had happened from three of the most widely-read economists’ blogs, the Freakonomics site, J. Bradford Delong’s Semi-Daily Journal, or N. Gregory Mankiw’s blog. Why? Because they are economists, and not committed to “without fear or favor” news, though they deliver plenty of interesting tidbits over the course of a week. Besides, Shleifer is on the board of directors of the Becker Center on Price, where Freakonomics’ Steven Levitt teaches. DeLong, who worked under Summers at the Treasury Department, has been Shleifer’s friend since the two were college roommates. Mankiw regularly touts his colleague for a Nobel Prize.
The online edition is free, but the $50 Bulldog edition puts bread, not likely steak, on Warsh's table, and is available by subscripton.

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