Global Finance

The Language of Crises

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At this fall's gathering of the Bretton Woods Committee—where luminaries of high finance were supposed to discuss the topic of crisis preparedness but instead addressed the economic trouble that already has come to pass—former Obama economic adviser Larry Summers voiced the most sobering assessments to come out of the event.

Whereas the International Monetary Fund's Christine Lagarde told the audience about her hopes for "a revival of the spirit" of international cooperation, and the U.K. Financial Services Authority's Adair Turner suggested with classic British understatement that "it may be that we will need to lead much more aggressively than we have," Summers noted somberly that he had not been to a prior meeting of the group "where the issues have had more gravity, and at which I have had more concerns about the future of the global economy."


Summers is a forceful, deliberate speaker who doesn't ever seem to care much about what anyone else thinks of him. So it was striking when halfway through his panel, which by then had triggered a noticeable spike in the average blood pressure in the hotel ballroom, Summers suddenly felt compelled to dial things back a bit.


Having delivered a message that was dark (in his statements about the European economy), resigned (in his observations about the ironic nature of financial crises) and cautionary (in his description of a policy disjunction that he considers to be as much of an intellectual disagreement as a political one), Summers said he hoped his downer of a tone at the Deloitte-sponsored event wouldn't be mistaken for capitulation.


"These are solvable problems," he told the audience, a mix of bankers, regulators, economists, government officials, academics, consultants and lawyers. Acknowledging the complexities of the issues, Summers said, "is not to say that they will not be resolved and it is not to say that people should lose confidence."


Summers is no longer on the front lines of economic policymaking. He left the White House a year ago and went back to the faculty at Harvard. But he's still keenly aware of the impact of his words, and of those used by the officials entrusted with protecting the stability of the financial system.


"One of the most difficult challenges in a crisis," Summers said, "is finding the language that generates the alarm that drives action, but not the despair that can prove self-fulfilling."


It was a remarkable endorsement of self-awareness considering the source.


Summers is known for his controversial commentary and his explosive temper, and both were on display that late September day in Washington—first on the panel, where his pointed witticisms set the audience abuzz, and later at an impromptu press conference, where he gave a dressing-down to a reporter who apparently had angered him with his earlier attempts to land an interview. (The conflict with the journalist ended almost as soon as it started; the reporter was left with the same stunned look on his face as the Winklevoss twins, as played by Armie Hammer in "The Social Network," in the scene where the Facebook litigants bring their complaints about Mark Zuckerberg to Harvard's then-president Summers.)


Given the role of transparency in any democracy, it's natural for thinking citizens to want their government officials to give it to them straight. But if straight talk is going to crash the markets or cause a run on the banking system, it's easy to argue that precautions must be taken. Banks can (and sometimes do) exploit the latter idea to protect themselves from giving up more than they have to, in terms of disclosure or profits or cooperation with regulatory reform efforts. But in doing so, they risk stretching out the half-life of the troubles they face.


"It is the process" of voicing concerns, Summers told the Bretton Woods gathering, that will "lead to actions being taken that can solve the problem."

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