Larry Summers Goes Totally Keynesian in Attempting to 'Solve' the Housing Crisis

To understand what Larry Summers is all about, you need to know that when he was president of Harvard, he fired Iris Mack after she emailed him and warned him about the dangerous derivative bond positions that the Harvard endowment fund had been carrying.

Iris proved correct. When the financial crisis hit, the derivatives that Harvard held exploded, causing the endowment fund to lose billions.

So with a track record of blowing up a big portion of the Harvard endowment and firing the one person who warned him about the danger in advance, Summers feels competent to provide advice to the nation. His advice: The country has a Keynesian problem of losing its, what Keynes called its "animal spirits", and the Fed needs to print money to stoke the animal spirits.

Here's how Summers put it on Monday in the Washington Post:

The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending. This is true, above all, of housing policies. Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) whose purpose is to mitigate cyclicality in housing and that today dominate the mortgage market, have become a textbook case of disastrous and pro-cyclical policy... stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties. Aggressive efforts by the GSEs to finance mass sales of foreclosed properties to those prepared to rent them could benefit both potential renters and the housing market.... The Federal Reserve could support demand and the housing market by again expanding purchases of mortgage-backed securities.

"Mass sales of foreclosed properties to those prepared to rent them"? Sounds to me like Summers is attempting use Keynesian cover to flip the foreclosed properties to crony private equity operators and investment bankers.

How will the GSEs finance such sales? I'm sure Summers expects the Fed to help out. Indeed, he outright states that the Fed should expand MBS purchases.

Bottom line: Crony capitalists, like Summers, who don't have a clue about the economy, or don't care, continue to use the government and the Fed to create deals that benefit their buddies at the expense of the rest of us. That's why government involvement in these sectors, like with most other sectors of the government need to be shut down. They only create power centers that opportunists will use to benefit themselves and those around them.