Felix Salmon

Who will be the next Treasury secretary?

Felix Salmon
May 23, 2012 18:04 UTC

Glenn Somerville has one of the first of what will surely be many articles handicapping possible Treasury secretaries come January. We know we’re going to get a new one, whatever happens — Geithner won’t stay on for a second term.

Top of the list if Obama gets re-elected is Larry Fink, of Blackrock — he wants the job, and he has a pretty solid reputation in finance circles. I think the problem with Fink, though, is that the country has had enough of financiers at Treasury. I suspect that Obama will want Geithner’s successor to be a communicator — someone who can get through not only to the country at large (something Geithner’s never been good at) but also to Congress. And Fink is no man of the people.

It almost goes without saying that Jamie Dimon neither wants the job nor would ever be offered it, at this point.

The other main name on the Democratic side of things is Erskine Bowles — also a financier, albeit one with rather more Washington experience than Fink has. Bowles would represent a continuation of Obama’s first-term habit of appointing former Clinton aides to top economic-policy jobs; that would disappoint many progressives, who are looking for more of a break from the deregulatory past.

Dan Tarullo, another name mooted, is being presented as Bowles lite: the same combination of finance and Clinton-era politicking, without quite the same degree of stature. Tarullo would certainly be tough on banks, but frankly if that’s his aim he’s better off staying where he is, at the Fed, which is also the top bank regulator. Roger Altman, yet another Clinton aide who’s made a fortune in investment banking, would be a more interesting choice, but I for one would really love the idea of a Treasury secretary who doesn’t come from Wall Street.

There are four names put forward on the Republican side: John Taylor, Glenn Hubbard, Robert Zoellick, and Kevin Warsh. The first two, I think, would be dreadful: you really don’t want your Treasury to be a political hack. Zoellick and Warsh would be much more credible.

But most likely, if Romney gets elected, he’ll pick someone unexpected — someone he knows well from his Bain Capital days, and feels he can trust.

In any case, since we’re throwing names out there, let me put forward two ideas of my own. First, for Romney: Randy Quarles. He’s almost a mini-Romney: a Mormon private-equity executive who has a fair amount of experience in government. The two would almost certainly work very well together.

And second, for Obama: Eric Schmidt, who needs something to do, now that he doesn’t have a day job any more, and who has been very active in Democratic fundraising circles. And who would certainly be a welcome change from the technocrats and financiers we’ve become accustomed to. If you’re going to appoint a billionaire to the job, better it’s someone who made his money from Google than someone who made his fortune by making bets with other people’s money.

Update: Annie Lowrey, quite rightly, adds Jack Lew to the list. Who has a very good chance of getting the job, if only because he’s already passed a confirmation hearing and therefore wouldn’t present the administration with an early nomination battle. Also, I forgot to mention my favorite dark horse, if Obama’s re-elected: Barney Frank!


Who is the furthest in arrears paying their income tax? That seems to be a major decision point for this particular president. Particularly for someone going into a position involving huge sums of money. At least it is internally consistent. Supreme Court justice without courtroom experience, secretary of treasury who cheated on his taxes for years……..

A refreshing change of pace might be to have someone who can actually lead by example thus obviating the need for a full time propaganda staff to fluff his/her public image.

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The problem with Marc Andreessen

Felix Salmon
Apr 26, 2012 15:47 UTC

2005-new.jpg It’s easy to see why Marc Andreessen is grinning on the front cover of Wired magazine this month. Inside, there’s an interview where he’s introduced as a “tenacious pioneer”, one of “our biggest heroes”, and someone who was so far ahead of the curve on his “five big ideas” that he had them “before everyone else”.

It’s easy to admire Andreessen, a man whose disarming and engaging blog was a must-read during the financial crisis, when he would provide some very smart perspective from the point of view of a wealthy man, thousands of miles away from the epicenters of the crisis, who had some very sharp insights into what was going on. He then launched Andreessen Horowitz, and the blog became more of a public seminar in how to be senior management, which is great if you like that sort of thing. And it’s true that the five big ideas in the interview are all pretty revolutionary things, although I don’t think he actually had them all first.

But Andreessen has never really been a public intellectual. His single greatest achievement — the creation of the world’s first web browser, Mosaic — took place under the auspices of the National Center for Supercomputing Applications at the University of Illinois. But ever since then he’s been a red-blooded capitalist, founding and funding a long series of for-profit companies, and becoming one of the wealthiest and most powerful men in Silicon Valley in the process.

And when you look at Marc the capitalist, rather than at Marc the ideas guy, the hero-worship becomes a bit more difficult. I certainly like the way that he’s dragging Silicon Valley into the world of philanthropy, where it’s historically been very weak. But a lot of my own Wired story, last month, can be read as a push back against the IPO culture which Andreessen, almost more than anybody else, has managed to create.

“Silicon Valley is full of venture capitalists who have become dynastically wealthy off the backs of companies that no longer exist,” I wrote in that piece, and Andreessen is Exhibit A if you want to look for such a person. His first company, Netscape, lost the Browser Wars and ended up getting sold to AOL. His second company, Loudcloud, was (to be charitable) too far ahead of its time, so it “pivoted” into something called Opsware; eventually Andreessen managed to sell it off to HP. His third company, Ning, was even less successful, and ended up buried somewhere in Glam Media. None of them exist today in any recognizable form; none of them ever made much money; and none of them even really made it as far as building anything approaching a permanent income stream.

The Netscape IPO, in 1994 1995, was in its own way revolutionary. It broke the rules by going public without ever having made any money, and it also had that eye-popping first-day rise, from the issue price of $28 to as high as $75 in the first day’s trading. For the first time, people in Silicon Valley understood that you could make enormous sums of money just by timing the markets — buying in at a low valuation and selling at a high valuation — even if the underlying company never made any money at all.

Andreessen’s current company, Andreessen Horowitz, is devoted to doing exactly that. Andreessen Horowitz does provide a bit of expert advice and name recognition, but at heart it doesn’t make anything at all; its sole predictable income stream is the management fee it skims off while investing other people’s money. Those investors, in turn, are not particularly interested in creating long-lasting standalone companies which have large profits and create jobs. Instead, they’re primarily interested in buying into any company, no matter how flash-in-the-pan, where Andreessen Horowitz can exit its investment for a large multiple of whatever it bought in at.

After all, that’s how Andreessen made his money. I’ve never met anybody who thought that Netscape was a good acquisition for AOL, or that HP gained much from buying Opsware beyond getting Andreessen to sit on its famously-dysfunctional board. (He became the semi-official spokesman for the board in 2010, which did almost nothing to improve the board’s reputation, but did quite a lot to hurt Andreessen’s.) In many ways, Andreessen’s entire fortune has been built on the greater-fool theory: if you build something trendy enough, there’s probably going to be a huge lumbering company out there somewhere willing to overpay for it. Hence the buzziness of the Wired interview — clouds! social! SAAS!

Andreessen’s also very shilly, when it comes to his own businesses: when Ning finally died, for instance, he put up a blog post all about how the team there had “brilliantly executed a dramatic transformation of the company”. The fact is, as a close reading of the Wired interview will attest, that while Andreessen does have a lot of good ideas, brilliant execution is not at the top of his list of abilities. His own social-media company went nowhere, and his consolation prize — a seat on the Facebook board — is so important that Mark Zuckerberg didn’t even bother to consult him before dropping $1 billion on Instagram. His main job there is to ensure that Mark can do whatever he wants, to provide a layer of insulation between Zuckerberg and shareholders. Meanwhile, the Twitter guys didn’t let Andreessen Horowitz invest in their company, forcing AH to buy its stake in the shadowy secondary market instead.

While Andreessen is very good at making money, then, he’s much less good at creating lasting value for the long-term shareholders of his companies. In his world, buy-and-hold public shareholders are the patsies, the people left holding the bag when the fast money has long since departed. He’s smart; the rest of us are chumps. I guess it makes perfect sense that he’s recruited Larry Summers as a Special Advisor.

Update: I should have mentioned (I was going to, and forgot) that Mosaic 0.9b is, to this day, my favorite-ever web browser. It was a beautiful thing, which worked wonderfully. And yes, in large part it was responsible for The Internet As We Know It today. Andreessen’s influence is felt far beyond the companies he started. But there’s another thing that Netscape started, which is the monster funding round which is so big that no one (except a true giant like Microsoft) will dare compete. A correspondent writes:

Firms such as his have been leading truly insane rounds lately, sometimes in excess of $100 million. This is a different kind of investment than traditional venture capital. Under the old model, a hundred companies raised a million dollars each. Market competition then (theoretically) selected the best. Under this new model, kings are made, and there is no competition. Who would compete with a company that just raised $100 million in a day? Who would invest in a company that would dare to compete with such a sudden colossus?

This kingmaker strategy (also at work in the payments world, see Square) is the opposite of portfolio diversification. It encourages the formation of massive bubbles. And it locks out true innovation to the extent that the kingmakers choose incorrectly–which they often do.

Update 2: Chris O’Brien, writing in 2009 when Andreessen Horowitz was launched, made much the same points in a more rigorous and quantitative way. It’s a really good post, you should read it.



Thanks for the linkback. My post came when Andreessen was just jumping into the VC game. He and I both agreed that the VC industry was in steep decline and the result would be that a handful of big firms would end up with the lion’s share of investors and deals. He was absolutely confident that his new firm could be among the 5 to 10 big firms left standing, though I was a bit more dubious. The game’s not over, certainly, but their track record so far has given them a lot of momentum. Given the way entrepreneurs revere him and the firm, it seems like he’s got a shot.

Now, whether this ultimates is a good thing or a bad thing for the larger tech economy, well, we’ll see.

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Summers and Rubin, remorseless deregulators

Felix Salmon
Apr 19, 2012 02:13 UTC

Flicking through the new book by David Rothkopf this afternoon, I found this:


It’s not entirely clear when exactly this interview took place, although it seems it was before the Obama administration set the ball rolling on what eventually became Dodd-Frank in June 2009.

By this point, of course, Summers was a millionaire many times over thanks to his work for financial services firms, and it’s telling that he seems much more worried about the prospect of too much regulation than he is remorseful about the fact that deregulation of the financial-services industry went way too far.

Later on in the book, Rothkopf finds exactly the same attitude coming from another financial-services multimillionaire, Bob Rubin:


Again, the timing of this is not clear, but the remorselessness is entirely in keeping with Rubin’s few previous public statements on the matter. It’s worth remembering that virtually the entire Obama economic team was connected to Rubin in one way or another, and that Rubin is generally understood to have been the gray eminence who basically architected Obama’s economic policy in the fraught weeks between the 2008 election and the 2009 inauguration.

In this context, it’s something of a miracle that we got any substantive new regulation in Dodd-Frank at all: we should be thankful for small mercies, I suppose. But I never cease to wonder at how difficult it is for these men to admit that they ever went too far, that they were ever wrong about anything. Making mistakes is only natural. But refusing to learn from your mistakes is downright pathological.


SteveHamlin, I would argue that the trading desks at banks are the LAST place to look when trying to avoid a repeat of 2008, especially when looking at the private capital “destroyed”.

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The immigration-averse USA

Felix Salmon
Apr 16, 2012 16:53 UTC

Ann Lee’s op-ed on the EB-5 visa program, which is designed to give visas to people who invest at least $500,000 in the country and create at least ten jobs, is worth reading in conjunction with the WSJ excerpt from Kip Hawley’s new book, explaining why and how TSA airport security is so broken.

As Reuters showed in an excellent report as long ago as December 2010, the EB-5 program is horribly broken, with the brunt of the pain being borne by people who have really done nothing wrong at all — immigrants who invested a lot of money in US businesses, and who created jobs, but who were then rejected by Customs when they applied for their green card. In our 2010 report, Reuters worked out that of 13,719 immigrant investors who tried to take part in the EB-5 program since 1990, just 3,127 ended up with green cards.

Anybody who’s ever applied for a US visa or green card will not be surprised, but at the same time it’s easy to see how the EB-5 program is never going to generate all that much investment in the US so long as stories like this continue.

Dozens of EB-5 immigrants have had their final residency applications denied because the businesses they invested in deviated from the plans filed with USCIS. These are the plans the immigrants must cite when they first apply for their conditional green card, using a form known as an I-526.

And it isn’t just businesses new to the program that are making mistakes, the analysis shows.

In a case earlier this year, an immigrant had invested in a partnership run by the Philadelphia Industrial Development Corporation and CanAm Enterprises, one of the biggest and oldest EB-5 companies. The partnership originally loaned money to a building materials company, which planned to use the funds to expand its warehouse and hire new workers.

But the downturn in the U.S. housing market stopped that expansion in its tracks, and the building materials company returned the loan. So the partnership, by unanimous resolution, decided to loan the money to a developer building an upscale steakhouse, which opened a few months later.

From a business perspective, it was a perfectly reasonable change of tack. But the switch jeopardized the applications of the immigrants who invested in the partnership. When one of them applied to get his permanent green card in 2008, USCIS denied the petition. When he appealed, USCIS’s administrative appeals office ruled against him.

Over the past year and a half, there has been a raft of such adverse “material change” rulings against immigrants. In some cases, the businesses insist they informally communicated the changes to USCIS personnel, who told them not to worry about them. The USCIS has rejected their appeals, saying: “the opinion of a single USCIS official is not binding and no USCIS officer has the authority to pre-adjudicate an immigrant-investor petition.”

It’s worth underlining that these rejections come after the investor has moved to the US and set up a new life here with their family. And once rejected, the investor has no choice but to leave the country.

The USCIS responded to the broken EB-5 system by announcing in May 2011 that it would be streamlined, including “the creation of new specialized intake teams with expertise in economic analysis”, as well as the ability to email the immigrant investors.

But here we are, a year later, and Lee is still saying that the government needs to “hire more business-savvy administrators and make the entire process more transparent” — essentially exactly what Secretary Napolitano has already announced. Lee’s also asking for penalties to be levied when brokers lie to would-be immigrant investors — something else which should be happening but isn’t.

Which is where Hawley comes in. He headed the Transportation Security Administration from July 2005 to January 2009, and has a pretty sophisticated view of what the agency should be doing.

The TSA’s job is to manage risk, not to enforce regulations. Terrorists are adaptive, and we need to be adaptive, too. Regulations are always playing catch-up, because terrorists design their plots around the loopholes.

I tried to follow these principles as the head of the TSA, and I believe that the agency made strides during my tenure. But I readily acknowledge my share of failures as well. I arrived in 2005 with naive notions of wrangling the organization into shape, only to discover the power of the TSA’s bureaucratic momentum…

By the time of my arrival, the agency was focused almost entirely on finding prohibited items. Constant positive reinforcement on finding items like lighters had turned our checkpoint operations into an Easter-egg hunt. When we ran a test, putting dummy bomb components near lighters in bags at checkpoints, officers caught the lighters, not the bomb parts.

I wanted to reduce the amount of time that officers spent searching for low-risk objects, but politics intervened at every turn. Lighters were untouchable, having been banned by an act of Congress. And despite the radically reduced risk that knives and box cutters presented in the post-9/11 world, allowing them back on board was considered too emotionally charged for the American public.

The passive voice here (“was considered”) is telling: even the head of the TSA can’t tell the TSA what to do. Instead, as in all large bureaucracies, there’s a way that things get done, and changing it is all but impossible.

Which says to me that for all the efforts by people like Napolitano and Lee to revamp the EB-5 system, they’re going to find doing so extremely difficult. Reuters found what immigration attorney Ira Kurzban calls “a basic hostility to the EB-5 program inside USCIS”, which is at heart a reflexive opposition to the idea that anybody can buy their way into the country. Despite the fact, of course, that the whole point of the EB-5 program is to enable exactly that.

Those of us who have had dealings with USCIS know that it is always looking for an excuse to say no: even people like me who get our green cards the “easy” way, by marrying a US citizen, find the process extremely fraught. No matter how much money I was earning, for instance, the USCIS would not let me have a green card unless my wife could demonstrate that she was earning enough, on her own, to support me. And a friend of mine, after marrying a US citizen and having two US children with her, actually got a notice of deportation at one point in his green card application saga, on the grounds that a certain piece of paperwork had been filed, years previously, a few days too late.

The TSA and the USCIS have grown, over the years, into agencies devoted to saying no. There’s very little downside, for these agencies, when they deport someone applying for a green card, or cause a mother to miss her flight because of a fight over breast milk. And it’s almost impossible to change that big-picture dynamic, no matter what Congress mandates, and no matter what the senior leadership in these organizations might want.

Which is why it makes sense to make skilled immigration as easy as possible. Resuscitate the Schumer-Lee bill giving a residency visa to anybody who spends at least $500,000 on a house here, except lower that number to $250,000, and make sure that the visa allows the homeowner to actually work and create jobs in this country. The less room there is for USCIS agents to say no, the more smoothly the program will run.

Will making immigration easier allow a few people into the country who weren’t the intended recipients of the bill’s generosity? Yes, of course. But all immigration is good for America. And with net migration from Mexico now down to zero, and the US economy desperately in need of entrepreneurial investment, now’s exactly the time to start opening our doors much wider.


matthewslyman, thanks for the story!

Whatever the policies, it is healthy for all if they are transparent, consistent, and efficiently implemented. The INS is **THE WORST** bureaucracy in the US in this regard. Byzantine and arbitrary. Doesn’t sound like the UKBA is much better?

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The political calculus of the World Bank contest

Felix Salmon
Apr 2, 2012 17:24 UTC

Mohamed El-Erian comes out in favor of Ngozi Okonjo-Iweala today, while at the same time explaining the fraught international political calculus involved in working out who is going to vote for whom.

Here’s how it works: Europe is looking to the IMF to beef up the amount of money that it’s going to make available to the continent. In order for that to happen, the US is going to have to support the increase in IMF funding. And so the outlines of a quid pro quo begin to emerge: the US votes for greater IMF funding for Europe, and in return Europe votes to elect the US candidate as president of the World Bank.

El-Erian is absolutely right about this:

When judged by the Bank’s own criteria for the job, the highly respected Okonjo-Iweala dominates the other two candidates. On that basis, she has already gained the endorsement of influential observers and opinion-forming media outlets. Moreover, her appointment would speak to other important initiatives with which Obama has aligned himself, including efforts to fight corruption, strengthen meritocracy, and support gender equality.

I suspect that, in their hearts, US officials know that Kim, while an inspired nominee, is not the best candidate. Yet their historical attachment to a harmful nationality-based entitlement stops them from opting for the best.

All of which mitigates in favor of Kim getting the job. But El-Erian hasn’t given up hope entirely: if the world’s emerging countries unite behind Ngozi, he says, with Jose Antonio Ocampo being persuaded to step aside, then it will be much harder for the developed world to force Kim onto the Bank. What’s more, they can themselves threaten to oppose the IMF funding increase unless they have a real voice at the table.

Such a move would involve going up, quite explicitly, against the expressed wishes of the US — a move that many countries are understandably reluctant to make. Here, for instance, is Bob Hormats, the US Undersecretary of State, telling Chrystia Freeland that although Ngozi would be “terrific” in the job, Kim is also “very good”, and that “we think he will get support from a lot of countries”. He says that emerging economies should have “a big voice” in the World Bank, just not necessarily when it comes to filling its presidency.

Notably, even Hormats, representing the US, falls short of asserting that Kim is a superior candidate to Ngozi. And it’s worth noting that, at least so far, support for Kim from anybody who isn’t a serving member of the US government is conspicuous by its absence.*

When Christine Lagarde was elected the head of the IMF, there was a credible case to be made that she was the best candidate for the job. And of course all previous “elections” to the World Bank presidency have been uncontested. So if Kim gets the World Bank job, it will be the first time that it has gone to someone who was clearly not the best candidate. Is that really what Obama wants?

*Update: It’s not true that Kim has failed to get endorsements from outside the US government. Treasury has helpfully compiled a list of people who say that Kim is great for the job, which includes the presidents of Rwanda and South Korea; Amartya Sen; and the Washington Post’s editorial board. It also includes Bill Clinton and Paul Farmer, but their conflicts are a bit too obvious. On the other hand, the list does not include link to the endorsements when the endorsements are online, which makes it hard to double-check them. And the FT is included in the list, even though it has actually endorsed Ngozi. So it’s not at all obvious how many of these people really think that Kim is a better choice than Ngozi.


If Ngozi’s getting the job makes it less likely that the US will pony-up more money for the IMF (and possibly – dare one even hope? – withdraw from both IMF and WB) then she has my prayers to go all the way to victory.

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Jim Yong Kim and Dartmouth’s culture of sexual assault

Felix Salmon
Mar 29, 2012 01:00 UTC

What is it about the heads of the World Bank and IMF and their relation with sexual politics? Both Paul Wolfowitz and Dominique Strauss-Kahn lost their jobs because of the way that they treated women, while Strauss-Kahn’s predecessor, Rodrigo de Rato, resigned unexpectedly in the midst of what was described as an “acrimonious divorce”. No woman has ever headed the Bank, and Christine Lagarde is the first woman to head the IMF; they’ve historically been men’s clubs, and none the better for it.

For that reason alone, given the choice between Jim Kim and Ngozi Okonjo-Iweala for the next head of the World Bank, the latter would have something of a natural advantage. But it turns out that Kim’s weakness on the sexual-politics front is much greater than simply being a man.

Janet Reitman has a must-read article in the latest issue of Rolling Stone, detailing the hazing culture at Dartmouth College, where Kim has been the president since 2009. The piece went to press on the day that Barack Obama announced Kim’s nomination, so the news came too late for the story to be recast around Kim. But even as it stands, it’s damning enough.

I’d highly recommend that you read the whole thing, especially the gruesome details of fraternity hazing at Dartmouth, which seems to come very close to qualifying as torture under many definitions of the term. A propos the UN Convention Against Torture, for instance, there’s a case to be made that the severity of the hazing at Dartmouth — forcing youths to recite the frat’s creed while lying in a kiddie pool of ice, for instance, or forcing them to eat “vomlets” made of vomit and eggs — imposes severe suffering on people for the purpose of intimidating or coercing them.

Reitman’s article is centered on Andrew Lohse, who went public with what goes on in secret at Dartmouth fraternities, including forcing youths to chug cups of vinegar until at least one ended up vomiting blood. Here’s how his now-famous op-ed started:

We attend a strange school where a systemic culture of abuse exists under a college president who has the power and experience to change what can only be described as a public health crisis of the utmost importance: the endemic culture of physical and psychological abuse that occupies the heart of Dartmouth’s Greek community. President Jim Yong Kim’s sterling credentials in public health are fundamentally at odds with the pervasive hazing, substance abuse and sexual assault culture that dominates campus social life.

I understand these problems because I myself have endured them. If I were to fully enumerate all of the dehumanizing experiences my friends and I have survived here — experiences that were ironically advertised to us as indispensable elements of the “Dartmouth Experience” — I would have too few words left in this column to adequately explain how the Kim administration has not done enough to address these crises. They have yet to take decisive action to diagnose and cure the abuse that plagues Dartmouth.

Reitman fills out this picture, in the most alarming of ways. What we’re seeing here is not just brutal hazing; it’s also a culture of sexual assault which seems to have reached epidemic proportions.

Brothers aren’t the only ones injured by this unspoken pact around fraternity life. Sexual assault is rampant at Dartmouth; some female students say they circulate the names of men considered “dangerous” and fraternity houses viewed as “unsafe.” Between 2008 and 2010, according to the college’s official statistics, Dartmouth averaged about 15 reports of sexual assault each year among its 6,000 students. Brown, a school with 8,500 students, averaged eight assaults; Harvard, with 21,000 students, had 21. And those numbers are likely just a fraction of the actual count: One study showed that 95 percent of all sexual assaults among college students are never reported. In 2006, Dartmouth’s Sexual Abuse Awareness Program estimated that there were actually 109 incidents on campus…

Nearly every woman I speak to on campus complains of the predatory nature of the fraternities and the dangers that go beyond drinking. “There are always a few guys in every house who are known to use date-rape drugs,” says Stewart Towle…

One senior, who I’ll call Lisa, was “curbed” the second night of her freshman year. She’d been invited to a fraternity by one of its members. Thinking it an honor, Lisa enthusiastically accepted, and once she got there, she had two drinks. The next thing she remembers is waking up in the hospital with an IV in her arm. “Apparently, security found me in front of the house. That was my introduction to the frats: passing out from drinking, waking up in the hospital and not having any idea what happened.” What she did notice were bruises that looked like bites on her chest that hadn’t been there before. “To be very honest,” she says, “I didn’t really want to know what actually happened.”

How did Kim react to the fact that there were literally hundreds of sexual assaults taking place on and by his students while he was president? He “established an intercollegiate collaborative known as the National College Health Improvement Project to study high-risk drinking”, which even Dartmouth spokesman Justin Anderson admits is not designed to actually generate any solutions to the problem.

And as for the whole fraternity culture which spawns these abuses, Kim’s a big fan.

Kim, whose three-story mansion sits on Fraternity Row, is a strong supporter of the Greek system; he has suggested on several occasions that fraternity membership may have health benefits, citing studies that show that people with long-standing friendships suffer fewer heart attacks. In a strange abdication of authority, Kim even professes to have little influence over the fraternities. “I barely have any power,” he told The Dartmouth in a recent interview. “I’m a convener.”

In reality, Kim is one of the only officials in a position to regulate the fraternities. More than half of Dartmouth’s frats are “local” – houses that split off from their national organizations years ago, and are thus unaccountable to any standards other than those set by the college.

In this respect, Kim is much softer on the frats than his predecessor, James Wright, who tried to end the Greek system “as we know it” by requiring fraternities to substantially go coed. Obviously, he failed. But Kim seems to have no problems with fraternities at all: in the same interview, he went so far as to say that it’s “not just the Greek system” which does hazing, and that “you have to look at everybody”. What was he going to do about it? Well, he said, “we’re trying to understand what more we can do.”

Kim even went so far as to meet with Dartmouth’s fraternities to tell them they weren’t in his crosshairs, saying that “one of the things you learn as an anthropologist is that you don’t come in and change the culture.”

And when Lohse presented Dartmouth with copious evidence of just how bad hazing was at his fraternity, SAE, the result was astonishing:

On February 22nd, his 22nd birthday, Lohse received a call from Dartmouth’s office of judicial affairs, informing him that, based on information he’d provided the college, they were pursuing charges against him for hazing. The college has also charged 27 other members of SAE, stemming from events in the 2011 pledge term. While the other students all categorically deny doing anything illegal, the information that Lohse provided to Dartmouth officials may directly implicate him in hazing. As a result, Lohse – the only student to come forward voluntarily – may be the only student who is ultimately punished.

What does all this mean for Kim’s candidacy for president of the World Bank? That’s hard to say. On the one hand, the US basically has the nomination sewn up, since the European countries will always vote for the US candidate in return for the US always voting for the European candidate for head of the IMF. And Europe and the US together constitute an unbeatable voting bloc.

At least, that’s how it has worked until now. The convention that the next head of the IMF will have to be a European is eroding fast, and there are even many European politicians who don’t believe in it any more. And for the first time we’re having a contested race for head of the World Bank, with an incredibly highly-qualified candidate in Okonjo-Iweala; the FT, for one, says she’s “the right leader for the World Bank”. I agree.

So the key constituency here is the European countries, and what they think about Kim’s actions, or lack thereof, at Dartmouth. The college’s culture of hazing and sexual assault is tolerated in the US, but is likely to look unspeakably brutal to European eyes, and I can certainly see many European politicians being extremely uncomfortable voting for a man who did nothing to stop it. The question is: will they read the Rolling Stone article? And if they do, will they be shocked enough that they would be willing to get into a huge diplomatic fight with the US as a result?

The machinations of international politics are rarely particularly edifying, and I suspect that Europe will ultimately fall into line and vote for Kim, just as it has always voted for the US candidate in the past. But if by some miracle Kim loses, and Okonjo-Iweala ends up getting the job, there’s a very good chance that a feature article in Rolling Stone might turn out to be the reason why.


I’m no fan of Jim Kim, but I need to post here in order to correct some of the unfortunate premises of this article. In the US and over in the Northeast, everyone recognizes the Rolling Stone article as a complete hit piece on Dartmouth, filled with an inaccurate and attention-seeking account about what happens at the college. Andrew Lohse, the only source of the article, was kicked out of Dartmouth after doing cocaine and assaulting a security officer (look it up), and was apparently seeking to get revenge and publicity in a desperate plea for attention.

Citing the Rolling Stone as your factual source is regarded as ludicrous over here. To use an analogy, that would be like Reuters citing a story in one of the many British Tabloids and reporting it as an absolute fact. Dartmouth has episodes of drinking, sexual assault, and hazing…but it’s certainly not regarded as any worse than any other American institution. Unfortunate for Jim Kim that this has gotten blown out of proportion, but, well, maybe he deserves it a bit. He was a terrible President of Dartmouth

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Jim Kim!

Felix Salmon
Mar 23, 2012 14:15 UTC

So that was unexpected: the next president of the World Bank is almost certain to be Jim Yong Kim, the co-founder of Partners in Health and the current president of Dartmouth University College.

The news of Kim’s nomination has gone down very well among the punditocracy, and Jeff Sachs already seems to have withdrawn his candidacy in Kim’s favor.

I’m not going to pretend that I’d ever heard of Kim before this morning. But everybody who has heard of Kim seems to think that the choice is a wonderful and inspired one. Kim is a physician by training; he’s a co-founder of Partners In Health, one of the world’s most respected medical NGOs. He’s also a bit of a big-data geek, which is likely to delight the Bank’s wonky employees.

Kim’s prowess when it comes to navigating Washington’s labyrinthine power structures is unknown; I hope he’s up to the job. But he’s going to bring passion and dedication to his task of poverty reduction, along with a welcome bias towards bottom-up rather than top-down solutions. And I suspect that the World Bank’s board will find it easy to rubber-stamp his nomination.

That said, I very much doubt that Kim would stand a remote chance of getting the job in an open and merit-based competition. He has little if any experience dealing with countries at the head-of-state level, and the Bank has historically not been an organization with a particular focus on health initiatives. Cast your mind back just a few days, to when François Bourguignon, Nicholas Stern and Joseph Stiglitz published a piece in the FT calling for the best-qualified candidate to get the job: here are the criteria they listed.

Criteria for shortlisting candidates could be similar to those listed by the IMF board in the procedure that led to the appointment of Christine Lagarde: distinguished record as an economic policymaker, outstanding professional background, familiarity with banking and finance, diplomatic and managerial skills. In the case of the World Bank, solid knowledge and experience of development policy should be added to this list.

Kim has the requisite development-policy background, and also an outstanding professional background, but he’s not a banker, an economist, or a diplomat. It’s also worth looking at his nomination in the light of the stated reason why the head of the World Bank should be an American:

What matters for the World Bank is resources. And keeping an American in charge helps protect those resources.

The United States is the World Bank’s largest donor. That’s been true under both Democratic and Republican administrations. And one of the reasons it’s held so steady, some think, is that the World Bank tends to be led by a high-ranking American official who is able to persuade the White House and Congress to continue supporting the body.

The outgoing World Bank president, for instance, is Bob Zoellick, a highly regarded Republican who served in key positions under both George W. Bush and his father. He was preceded by Paul Wolfowitz, another key Republican policymaker. Many believe the two men played an important role in keeping American financial support for the bank high in years when Republicans controlled the government.

Kim doesn’t strike me as the kind of person who’s particularly great at wrangling Republican votes in Congress. Maybe that doesn’t matter, and all that Congress cares about is that the Bank is run by an American. But this nomination is ultimately a little disappointing, if only because it perpetuates the US hegemony at the Bank at a time when Obama could be opening up the leadership of the institution to a fantastic developing-world candidate instead.

That said, there is one advantage to the convention that the president of the World Bank is nominated by the president of the United States, rather than being chosen in some kind of international beauty contest: it allows POTUS to nominate exactly someone like Kim, a dark-horse candidate who could be wonderful in the job but who doesn’t have a strong international power base. I’m hopeful that Kim will turn out in hindsight to be a wonderful World Bank president, even if (or maybe even because) he couldn’t win the job under the kind of system that most countries want.


He graduated from Muscatine High School a couple years before I attended kindergarten in Muscatine.

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Larry Summers, the revolving door, and the World Bank

Felix Salmon
Mar 23, 2012 06:19 UTC

Remember Krishnan Guru-Murthy’s interview with Larry Summers in January? He asked about Inside Job‘s allegations that Summers was a clear beneficiary of the revolving door. Now see if you can spot a recurring phrase in Larry’s answer:

Whatever I did or did not do, right or wrong, in the Clinton administration, I had earned no significant sum of money prior to working in the Clinton administration, or, in association with the financial sector, for more than five years after I left the Clinton administration. And so any suggestion that what I did in the Clinton administration had to do with loyalty to the financial sector — I think is a bit absurd.

That’s four mentions of “the Clinton administration” in the space of two sentences. The idea, it seems, is that if you wait a few years before availing yourself of that revolving door, then that means you can’t have been conflicted in office.

This interview has new salience right now, not only because Summers is arguably the favorite candidate to be the next head of the World Bank, but also because John Cassidy has now confirmed what many of us predicted well in advance: Summers is back working at DE Shaw, and presumably making many millions of dollars per year for doing so. This time, he didn’t wait five years; he didn’t even wait one.

Now according to Larry’s own logic in the answer he gave to Guru-Murthy, it’s perfectly reasonable, given the alacrity with which he accepted DE Shaw’s millions, to ascribe his actions in the Obama administration to loyalty to the financial sector. We now know that when Summers was giving this interview, he was already back at work for DE Shaw. Which is why he was so careful to confine his answer only to his activities during the Clinton years. If accused of being a creature of the revolving door during the Obama years, he could adduce no such defense: he literally left DE Shaw to join the Obama administration, and then revolved straight back into that job when his temporary government gig was over.

Cassidy is right to point out that Wall Street ties are hardly unprecedented in World Bank presidents. But there’s still something opportunistic and sleazy here: Summers isn’t a banker, so much as he’s just selling the fruits of his government experience to the highest bidder, even as one of his rivals for the World Bank job, Jeff Sachs, is taking to twitter to remind anybody who will listen of even sleazier episodes in Summers’s past.

Sachs isn’t helping his cause with that kind of tweeting. But the truth is Summers can’t relish a contest between himself and Ngozi Okonjo-Iweala. Summers paid $31 million (Harvard’s money, of course, not his own) to settle a lawsuit over Andrei Shleifer’s disgraceful behavior in Russia, while keeping Shleifer at Harvard as a faculty member in good standing. Ngozi Okonjo-Iweala, by contrast, well, I’ll let her tell the story:

From 1967 to ’70, Nigeria fought a war: the Nigeria-Biafra war. And in the middle of that war, I was 14 years old… We were on the Biafran side. And we were down to eating one meal a day, running from place to place, but wherever we could help we did. At a certain point in time, in 1969, things were really bad. We were down to almost nothing in terms of a meal a day. People, children were dying of kwashiorkor. I’m sure some of you who are not so young will remember those pictures. Well, I was in the middle of it. In the midst of all this, my mother fell ill with a stomach ailment for two or three days. We thought she was going to die. My father was not there. He was in the army. So I was the oldest person in the house. My sister fell very ill with malaria. She was three years old and I was 15. And she had such a high fever. We tried everything. It didn’t look like it was going to work.

Until we heard that 10 kilometers away there was a doctor, who was able … who was giving … looking at people and giving them meds. Now I put my sister on my back, burning, and I walked 10 kilometers with her strapped on my back. It was really hot. I was very hungry. I was scared because I knew her life depended on my getting to this woman. We heard there was a woman doctor who was treating people. I walked 10 kilometers, putting one foot in front of the other. I got there and I saw huge crowds. Almost a thousand people were there, trying to break down the door. She was doing this in a church. How was I going to get in? I had to crawl in between the legs of these people with my sister strapped on my back, find a way to a window. And while they were trying to break down the door, I climbed in through the window, and jumped in. This woman told me it was in the nick of time. By the time we jumped into that hall, she was barely moving. She gave a shot of her chloroquine, what I learned was the chloroquine, then gave her some, it must have been a re-hydration, and some other therapies, and put us in a corner. In about two to three hours, she started to move. And then, they toweled her down because she started sweating, which was a good sign. And then my sister woke up. And about five or six hours later, she said we could go home. I strapped her on my back. I walked the 10 kilometers back and it was the shortest walk I ever had. I was so happy that my sister was alive. Today, she’s 41 years old, a mother of three, and she’s a physician saving other lives.

It’s almost inconceivable to me that Barack Obama, the proud African-American who wrote Dreams from My Father, could ever with a straight face claim that Larry would be a better choice to run the World Bank than Ngozi. Larry has made it abundantly clear that the only thing he values more than money is power. His decision to rejoin DE Shaw is what economists would call a “revealed preference”. And what it has revealed, as if there was any doubt, is that Summers is not the right person for the World Bank job. He wants to work for DE Shaw? Fine. Let him stay there.


Mr. Summers recently recently said that learning languages other than English was a waste of time: hardly an appropriate mentality for someone wanting to hold an international post.

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The ideal nominee for World Bank president

Felix Salmon
Mar 22, 2012 07:16 UTC

Now things are getting interesting. Lesley Wroughton has the wonderful news: two very highly qualified non-American candidates — Ngozi Okonjo-Iweala and  Jose Antonio Ocampo — are going to be nominated to be president of the World Bank. This really puts the pressure on the White House to knock it out of the park with their nomination, because Ngozi, in particular, is broadly regarded both within and outside the Bank as being pretty much perfect for the job. She’s a whip-smart economist, she’s honest, she’s imaginative, she’s dedicated, she’s expert at navigating the Bank’s labyrinthine bureaucracy and politics, and she’s passionate about the way that the Bank can really make the world a better place.

In 2008, I “interviewed” Ngozi for Portfolio magazine. Which means that I went down to Washington and got escorted in to her office. She then arrived, I asked her one short question, she gave me a fluent and wonderful 2,000-word answer while barely pausing for breath, and then she left for a meeting with Bob Zoellick.

It’s been five years since I first said that Ngozi would make an excellent World Bank president, and this nomination is long overdue. What’s more, she will have a lot of support within the World Bank’s board — the body which ultimately will make the decision as to whom to choose.

Of course, the board members do what they’re told to do by the bank’s shareholders — the world’s countries. And if the Europeans and the Americans all vote for the US candidate, then the US candidate will win. That’s the simple truth. But here’s the thing: everybody on the board pays at least a modicum of lip service to the idea that the job will go to the best candidate. When Christine Lagarde took over at the IMF, she got the job because she was European, and the European candidate always gets the job. But at the same time, everybody voting for her could say with a straight face that she was, in fact, the best candidate as well.

Now that Ngozi’s in the running, the US is going to find it incredibly difficult to nominate a relatively low-profile person like Susan Rice, because it’s almost impossible to make a credible case that Rice is a superior candidate to Ngozi on the merits. And other big names seem to be falling away:

U.S. Senator John Kerry and PepsiCo’s Indian-born CEO Indra Nooyi also made an Obama administration shortlist, according to a source, although Kerry has publicly ruled out the job and Nooyi is no longer in contention, according to another source.

This is really bad news, because by a process of elimination it more or less forces Obama to go with Larry Summers. Larry would be a dreadful nominee, and a worse president, in a job whose primary prerequisite is diplomacy. And before he’s even nominated, there’s already a website up, ForgetLarry.org, devoted to campaigning against him for the job. It covers pretty much all the bases, although it weirdly misses the Russia/Shleifer scandal: for that, check out Cathy O’Neil’s post from a couple of weeks ago.

I’ve talked to a fair number of people about this position, including a few who are quite sympathetic to Larry, and not one of them thinks that he would be good in the post. If the US forced the world to choose between Larry and Ngozi, it would have to expend an astonishing amount of diplomatic capital to twist the requisite number of arms to get him the job, just because no one would actually want to vote for him. Their hearts would be with Ngozi.

Remember that Larry has never held elective office: it’s pretty much inconceivable he ever could. And yet, in its own way, the president of the World Bank is indeed an elected office. The electorate is tiny and extremely elite, to be sure. But the board is still going to want to meet with him, and he’s going to give them his insincere I’m-just-humoring-you-because-I’m-smarter-than-you smile, and even the Europeans are going to start wondering whether they really have to give Larry the job, just because they want to retain their own grip on the IMF.

It’s entirely conceivable, in fact, that an anti-Larry faction might vote instead for Jeff Sachs, who has already been formally nominated by some very small countries, on the grounds that convention holds that the president of the World Bank has to be an American, rather than that it has to be the US nominee. Up until now, the US nominee has always been the only American nominee: this is the first time that isn’t the case. Which means that we might yet see Larry and Jeff split the status-quo votes, allowing unstoppable momentum to gather behind Ngozi.

So here’s one clever idea: Joe Stiglitz and Stan Fischer should throw their hats in the ring as well; I think that both of them would be able to find a country willing to nominate them. There would then be no fewer than four American nominees for the Bank’s board to choose from. Stiglitz is on the record saying that the most qualified candidate is likely to come from a developing country; his candidacy would be a way of providing the greatest possible range of candidates for anybody who feels like they have to vote for an American candidate but who doesn’t want to vote for Larry.

More realistically, Obama is going to have to come up with a real knock-out of a nominee, someone who would waltz into the job no matter who she was up against. Which is to say, Obama is going to have to nominate Hillary. Hillary has, we’re credibly told, ruled herself out for the job. Well, she might have to change her mind.

If Hillary is nominated, the job is hers: it’s as simple as that. And she would be very good at it, too. She wouldn’t even need to serve out a full term. While she had the job, she might even be able to engineer a way in which she could be succeeded by Ngozi, or some other highly-qualified candidate without a US passport. Which alone would make her one of the most important and revolutionary presidents in the Bank’s history.

Hillary is 64 years old — easily young enough to have one more big job before she retires. Does she want the job? Probably not. But she’d be great at it anyway. And she might have to accept the nomination, if only to ensure what she will be certainly working behind the scenes to achieve in any case — US continuity at the Bank at least through the 2012 elections. After that, I’m sure she can find a way to ease herself out if she really wants.


FifthDecade, that clarifies, thanks. I would suggest that while education is indeed paramount, “the way forward” in eliminating corruption, as you suggest, is not just education, but a firm grounding in ethics. That is arguably even harder to achieve, but may be driven locally and rely less on foreign tutoring, which should restrict itself to technical assistance if certain conditions (in terms of accountability and cooperation) are met.

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