Felix Salmon

In November 2010, on what was pretty much his last day working for Treasury, I spoke to Michael Barr, an assistant secretary; he was upset about a post of mine which said that Treasury was going to do absolutely nothing with respect to holding banks accountable for the various mortgage scandals.

Not true, he said: in fact, the government was doing a lot of things targeting banks and holding them responsible for their actions.

Barr rattled off a laundry list of reviews which are being done by various arms of the government, including what he described as an “11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks”. That information is finding its way to the state attorneys general, in their review. Meanwhile, said Barr, an alphabet soup of regulators (OTS, OCC, FDIC) is looking at various financial services companies (MERS, along with lots of different servicers, trustees, and banks); HUD is holding everybody to FHA and HAMP guidelines; and the FTC is looking at non-bank lenders. And keeping everything coordinated is the new Financial Fraud Enforcement Task Force which has been put together under the leadership of Justice’s Tom Perrelli.

“Why are we investing these resources and including Tom Perelli in the discussions?” asked Barr. “We’re holding the banks accountable to fix it.” I asked him whether he thought that was even possible. “Their conduct suggests they can’t,” he said, adding that “they can be held accountable for not following the law. HUD can assess significant fines on them.”

Barr was clear about what he expected to happen in 2011. Specifically, he said, “if there are legal violations found, banks are responsible for fixing them and for addressing the problems.” And more generally, the government’s actions “will increase the chance that when foreclosures happen, they will happen according to established law.”

The timetable for all this? The reviews should be largely completed this year, with the full scope of the problems being apparent by the end of January. By the end of the first quarter, the banks should be in serious discussions about how they’re going to fix what’s broken. And then it gets necessarily hazier: “Institutions are resistant to change and have difficulty implementing,” said Barr, but “you’ll see flow improvement over the course of the next year.”

Could I hold Treasury to that? Sort of: “You should hold us to whether things get better or worse. If a year from now nothing has changed, that would be a reasonable criticism.”

Well, here we are, a year later, and so it’s time to check in and see what has been achieved. I asked Treasury, and they sent me the November Housing Scorecard, which is mainly notable for the fact that JP Morgan Chase “was found to be in need of substantial improvement under the program” and will no longer get servicer incentives from Treasury. They also sent me written testimony from October about how HAMP is coming along. (Slowly.)

What they didn’t point me to — because it doesn’t exist — was any kind of settlement between the attorneys general and the banks. This time last year, it looked almost certain that such a settlement was going to happen; now, with Massachusetts going its own way and California proving unwilling to give in very much, the chances of seeing any settlement at all are diminishing by the day. Realistically, if we don’t see something in the next few weeks, the chances of getting a big settlement will be very small indeed.

So the one big thing which everybody expected to have seen by now hasn’t happened. And because it hasn’t happened, the banks haven’t paid any fines; they haven’t detailed how they’re going to compensate the people who they mistreated in various foreclosure processes; they haven’t substantially improved their servicing operations; and they certainly haven’t embraced principal reductions as a tool for getting the housing market back onto a healthy footing. In fact, they haven’t really done anything at all, since it behooves them to keep any improvements they might be able to make as a bargaining chip they can use in negotiations with the government.

Going forwards, it’s still likely that the banks will end up paying some kind of fine, and promising that they’ll clean up their act in future. But the fine won’t hurt — it’ll be a cost of doing business. And the promise will be worthless, as such promises always are — I’ve never seen an agreement with real teeth, where penalties actually get enacted. In other words, the servicing system will continue to be broken, the banks will continue to make things worse rather than better, and the government will have failed in its self-imposed task of getting a grip on this problem and doing something meaningful about it.

I do think that there are people in government who have tried. But I also think that — as I said last year — they’re doomed, ultimately, to failure. Treasury said that we would have seen real progress by now; we haven’t. And there’s very little chance of getting anything substantive done between now and the election — in fact, things seem to be moving in exactly the wrong direction. Which makes me think that in the battle of Treasury vs the banks, the banks — predictably — have won.

The good news, today, is that Jon Corzine is testifying; the bad news is that he’s almost certainly not going to say anything substantive in his testimony. His prepared statement is a bit odd: he says that he has “had limited access to many relevant documents, including internal communications and account statements, and even my own notes, all of which are essential to my being able to testify accurately” — and then says that somehow he might have been able to gain such access between now and January, as though anything will have changed between now and then.

In any case, when it comes to the huge black hole where MF Global’s customer funds should be, Corzine’s testimony is clear: “I simply do not know where the money is, or why the accounts have not been reconciled to date.”

But Christopher Elias has an idea — he reckons that the hole in MF Global customer accounts might well be due to rehypothecation.

You’ll remember rehypothecation from the Lehman bankruptcy: brokerage customers of Lehman in the US got their money back much more easily than brokerage customers of Lehman in the UK, because in the UK brokerages are allowed to “rehypothecate” customer funds — essentially, to use them for their own corporate purposes, including putting them up as collateral in their own trades.

And guess what: MF Global, too, had a UK subsidiary, MF Global UK Limited, which had over 10,000 accounts. Just as Lehman monies sloshed back and forth chaotically from New York to London and back in the company’s final days, it seems that something similar was going on at MF Global: after all, JP Morgan Chase in London seems to have been transferred quite substantial sums in the days before MF Global’s bankruptcy.

This is all highly speculative, of course. And given the utter mess which investigators seem to have found when trying to piece together what happened to customer funds, it’s entirely possible that we’ll never know exactly where they went. Money’s fungible, and once it disappears into the global financial system, it can’t easily be traced.

Corzine’s statement includes an apology “to all those affected” by MF Global’s bankruptcy; he also takes responsibility for entering into the ill-fated repo-to-maturity trades. But he doesn’t seem inclined to admit that as CEO of the company, it was his job to ensure that customer funds were well looked after:

As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm. I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral. Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business.

This is an abrogation of responsibility, but it also rings true: back-office clearing and settlement operations are largely ignored by senior management most of the time. Still, Corzine was responsible for them. And he testifies that in its final week, “MF Global undertook extraordinary steps” in an attempt “to sell assets and generate liquidity”. It it possible that those extraordinary steps included hands entering cookie jars where they weren’t actually allowed to enter? I’d say it’s not only possible but likely. And that the more “extraordinary” the steps that Corzine was encouraging his lieutenants to take, the more likely that he would have been effectively condoning the idea that customer funds could be used in an attempt to stave off bankruptcy.

Ultimately, of course, it was the missing customer funds which torpedoed any prospects of MF Global being sold to a deep-pocketed buyer: Corzine might have scrambled a bit too much in those “chaotic, sleepless nights” which he now recollects so dimly. I sincerely hope that his actions in those days and nights can be pieced together with hindsight. Because at some point he’s going to have to be held accountable for what he did.

What on earth did Hank Paulson think his job was in the summer of 2008? As far as most of us were concerned, he was secretary of the US Treasury, answerable to the US people and to the president. But at the same time, in secret meetings, Paulson was hanging out with his old Goldman Sachs buddies, giving them invaluable information about what he was thinking in his new job.

The first news of this behavior came in October 2009, when Andrew Ross Sorkin revealed that Paulson had met with the entire board of Goldman Sachs in a Moscow hotel suite for an hour at the end of June 2008. He told them his views of the US and global economies, he previewed a market-moving speech he was about to give, and he even talked about the possibility that Lehman Brothers might blow up. Maybe it’s not so surprising that Goldman Sachs turned out to be so well positioned when Lehman did indeed do just that a few months later.

Today we learn that the Goldman meeting in Moscow was not some kind of aberration. A few weeks later, on July 28 2008, Paulson met with a who’s who of the hedge-fund world in the headquarters of Eton Park Capital Management — a fund founded by former Goldman superstar Eric Mindich.

The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets…

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out…

The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

When we found out about the Moscow meeting, I asked how on earth Paulson thought such behavior was OK. But now I think he was downright pathological in giving inside information to his old Wall Street buddies. And the crazy thing is that we have no idea how many of these meetings there were, or how long they went on for — the only way that we ever find out about them is when reporters like Sorkin or Bloomberg’s Richard Teitelbaum manage to find a source who was in the meeting and is willing to talk about what happened.

Given that it’s taken two years since the release of Sorkin’s book for the Eton Park meeting to be made public, it’s fair to assume that there were other meetings, too — possibly many others. Paulson was giving inside tips to Wall Street in general, and to Goldman types in particular: exactly the kind of behavior that “Government Sachs” conspiracy theorists have been speculating about for years. Turns out, they were right.

Paulson, says Teitelbaum, “is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations”. I’d take issue with the “distinguished” bit. Unless it means “distinguished by an astonishing black hole where his ethics ought to be”.

Representative John Tierney of Massachusetts is one of those politicians whose questions tend to be substantially longer than the answers they elicit. But that doesn’t mean the questions, pared to their essence, aren’t good ones. Here he is grilling FHFA head Ed DeMarco, asking why he’s refusing to consider principal reductions on mortgages.

DeMarco’s answers come at 2:15 and 4:50. He starts off quite explicitly:

We have been through the analytics of the underwater borrowers at Fannie and Freddie, and looked at the foreclosure alternative programs that are available, and we have concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.

Later on, he agrees to furnish Congress with these analytics: I, for one, would love to see them. There are two ways that you can come to this conclusion, and I suspect that the analysis uses both. First, you can try to maximize the probability that underwater borrowers will continue to make payments after a loan modification, rather than simply strategically walking away; and secondly, you can maximize the probability that borrowers who are current on their mortgages will strategically default if they think they can get a principal reduction by doing so.

At heart, what any lender needs to do with regard to any given loan in default is make a choice. You can modify it in any number of different ways, some involving principal modification. Or, you can just foreclose. You know, pretty much, what the costs of foreclosure are — and they tend to be enormous. So there’s a good case for modifying the loan, if the present value of the modified loan payments is decent. But in order to calculate that present value, you need to have a handle on the probability of a redefault. The lower the redefault probability, the more attractive a modification is to the lender. The higher the probability of a redefault, the more likely it is that you’d be better off simply foreclosing now.

Now here’s Tierney’s point: redefault rates are significantly lower when you do a principal reduction than they are when you don’t. It stands to reason: if you have equity in your house, you’re going to want to keep that equity. If you have negative equity in your house, not so much. As a result, principal reductions reduce redefault rates, and are a good way of maximizing the value of a loan.

In order to demonstrate that Tierney is wrong, then, DeMarco is likely to attempt to show that redefault rates don’t drop very much if you do a principal reduction. I think that’s going to be hard, not least because we haven’t had much in the way of principal reductions, so the data on redefault rates is going to be pretty thin.

And then there’s the second leg of the argument DeMarco has to make, which is even harder to get good data on. It’s the moral hazard problem: if you start doing principal reductions, everybody’s going to want one — even people who are current on their mortgage right now. And you don’t want to do anything which will give people an incentive to default, just so that they can get their mortgage modified.

Again, however, the argument here is a relative one. Any kind of modification program, at the margin, is going to provide an incentive to default. So DeMarco is going to have to demonstrate that people are more likely to strategically default the minute a principal-reduction program gets implemented. And I can’t imagine where he could possibly find the data to support that conclusion.

It’s worth noting that DeMarco made neither of these arguments in his answers to Tierney. Instead, he started attacking straw men:

I do not believe that I’ve been appropriated taxpayer funds for the purpose of providing general support to the housing market…

I believe that the decisions that we’ve made with regard to principal forgiveness are consistent with our statutory mandate… I do not believe I’ve been authorized to use taxpayer money for a general program of principal forgiveness.

Tierney was not asking DeMarco to provide “general support to the housing market”. He was not saying that DeMarco’s actions to date were somehow illegal. And he certainly wasn’t suggesting that DeMarco use taxpayer money for a general program of principal forgiveness.

In fact, he wasn’t suggesting that DeMarco use taxpayer money for anything at all. He was suggesting, instead, that DeMarco would save taxpayer money if he did principal reductions on certain mortgages. And he rattled off a long list of private-sector lenders who are doing just that, which suggests that there’s definitely a profit motive in there somewhere.

Obviously, no one’s suggesting that the FHFA start doing principal reductions across the board for all mortgages: Tierney’s only suggesting that DeMarco allow such things where it makes financial sense to do so. That’s a no-brainer; what’s weird is DeMarco’s certainty that it never makes financial sense to do so. Fannie and Freddie own a lot of mortgages; surely a few of them, at least, are good candidates for principal reduction — especially ones where the home is worth half or less the amount of the mortgage.

DeMarco does have one other alternative — he could just come clean and be honest. In which case he’d say something like this:

“We’re keeping millions of underwater mortgages on our books at par. We know they’re not worth 100 cents on the dollar, and so do you. But our accounting conventions allow us to pretend that they are worth that much, and as a result we’re managing to kid ourselves that our assets are worth a lot more than they really are. If we modify the loans while keeping the principal amounts constant, we can continue to carry those loans on our books at par. But if we do principal reductions, the accounting conventions finally grow some teeth, and we’re forced to take a write-down. Since we don’t want to recognize reality and take that write-down, we’re simply going to avoid doing principal reductions instead.”

Since it seems to be impossible for anybody to remove DeMarco from his supposedly interim position, he might as well come out and say this. After all, no one seems to be capable of firing him, no matter what he says.

Anil Dash, of Expert Labs, is very excited about the latest government action on student loans, because he’s convinced that it was driven by the White House petition site he helped to set up.

Something remarkable happened here:

1. A regular citizen, not a lobbyist or politician or CEO, made a suggestion of a smart idea on the White House’s petition website.
2. That idea got promoted through social media, filtering its way out through Twitter and blogs and Facebook.
3. One month later the administration endorsed a variation of the idea, making it actual policy and helping over a million and a half Americans to have more money in their pocket at the end of the month.

Every time these milestones and successes are achieved, skeptics want to scoff. “Maybe this guy’s a plant!” “They’re only gonna accept ideas they already agree with.” “I bet most of the ideas are stupid.” “Why would they really listen to us?”

In this example, we see refutations of many of these objections.

This would be quite amazing and wonderful, if it were true. But it’s not true.

For one thing, it’s worth looking at the original petition, which got 32,008 signatures. Here it is in full:

Forgiving student loan debt would provide an immediate jolt to the economy by putting hundreds and, in some cases, thousands of extra dollars into the hands of people who WILL spend it – not just once, but each and every month thereafter – freeing them up to invest, buy homes, start businesses and families. This past year, total student loan debt finally surpassed total credit card debt in America, and is on track to exceed $1 TRILLION within the next year. Student loans themselves are responsible for tuition rates that have soared by 439% since 1982 and for saddling entire generations of educated Americans with intractable levels of student loan debt from which there is, seemingly, no escape. Relieve them of this burden and the middle class WILL rebuild this economy from the bottom-up!

This is pretty extreme stuff: both the idea that student loans have caused rising tuition rates — which seems to get things exactly backwards — and the idea that a trillion dollars of debt could or should simply be eradicated at a stroke. Yes, it would “provide an immediate jolt to the economy”. But it would do so in an incredibly inefficient way — if you’re going to do a $1 trillion stimulus, there are much better ways of doing so.

Yes, the idea got some traction — enough traction that Justin Wolfers felt the need to comprehensively demolish it in a piece headlined “Forgive Student Loans? Worst Idea Ever”.

So Anil’s first point is simply wrong. Yes, a regular citizen suggested something on the White House’s petition website. But it wasn’t a smart idea: it was a pretty stupid idea.

Anil’s second point is right — the stupid idea did indeed get promoted through social media. Social media can be quite good, it turns out, at promoting stupid ideas.

But what of Anil’s third point? Did the Obama administration indeed sign on to the Worst Idea Ever? No, it did not. Instead, it tweaked something called the income based repayment policy so that certain benefits will go into effect in 2012 rather than in 2014. And it allowed students to consolidate their federal student loans into one loan, to “give borrowers the convenience of a single payment to a single lender”. Which is nice, but hardly a big deal.

It’s a real stretch to call this “a variation of” the original idea, which called for student loan forgiveness. There’s no new forgiveness in the new announcements — and the old forgiveness is the kind of forgiveness which only takes effect after 20 years. Not exactly what “Robert A” of Staten Island had in mind.

On top of that, it defies credulity to suggest, as Anil does, that the White House announcement was in any way of form “crowdsourced policy”. Robert A’s suggestion — which, remember, had none of the elements of the policy that was eventually put into place — was uploaded on September 23; the new policies were announced on October 26.

Earth to Anil Dash: policies like this do not get hatched, implemented, and announced in the space of 23 working days. I can guarantee you that these student-loan proposals were in the works long before Robert A’s suggestion was made, and that they would have been announced anyway, even if the petition hadn’t existed.

It’s pretty obvious what happened here: the administration wanted to make it seem as though the petition site was having some useful effect, and so it took a policy it would have announced anyway, and declared that the policy was in response to some petition. It just didn’t do that very well, since the announced policy in fact bears almost no relation to what the petition was asking for.

So let’s not get cyber-utopian about crowdsourced policies: they haven’t happened yet, they’re unlikely to happen in the future, and insofar as they do happen, the crowds in question will not be virtual crowds on a White House website, but rather real crowds at places like Tea Party rallies or Occupy Wall Street. The internet is a good way of organizing people to turn up in person. It is not in any way an alternative to doing so, at least if you want to change government policy.

Sometimes the conventions of dead-tree newspapers are much more effective at getting a story across than the same article on a website. Landon Thomas’s 1,100-word piece on George Papandreou is a case in point: you can work through the whole thing, or you can glance at it in the paper, where a pair of sub-heads do the job rather effectively. “Prime Minister Lacked Forcefulness” says one; the other tells us that “a leader proved unable to connect with constituents.”

Meanwhile, a similar prime ministerial ousting seems to be taking place in Italy, where the highly forceful Silvio Berlusconi — a man who connects viscerally with his constituents — looks as though he might get pushed aside in the national interest much as Papandreou was.

What we’re seeing here is the crucial role that national leadership has to play in sovereign debt crises. There have been questions over Italy for a while, but conventional wisdom has generally had it as being either the third or the fourth of the PIGS dominoes to fall. Instead, it now looks as though it’s falling so fast it could even, conceivably, overtake Greece.

The amorphous blob known as the “international community” — as represented by the likes of the ECB, the IMF, and even the US Treasury — is playing a dangerously technocratic game in Italy, largely oblivious to the enormous tail risks involved. The general idea seems to be that Berlusconi is a massive liability, but that underneath it all, the fiscal program he’s being forced to agree to is a good one. Kick him out, install a more professional technocrat, and all should be fine.

But just look at Greece, and the fate of Papandreou — the very model of a modern professional technocrat. When the populace is revolting and the government is imposing tough choices on its citizens, you need someone in charge who can do more than navigate committees and corridors in Brussels and Washington. In fact, that kind of thing is best delegated to finance ministers and central bank governors. The leader of the country has a much more important job — which is to lead the country.

I’m thinking here of Brazil, which managed to come out of its own debt crisis, in 2001, thanks to some very smart and able technocrats at the finance ministry and central bank. But — and this is crucial — it was also led by a popular and charismatic leader, who managed to persuade the country that he was acting in its best interests. There are many people who deserve credit for the fact that Brazil avoided default in 2001-2, but Lula — an uneducated union leader without a technocratic bone in his body — has to be at the top of the list.

At the same time, and crucially, Lula had the full support of the international community in everything he was doing. At no point was any entity as powerful as the ECB or the German government using sticks, threatening to force him into default if he didn’t do what they wanted. Everybody understood that their interests were aligned, and that it would be best for all concerned if they tried as hard as possible to work with rather than against each other.

And this is why the current Europe crisis is looking so bad. Interests aren’t aligned at all: everybody wants to push the costs of the crisis onto someone else. And in the past couple of weeks, things have gotten significantly worse: the northerners have started quite explicitly threatening the southerners with a lack of cooperation and the consequent inevitable default if they don’t pick up their game.

This is a strategy which is almost certain to end badly. It can work in the short term — but only in the very short term. Because if the markets think there’s a serious risk that the Eurozone powers might let Italy fall, then they will simply walk away. And suddenly the entire burden of financing Italy’s budget deficit for the foreseeable future will fall on the ECB, Germany, and the rest. Which is a situation which is simply unsustainable.

Or, to put it another way: Europe has a leadership problem raised to the 17th power. One weak or bad leader — Papandreou, or Berlusconi — can suffice to hole the euro project below the waterline. But parachute in the best of all possible leaders into Greece and Italy, and you still have a problem. There’s Germany, and France, and the ECB, and even the likes of David Cameron and Tim Geithner meddling where they’re not really welcome. And the only way that this crisis can work itself out effectively is if they all agree on the same solution.

But the essence of leadership is, well, leading. It’s not simply agreeing to do the same thing that the other 16 guys want to do. In Brazil, Lula set the course, and the international community — as well as his own technocrats — implemented it and made sure it worked. There was no doubt who was in charge. In Europe, no one has a clue who’s in charge, and 17 different people all want to set the course. Which means, I fear, that it’s doomed.

George Papandreou is Davos Man, literally: he’s been there for the past couple of years, and even if he steps down now I suspect we might see him up the alp in 2012, too. Matt Yglesias reckons this is bad for the Greeks:

At the end of the day, had Greece played chicken and insisted on a better deal, I think the Germans would ultimately have paid up…

That it’s playing out this way is, I think, an example of a benign consequence of the rise of the global ruling class. The leadership of a small upper-middle-income country is willing to do something unpopular and likely contrary to the interests of its population for the sake of the greater good. Still, as a structural matter I think it’s a fairly disturbing trend.

It’s definitely possible for national leaders to act in the best interests of Davos, rather than in the best interests of their own country. Or, rather, to kid themselves that what’s in the best interests of Davos is in the best interests of their own country. Exhibit A is probably the 2008 decision by Irish finance minister Brian Lenihan to guarantee all the debts of Ireland’s banks — although ultimately that decision hurt the entire Eurozone much more than it helped a relative handful of Irish bank creditors.

As for the decision by Greece’s leaders to close ranks and refuse to allow the Greek populace to throw a spanner in the works of a bailout, it’s certainly possible to see this — as Yglesias does — as a capitulation to Germany and the international community. On the other hand, it’s easier to see it as a way of cutting off some very nasty tail risk. Even if Yglesias is right and the Germans would ultimately have paid up, there’s a significant non-zero possibility that they wouldn’t have done, and the whole situation would have ended up collapsing, with Greece getting nothing. And that would have been disastrous, not only for the eurozone but especially for Greece.

More generally, it’s really hard for a country to play chicken with its lenders when it’s running a massive primary deficit. In fact, I can’t think of a single case where that ever happened. Greece needs Germany more than Germany needs Greece, both of them know it, and Germany is looking increasingly willing to cut Greece off if it refuses to cooperate.

The only way for Greece to get real negotiating leverage over Germany would be to start running a primary surplus, thereby giving itself a credible threat in terms of simply repudiating its sovereign debt. But of course running a primary surplus would require significantly more austerity than even the riot-inducing policies currently in place. For the time being, Greece finds itself in the same position as most distressed debtors — ceding control and authority to its creditors. That might not sit well with Greece’s proud citizens. But it’s a natural consequence of borrowing so much money from other European countries and international banks.

David Leonhardt has managed to get a quite astonishing on-the-record quote from Tim Geithner:

“The central paradox of financial crises,” Timothy F. Geithner, the Treasury secretary, said before leaving for the Group of 20 meetings in Europe last week, “is that what feels just and fair is the opposite of what’s required for a just and fair outcome.”

This is textbook Geithner. For one thing, it’s pure Technocrat. Geithner, here, is the worldly policy wonk, explaining why it’s silly to simply do what feels right. In fact, you should do what feels wrong!

The quote is also extremely defensive — as it probably should be, coming from the one member of Obama’s economic team who played a central part in orchestrating the Bush bailouts.

And I can’t help but see the influence of Occupy Wall Street here, too. They’re demanding justice; and Geithner is, essentially, dismissing them as unsophisticated rubes. If only they understood what he understands — then they’d see that the bailouts were in their own best interest! Still, they’re setting the terms of the debate — to the point at which Geithner now considers such questions “central” to financial crises in general. (I don’t recall him talking that way when he was at the New York Fed.)

Meanwhile, Zachary Goldfarb gets an equal-and-opposite quote from Neil Barofsky:

“There’s a very popular conception out there that the bailout was done with a tremendous amount of firepower and focus on saving the largest Wall Street institutions but with very little regard for Main Street,” said Neil Barofsky, the former federal watchdog for the Troubled Assets Relief Program, or TARP, the $700 billion fund used to bail out banks. “That’s actually a very accurate description of what happened.”

Goldfarb goes into chapter and verse explaining what Barofsky is talking about — the way that too-big-to-fail banks have gotten ever bigger and more profitable, at the expense of the rest of us. And after reading his article, it’s extremely difficult to understand what Geithner might be talking about. Does he think that what we’ve seen on Wall Street in the past year or two is a “just and fair outcome”? If not, is he saying that he did “what feels just and fair” instead of what was the right thing to do?

What’s undeniable is that Barofsky is easy to understand, while Geithner is being cryptic and opaque. That might be because Leonhardt didn’t give him enough space to explain himself more fully, or it might be because Geithner simply isn’t a great communicator. But knowing the Treasury press office, I suspect that negotiations between Leonhardt and Treasury were required before Geithner’s quote became on-the-record. Which does make me wonder what they thought that they were saying here.

Jon Corzine has not said anything in public since his firm and his reputation imploded at the end of last week. So his first public statement was always going to be closely watched. And it’s a doozy:

I have voluntarily offered my resignation to the Board of Directors of MF Global. This was a difficult decision, but one that I believe is best for the firm and its stakeholders.

I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others.

I intend to continue to assist the Company and its Board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.

Firstly, this was a difficult decision? No, Jon, it wasn’t. You had no choice. If you hadn’t quit, you would have been fired. In fact, I’m kinda shocked the board hadn’t got around to firing you before today. If you drive a broker-dealer into bankruptcy with the loss of $630 million in client funds, resignation is a no-brainer. The only question is whether you’re going to end up going to jail.

And secondly, would it be too much to ask for just a tiny hint of remorse here? A short apology, perhaps, to the thousands of employees and customers who have lost their jobs or their money?

I’m sure you’re sad — that often happens, when you become the living embodiment of the destructive greed of the 1% and a hate figure for millions. But are you sorry? Or are you going to pull a Dick Fuld and live in denial, convinced “until they put me in the ground” that you’re a victim rather than a perpetrator?

This kind of thing is why there’s so much anger aimed at the 1%. Chances are, Corzine will never be prosecuted, let alone convicted, and that he’ll enjoy the comfortable retirement of a centimillionaire for decades to come. He deserves much worse. But right now, when it matters, he can’t even bring himself to say he’s sorry.

I’m late to Ezra Klein’s big article about whether the Obama administration could have avoided our current economic woes, because I was having dinner last night with the head of the Bureau of Economic Analysis, and I wanted to see what he had to say first. And I’m glad I did!

In any case, here’s Ezra, who looks at the famous chart projecting falling unemployment with the stimulus plan — something which, obviously, never happened.

To understand how the administration got it so wrong, we need to look at the data it was looking at.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

This is an argument I’m very sympathetic to. There’s a counter-argument, which Ezra goes into at some length, which says that even if we’d known how bad the economy was at the end of 2008, it simply wasn’t politically possible to get a bigger stimulus than the one we got. But how far off were we, really? I talked to the director of the BEA, Steve Landefeld, last night, and he made the case that we weren’t all that far off. If he’s right, the Romer and Bernstein projections wouldn’t have been all that different even if we’d known the exact figure.

One thing it’s important to remember, here, is that the numbers Ezra’s quoting are quarterly figures which are then annualized by raising them to the fourth power. So what we’re actually talking about, for the fourth quarter of 2008, was en estimate that the economy had shrunk by 0.9% that quarter, which was ultimately revised to say that the economy had in fact shrunk by 2.2%. That’s a big difference, of 1.3% of GDP in one quarter alone. So how come, if you look at the size of the recession as a whole, the revision actually seems to shrink, to just 1%?

The revised estimates show that for the period of contraction from 2007:Q4 to 2009:Q2, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased at a rate of 2.8 percent. The cumulative decrease over the six quarters of contraction is now estimated as 5.1 percent, compared with 4.1 percent in the previously published estimates.

The problem here is that the “previously published estimates” were the ones which came out a few months after the Romer-Bernstein graph, showing the economy shrinking by 6.3% in the fourth quarter of 2008. Here’s the BEA’s chart; note that it simply doesn’t show the 3.8% estimate.

But what this chart does show is that the really big miss, as far as GDP statistics are concerned, was in the fourth quarter; the other quarters weren’t nearly as bad. And I just don’t believe that a single datapoint for advance GDP would have thrown off the unemployment estimates of some of the world’s smartest economists by that much. Would Romer and Bernstein have projected slightly higher unemployment numbers if they’d known the truth about GDP? Probably. But I doubt they’d have been substantially higher. And there’s no way that their “with stimulus plan” estimates would have gotten anywhere near 10%.

Ezra does a very good job of explaining why that is. Romer and Bernstein were basically treating the recession as though it were a common-or-garden cyclical downturn. Which was a big mistake, and one which was pointed out in March 2009 by Carmen Reinhart and Ken Rogoff. “The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage,” they wrote, adding that “so far the U.S. experience has mirrored past deep banking crises around the world to a remarkable extent”. And economies simply do not recover quickly from deep banking crises — financial crises, as a rule, cause L-shaped recessions rather than V-shaped ones.

The fiscal prescription for an L-shaped recession is very different from the fiscal prescription for a V-shaped recession. And what we got was a prescription for something which would accelerate the pace at which we recovered. It was not something which would try to fix the fundamental problem of overleverage, which both caused the crisis and which now threatens to hold back the economy for a decade or more.

Here’s Ezra:

In late 2008, when the economy was cratering, Holtz-Eakin convinced McCain that the way out of a housing crisis was to tackle housing debt directly. “What we proposed at the time was to buy up the troubled mortgages, pay them off and let people refinance at the lower rates,” he recalls. “That would have filled up the negative equity and healed bank balance sheets.”

To this day, Holtz-Eakin thinks the proposal made sense. There was one problem. “No one liked that plan,” he says. “In fact, they hated it. The politics on housing are hideous.”

The Obama administration, perhaps cognizant of the politics, was not nearly so bold. It focused on stimulus rather than housing debt. The idea was that if people could keep their jobs and pay their bills, they could pay their mortgages. But today, few on the Obama team will mount much of a defense of its housing policy.

Overall, I’m still unhappy with the state of macroeconomic statistics. I’m not necessarily unhappy with the BEA itself, which basically just has the job of cobbling together GDP data from a very disparate set of inputs, many of which — especially when it comes to the financial sector — are of surprisingly low quality. But I do think that we’d be much better off with a coherent, unified, and well-funded system of data-gathering, rather than outsourcing it to dozens of different public and private sources.

And I’m definitely (albeit with hindsight) unhappy with the way in which the Obama administration hasn’t even tried to fundamentally tackle the enormous amount of debt in the US economy, and the way in which that debt overhang is likely to hold back economic growth for the foreseeable future. We’re turning Japanese, here, and we’re not doing a damn thing about it.

Last week, we saw how the Federal Housing Finance Agency was above the law, with the government seemingly having no ability to tell it what to do. This week, it’s the FDIC. In the wake of its obstreporous obstructionism upon receipt of FOIA requests, the FDIC’s smug above-the-law impunity is now coming to light:

JunketSleuth worked for months with an attorney from the Office of Governmental Information Services, which mediates disputes between federal agencies and people requesting public records under FOIA.

The attorney was able to help persuade a number of other agencies to provide JunketSleuth with electronic and paper travel records. But she was unable to get the FDIC to provide the exact same types of records…

Federal agencies routinely violate FOIA, as they’ve done since the law was created decades ago. Still, few agencies have rejected requests identical to those that others have granted, especially when the government’s own attorneys (in this case at OGIS) have worked with the agencies to secure access to the records.

This letter, in particular, from the FDIC simply drips with contempt and condescension for anybody daring to file a FOIA from the FDIC. And the long history of correspondence in this case clearly exhibits an utter lack of goodwill at the FDIC, or any desire at all to comply with the spirit of the FOIA law.

In general, it’s the financial agencies within the government — the FHFA, the FDIC, the Federal Reserve (especially the NY Fed, which considers itself not to be a public entity at all), and of course Treasury — which are by far the worst when it comes to transparency and disclosure. We’re constantly told that certain information is commercially sensitive, for example, only to discover when it finally does get disclosed that there’s nothing commercially sensitive about it.

I’m not sure how to fix this. The White House doesn’t seem to be able to change anything: Barack Obama, for instance, released an executive memo on his inauguration day, making it clear that the Freedom of Information Act “should be administered with a clear presumption: In the face of doubt, openness prevails.” The financial arms of government barely blinked, and continued in their secretive ways.

But in this one particular case, at least, I think it might help if a sympathetic journalist started asking for the FDIC’s travel records independently from JunketSleuth. The FDIC doesn’t consider JunketSleuth a legitimate news organization, and seems to be treating it with especial prejudice. Would they send these kind of letters to an established mainstream news outlet which asked for the exact same information? There’s only one way to find out.

Update: Andrew Gray of the FDIC responds by email:

I’m regretting not getting involved the first time that this was raised but wanted to commit to you that I will personally look into it to see what the issues are.  From my experience, the FDIC is strongly in favor of the transparency required in both the letter and spirit of FOIA.  I know of at least two recent sensitive requests from your Reuters colleagues that were handled to their full satisfaction and have worked with numerous other news outlets and other outside individuals to ensure that their requests are handled appropriately and expeditiously.  While I still need to learn more about the facts in this specific request, I would submit that it is a bit of a stretch to cast a sweeping generalization about our commitment to FOIA based on this one case.

Particularly during the last few years, the FDIC has consistently demonstrated is commitment to openness and transparency.  We make public extremely detailed data about the banking industry, our P&A agreements from failed banks, structured sales and other programs.  During the crisis, we led the development, implementation and management of the Temporary Liquidity Guarantee Program, including posting public monthly reporting on debt issuances.  As an agency, we have led an unprecedented and voluntary transparency initiative throughout the implementation of Dodd/Frank, including posting the names and affiliations in all meetings with outside groups.  Our mission is public confidence – and our reputation as an agency has been enhanced by our willingness to be forthcoming with the public about our actions and views.

It’s looking increasingly as though the proximate cause of the next big global crisis is going to be a liquidity crunch at French banks, rather than a European sovereign default. This is not the kind of stock chart that any leveraged institution likes to see:

BNP Paribas started July trading at €55 per share; it’s now at €27, and there’s no bottom in sight. And that’s making lenders very nervous, according to Nicolas Lecaussin.

“We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell.”

And Andrew Ross Sorkin, today, points out that Christine Lagarde, after being forthright about the need for European bank capitalizations, has recently been, well, less so. Banks live or die on confidence, and it helps no one if the managing director of the IMF does anything to erode that confidence during a liquidity panic. Largarde’s right that European banks in general — and French banks in particular — need to be recapitalized. But now is not the time to be saying such things, just because statements along those lines, in today’s febrile environment, can cause banks to collapse even before new capital is lined up.

It should go without saying that the banks themselves have to be upfront about the current situation. This kind of thing only makes matters much worse, since it causes markets to discount everything they say:

In the opinion of BNP Paribas, the largest French bank, the market for Greek bonds is inactive, never mind the fact that there are trades every day. It pointed to “the lack of liquidity seen during the first half of 2011” as it concluded market prices were “no longer representative of fair value.” It is now using a model to determine value…

Many banks applied a haircut to all of their Greek bonds, including the long-term ones not covered by the proposed exchange. But some banks, including BNP Paribas and Société Générale in France and Intesa Sanpaolo in Italy, decided to carry the long-term bonds at full value, on the theory that it would all work out and that European governments had promised not to force exchanges of longer-dated bonds…

On Thursday, the average trading price for such bonds was about 37 percent of par value.

The market has good reason to be worried about the French banks. They own $57 billion in Greek sovereign and private debt — more than all German and British banks combined. And they have well over half a trillion euros in Spanish and Italian debt, most of which is trading at a substantial discount to par, if it trades at all.

As a result, the only way for the French banks to be able to project a credible degree of solvency is for the Eurozone to inject a huge amount of money somewhere. Either it goes into the countries the French banks have lent to, and will then be used to pay back the French banks what they’re owed, or else it just goes into the French banks directly — the TARP solution. But if the EFSF isn’t beefed up and deployed very soon, we could see some extremely big French banks either collapse or get nationalized in very short order. And nobody wants to see where the chain reaction from that would lead.

Going into the Jackson Hole conference, everybody was breathlessly awaiting Friday’s speech from Ben Bernanke, which turned out to be incredibly boring. The most important speech of the meeting, by far, came on Saturday, and came from the new head of the IMF, Christine Lagarde. In decidedly undiplomatic prose she came right out and said what needed to be done:

Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties… the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing…

I would like to delve deeper into the different problems of Europe and the United States.

I’ll start with Europe…

Banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns…

The United States needs to move on two specific fronts.

First—the nexus of fiscal consolidation and growth. At first blush, these challenges seem contradictory. But they are actually mutually reinforcing. Credible decisions on future consolidation—involving both revenue and expenditure—create space for policies that support growth and jobs today. At the same time, growth is necessary for fiscal credibility—after all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?

Second—halting the downward spiral of foreclosures, falling house prices and deteriorating household spending. This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest rate environment.

The diagnosis of what needs to be done in the U.S. is spot-on. Revenues have to be raised — in the future, not yet. Mortgage principal needs to be reduced. And the government needs to help the private sector translate low interest rates into growth, because right now it’s looking like a deer in the headlights and refusing to take advantage of them.

But it’s Lagarde’s diagnosis of her native Europe which is proving highly controversial. Anonymous “officials”, quoted in the FT, rapidly said that she had it all wrong:

Officials said Ms Lagarde’s comments missed the point of banks’ current difficulties. “The key issue is funding,” said one experienced central banker. “Banks in some countries have had trouble securing liquidity in recent weeks and that pressure is going to mount. To talk about capital is a confused message.

This is simply delusional: anybody who knows anything about banking knows that the distinction between a liquidity problem and a solvency problem is not nearly as clear-cut as this makes out. Indeed, if there weren’t any worries about European banks’ solvency, then they wouldn’t have any kind of liquidity problems. If a bank has “trouble securing liquidity,” any responsible regulator must take that as a message that the markets are worried about that bank’s solvency — especially if the problems are happening, as these ones are, in a broader global context where liquidity remains abundant.

And if the markets are worried about a bank’s solvency, then that bank’s solvency is what must be addressed — perception is reality in such matters.

Elsewhere in the FT, other anonymous officials said that the European stress tests were already doing what Lagarde was calling for. This despite the fact that only nine European banks failed those stress tests. Where Lagarde sees a huge systemic problem, European officials, it seems, still thinks it can patch things up by triaging the worst banks and applying band-aids.

All of which, in and of itself, makes Lagarde’s concluding words ring rather hollow:

We have reached a point where actions by all countries, doing what they can, will add up to much more than actions by a few.

There is a clear implication: we must act now, act boldly, and act together.

Obviously, that’s not going to happen. It’s not going to happen in Europe, where officials immediately rejected her proposals. And it’s certainly not going to happen in the US, where she’s significantly to the left of the Obama administration and where her policies could never, ever pass either the House or the Senate.

This is depressing — but the FT does manage to find a sliver of a silver lining: Lagarde, they write, “has said publicly what most policymakers have avoided addressing since the crisis began”. Maybe she’s just leading from the front, here: even if policymakers don’t embrace her position immediately, they might come round to her way of thinking as the world’s developed economies continue to stagnate and financial markets continue to fret over a possible sovereign crisis. If such a crisis starts looking imminent, then at least Lagarde has already laid out a plan for how the banks — a crucial vector of contagion — might be turned instead into a kind of firebreak.

Certainly one can’t ever imagine Lagarde’s predecessor, Dominique Strauss-Kahn, giving a speech like this. He was the consummate behind-the-scenes diplomat; he wasn’t given to big set-piece public speeches. Lagarde, in that sense, is a breath of fresh air at the IMF, and quite un-French in how she’s operating. I do suspect, though, that it’s going to take little a while before Europe’s leaders to come around to her point of view.

Every so often I put a blog post up, start getting feedback on it, and realize I’ve got things horribly wrong. And then sometimes, very rarely, the opposite happens: I put up a post and discover that I was more right than I ever suspected. My post yesterday on Tim Cook’s sexuality is one of those times.

Which is not to say that it’s uncontroversial. I’ve had significant pushback on it, and on the video above, from both inside and outside Reuters. The negative responses fall into a few broad categories:

Haven’t we moved on?

This is rarely accompanied by an elucidation of exactly what it is we’re meant to have moved on from. If it’s the kind of world where people are scared to come out at work, then, first, I’m sorry, but we haven’t. There are, obviously, no reliable statistics on how many LGBT people are out at their work, partly because “out” isn’t the nice, binary concept that a lot of journalists would seem to like it to be. (More on that later.) But I can tell you that I’ve had a lot of private feedback from gay professionals thanking me for my post, saying that it’s still hard for them to come out in the workplace, and that more open discussion and open acceptance of executives’ homosexuality is something we’re only beginning to work towards.

It’s still not normal, in most workplaces, to have an open and accepting culture where all gay employees feel comfortable being open about who they are and who they love. Apple, by all accounts, is very good on that front, and Steve Jobs’s other billion-dollar startup, Pixar, is even better. But the very fact that neither Apple nor Tim Cook has ever said anything about this aspect of his identity is a clear indication that people are still worried about it. The closet is an institution designed to protect LGBT individuals from scorn and hatred; without that scorn and hatred, it would not exist. It exists. And, lest we forget, neither the federal government nor most states gives equal rights to gay couples; in most states, including California, it’s still entirely legal for a company to fire someone just for being gay.

More generally, it’s still the exception rather than the rule for successful gay people in the public eye to be out. Some gay people who achieve success feel a responsibility to serve as role models and advocate for equality and public acceptance. That’s great. But what we see very little of is the people who simply don’t hide who they are, and who don’t make a big deal of it — the non-political gays. And the reason we see so little of it is because it’s a very tricky act to pull off. Instead, we have the institution of the “glass closet”. Which is clearly just a stepping stone on the path to full acceptance. So I think it’s reasonable to say that we’re a very long way from having “moved on”.

Why should shareholders care?

The number of things that shareholders care about, with respect to any given company, is as varied as the number of shareholders itself. But certainly there’s no particular or obvious reason why Tim Cook’s homosexuality is relevant to Apple’s shareholders, qua shareholders. As journalists, however, the media has a responsibility to more than just a company’s shareholders: its responsibility lies to the public as a whole. Including millions of gay professionals, their friends, their families, and people who aspire to being gay professionals. For these people, seeing Tim Cook rise to a position of such prominence and power is something to celebrate. If the media keeps that news on the down low, we’re therefore doing a disservice to that large and important part of our readership. Meanwhile, if shareholders don’t care, that’s fine. Most news is of no interest to most people. But that doesn’t mean it shouldn’t be published.

What business is it of mine what Tim Cook does with his genitals?

This isn’t an issue of sex, it’s an issue of sexuality — a central part of who all of us are. It’s about attraction, and identity. Not genitals.

Now admittedly Tim Cook’s sexual identity isn’t any business of yours either. But it’s worth asking who exactly we’re protecting here. Tim Cook hasn’t complained about coverage of his sexuality, but a lot of straight people who don’t know him seem to be very upset about it. It seems a bit like the old attitude of “I don’t care what consenting adults do in private, just so long as they don’t stick it in my face.”

All too often, secrecy surrounding someone’s sexuality is imposed upon that person by the straight society surrounding them. It’s the “I don’t want to hear about it” attitude which reached its nadir in the Don’t Ask Don’t Tell policy. Many gay professionals — I’m tempted to say most gay professionals, at least outside the creative industries — act very much in line with an implicit policy of don’t-ask-don’t-tell; coming out to co-workers is done individually, on a case-by-case basis, and acts as a sign of deeper friendship and outside-of-work socialization. And it contrasts quite sharply with the overt displays of straight employees who happily plaster their cubicles with photos of their spouses and children or unselfconsciously talk about the attractiveness of members of the opposite sex.

This is irrelevant, so we should ignore it.

Not when ignoring it is the problem. As commenter Hamranhansenetc said on my original post, “what you mean by ‘ignoring Time Cook’s sexuality’ is ‘pretending he is straight.’” It’s rude to do that. And skirting the issue of Cook’s sexuality only encourages and exacerbates that problem. As Hamran continues (you should really read the whole comment, it’s great), “In the larger sense, it does not matter that Tim Cook is gay and not straight. However, it does matter when the media pretend Tim Cook is straight and not gay. And that is what we are talking about here.”

Another commenter, RaidV92C, reacted a rather different way, but just as accurately: “This is not newsworthy, it’s west coast, liberal media, hollywood forcing homosexuality as NORMAL on the general public.” Yes. Exactly. Homosexuality is normal. And people who object to stories which cover an executive’s homosexuality as being as unexceptional as another executive’s wife and children are exactly the people who are winning if no mention is made of Cook’s sexuality.

Do we report that executives are straight?

Yes, all the time, especially when we talk about their families. And more generally straight is the default option — people are assumed to be straight unless we’re told otherwise. No LGBT person likes it when they’re assumed to be straight, but it happens every day.

Isn’t this a salacious invasion of Tim Cook’s privacy?

There is nothing salacious about someone being straight, or being gay. Insofar as you think it’s salacious, that’s because you think that being gay is somehow naughty, or shameful. Is this an invasion of privacy? To a certain extent, yes. More people know more things about Tim Cook now than they did a few weeks ago. That’s what happens when you become the CEO of Apple.

In any public corporation, there’s a small number of people whose jobs are outward-facing, and at the top of the list is always the CEO. He’s the public face of the company; if you see a corporate profile on the cover of a glossy magazine, chances are it will be illustrated with a big picture of the CEO. If you don’t want your face splashed across the world’s media, then you shouldn’t be CEO of a massively valuable company which touches millions of people. Sometimes, as in the case of Mark Zuckerberg, entire movies — and not particularly accurate ones, either — are made about you and your personal life. Reporting that Tim Cook is gay is absolutely nothing, in the invasion-of-privacy stakes, compared to The Social Network. But CEOs, especially CEOs of public companies, are public figures. Their salaries are a matter of public knowledge. When you’re a public figure, you lose a certain amount of privacy. And the higher your profile rises, the more privacy you lose. Tim Cook knows that; he knows that it’s silly to expect to be the CEO of Apple without the world knowing that he’s gay. So let’s stop pretending that we’re not talking about this subject for his sake.

Finally, one critical note I got went so far as to say that “I would think people who are gay don’t care” that Cook is gay. Which is almost hilariously, completely wrong. All the feedback I’ve got indicates, unsurprisingly, that LGBT people really care about this — they care about it a lot, and they want to see it celebrated as widely as possible. It’s perfectly natural to feel pride and joy when a member of your community rises to a position of great success and prominence.

I’ve been incredibly heartened by the thanks I’ve got from gay friends, gay acquaintances, and gay people I’ve never run across before, all saying that they wish there were many more people pushing this line of argument. And I was also heartened, when I talked to John Abell about this yesterday for the video above, that he thinks the same way: not only should the media cover Cook’s sexuality in a more matter-of-fact way, but that they will, as well. Cook himself need do nothing.

At the same time, though, I agree with Nicholas Jackson that it would be great if Cook was more open about his sexuality. The glass closet is not an unpleasant place to be. The more transparent the glass, the less likely you are to have people making you uncomfortable by assuming that you’re straight. And at the same time, by never “officially” coming out, you get to avoid having to talk about your sexuality in public — something very few people like to do.

It’s sad and rather silly that gays have to make some kind of formal and official statement about these matters; certainly straights don’t. But without such a statement, as we’ve seen, the media gets cold feet talking about sexuality, and perpetuates the stigma associated with homosexuality. A very common response to my piece from journalists was to question my sourcing: how did I know that Cook is gay? Do I have first-hand knowledge? (No, and if I did, I would never have written my post.) Do I have reliable sources? (No, I’m simply passing on information which is in the public realm, just as I do with dozens of other pieces of information every day.) And isn’t it unethical to talk about something unless you know for sure that it’s true?

What’s unethical, I think, is perpetuating the false idea that Tim Cook is straight — an idea which, it turns out, many people had. One person said it was “disappointing” that I disabused her of that notion. Why she should be disappointed to learn this news I can only guess, I haven’t asked. But honest journalism has to be honest. If I allow you to continue to believe a falsehood, that’s a form of dishonesty. And I, for one, am not comfortable with that.

I’ve always had a bit of a cognitive disconnect with respect to Larry Summers. Many of the people I respect the most, and pretty much everybody I know who has spent much time with him, are clear: he’s absolutely brilliant. Most of them would give him some kind of Japanese-style Living National Treasure status.

On the other hand, if you judge Summers by his actions, either in word or in deed, he’s much less impressive. Reading his journalism tends to feel like wading through sludge while being nagged by a persistent feeling that he’s not writing for you anyway. Seeing him interviewed isn’t much more fun, at least when he’s holding political office. And everywhere he goes he’s accompanied by controversy, be it memos at the World Bank or financial deregulation at Treasury. As for Harvard, his career there has been academically successful but otherwise disastrous, whether you’re talking about interest-rate swaps or speeches about women’s aptitude or scandal over Andrei Shleifer’s role in Russia in the late 90s.

But Summers is out of the White House now, and clearly doesn’t have much in the way of immediate ambitions: he’s not going to re-enter politics for the foreseeable future, and he’s certainly not going to become president of Harvard again. He’s free to take lucrative gigs at companies like Square and Andreessen Horowitz, and live the very comfortable life of a Harvard University Professor. And so he’s loosening up a bit, and in his interview with Walter Isaacson at Fortune Brainstorm yesterday you can see why people come away from talking to him so very impressed. (And you can also see why the likes of Square and Andreessen Horowitz love to have access to him.)

This is Larry at his most relaxed and brilliant: when he isn’t overthinking what he wants to say and how he wants to say it, he has a natural fluency with ideas and can actually get them across very clearly indeed.

He starts off disarmingly, talking about the Winkelvii: “if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o’clock, there are two possibilities,” he said. “One is that they’re looking for a job and have an interview; the other is that they are an asshole. This was the latter case.”

Then he launches into one of the best summaries of our present macroeconomic situation that I’ve seen. It’s worth quoting at length:

I think the biggest problem the country has right now is not the budget deficit. The biggest problem the country has right now is the jobs deficit. Yes, there’s a risk that we will misplay things and make the mistakes of the 1970′s, and have inflation and have excessive borrowing.

But far and away the larger risk is that we will make the mistakes of 1937, and that we will not have a recovery that is sustained, that we will make the mistakes that Japan made, and that we will have a decade or two of stagnation. The right question to be focused on is how to stimulate demand.

Look out there, guys. The Treasury bond rate, Treasury note rate for ten years is 2.85 percent. Nobody is failing to invest because 2.85 percent is too much. They are failing to invest because there are no customers in their store. They are failing to invest because their factories are sitting empty. They are failing to innovate because they’re not sure how large the market for the product will be.

That is the problem that we need to address. By the way, an extra percent a year on the growth rate for the next five years will do more for the budget than any amount of the entitlement-cutting that’s under discussion.

So I think the President has been right to be focused, and I think he could even focus more intensely on what is, I think, the central problem, which is how to get enough demand and enough confidence going, so that this economy achieves escape velocity from the recession.

We’ve been flying out of the recession, but we’ve been flying out of it dangerously close to stall speed, and doing something about that should be our top priority. I mean it is crazy.

MR. ISAACSON: Does that mean more stimulus?

DR. SUMMERS: Well, you can call it that. That’s one part of it. It is crazy if you think about it, that we have schools across this country where we tell our kids that education is the most important thing in the world, but we ask them to study in classrooms where the paint is chipping off the walls.

We can borrow money to invest in fixing that, at 2.8 percent. Twenty percent of the people in the country who are doing construction are unemployed, and we’re not trying to do something about that, when we have a major demand problem? It just doesn’t make any sense.

We have infrastructure in this country — I mean you can argue whether we need a new high speed rail system or whether we don’t need a new high speed rail system. But I don’t know what the argument is for letting bridges collapse. I don’t know what the argument is.

I mean every time, and unfortunately it’s fairly often, I fly in and out of Kennedy Airport to any other airport in the world that you might fly to from Kennedy — you can fly to Europe, you can fly to Asia, any of those places, and you compare Kennedy Airport with the airport where you land, and you ask yourself which is the airport of the greatest country, richest, most powerful country in the world?

I mean, and you know, you can say airports aren’t that important or whatever. But it is symbolic of an approach to infrastructure that probably never made any sense, and certainly doesn’t make any sense when you can borrow money at 2.8 percent and you’ve got 20 percent of the construction workers unemployed.

So I’d rather see us focus on the jobs deficit. I’d rather see us focus on the public investment deficit. I’d rather see us focus on the human capital deficit. Those are deficits that we need to focus on also.

Yes, in the long run right now, thanks mostly to what happened during the Bush administration, the United States of America taxes 14 percent of GDP. Fourteen percent. That’s about four and a half percent below the average of what we’ve done over the post World War II period, and we now have the oldest population that we’re ever going to have, a larger debt than we had before.

We have, apart from the aging of the population, a public sector that’s heavily involved in health care, and in every country in the world, health care has grown relative to GDP. The idea that somehow 14 percent is adequate, or that the priorities starting at 14 percent should be to cut taxes, is crazy.

Summers covers a lot of bases here, in plain English. “I’d rather see us focus on the jobs deficit. I’d rather see us focus on the public investment deficit. I’d rather see us focus on the human capital deficit.” That’s powerful, and undeniably true, and it’s a cause for great regret that no one in the Obama administration seems to be capable of saying such things in public.

Later on, Summers has great insights about the move from a manufacturing economy to a services-based economy and how the importance of advances in healthcare to national wellbeing, even if such things don’t show up in GDP statistics. He also has this very interesting observation:

If you look at the price earnings ratio for technology companies relative to the price earnings ratios for all industrial companies, you take that ratio, PE technology divided by PE industrial, you can plot that ratio over the last 40 years, and it is at the lowest point that it’s ever been.

Does someone have this chart to hand? I’d love to see it. Obviously, Summers is talking his book here, now that he’s a venture capitalist. But at the same time, his arguments are strong:

The Internet, the last time there was an Internet bubble, was 120 million people dialing up.

The Internet today is two billion people and two billion mobile devices, with wireless connectivity at a far more rapid pace. Today, the businesses have cash flow, which they didn’t ten years ago. So I think it’s a little facile to assume that just because the numbers are big, that it’s obviously a bubble.

This, then, is the Summers who is liked and admired by the people who like and admire him; I’m glad he’s finally giving the rest of us a glimpse of that Larry. And I’m beginning to think that instead of asking him to write a monthly column for us, we at Reuters should just phone him up unexpectedly, ask him a couple of good questions, and simply transcribe the answers. The result would probably be significantly more fluent and more interesting than anything he laboriously constructs on his own.