Charles Dharapak/AP Photo
As National Economic Council director, Larry Summers listens as President Barack Obama and Vice President Joe Biden speak, January 30, 2009, in the East Room of the White House.
Larry Summers has spent the Biden presidency in a state of perpetual concern. He is convinced that the trillions in pandemic relief, with perhaps more fiscal spending on infrastructure to come, will overheat the economy, leaving policymakers unable to contain runaway inflation without triggering a deep recession. In March, the former Treasury secretary described the state of affairs as “the least responsible macroeconomic policy we’ve had in the last 40 years.”
Most economists and experts have signaled reassurance that the recent run-up in inflation, like the 0.9 percent increase in consumer prices seen by the Department of Labor in June, is transitory, buoyed by used-car prices, supply chain problems, and reverberation off of lockdown lows. In fact, core inflation growth has already started to slow down, suggesting that the experts were right, and Summers’s concerns were overblown.
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But who exactly is Summers concerned about? The ordinary laborer paying more for a bucket of chicken wings while possibly making more in wages, or the people who have preoccupied Summers for virtually his entire career: bankers and financiers? The answer may be found in his client list. Summers has been diligently laundering his reputation on behalf of “fintech” lenders, real estate startups, and Bitcoin plays, including several businesses that would benefit from an economy that values lower inflation over full employment.
This is not necessarily a case of Summers taking a public position that secretly aligns with his private consultancies, advisory gigs, and board seats. For a long time, Summers has been the leading evangelist of the notion that what’s good for Goldman Sachs is what’s good for America—an institution that just so happens to have rewarded him handsomely with speaking fees. At the moment, that has manifested as Summers warning of looming inflation and advocating for putting a lid on the economy.
Why is that? Traditionally, banks make their money through lending, and when inflation is high, interest rates are typically low. High inflation and low interest rates are bad news for banks; low rates make lending less remunerative, and inflation is a gift to debtors, inflating away the value of the debt while the loan rate is fixed.
For a long time, Summers has been the leading evangelist of the notion that what’s good for Goldman Sachs is what’s good for America.
Of course, big banks have evolved away from such mundane concerns. Their record profits are coming from merger and acquisition deals and trading revenue. But the kind of businesses that Summers has linked up with more recently, which have elbowed their way into lending but lack the stature to facilitate corporate acquisitions, do need to be able to charge higher interest rates to increase earnings growth. They also often rely on keeping their clients in a low level of misery, another reason to object to an activist fiscal program.
In recent years, Summers has become entangled with a series of fintech firms, particularly online versions of traditional lenders, with better graphic design and a more open focus on subprime consumers. Summers sits or has sat on the boards of subprime lenders like LendingClub and Square, and the buy-now-pay-later firm Afterpay, which touts itself as “interest-free” but gouges customers with late fees. (Ironically, Square agreed to purchase Afterpay on Monday.) He has also served as a long-term adviser to Andreessen Horowitz, a venture capital group with major holdings in fintech, including SeedFi, a startup that offers credit to customers who are so cash-poor and vulnerable that they’re “traditionally hard to underwrite.”
A recent Andreessen Horowitz blog post saw opportunities in the massive amounts of consumer debt, including that for student loans. Fintech firms could “manage consumer debt holistically,” the blog reasoned, particularly student debt. Cancellation of student debt would eliminate some of these possibilities, and here we have Andreessen Horowitz adviser Larry Summers publicly positioning himself as an opponent of canceling student debt.
All of these outfits are aiming to cash in on the desperation of working Americans, shut out of more formal, fairer credit lines and consumer protection standards, and in desperate need of small amounts of cash. Nearly all of these firms also happen to have been dogged by regulators for misconduct. Coincidentally, Summers’s comment about irresponsible fiscal policy came after the Biden administration extended enhanced unemployment, stimulus checks, and an expanded Child Tax Credit, which combined triggered a record drop in poverty levels.
Americans don’t need to borrow at usurious rates when they’re getting the help they need from the federal government. That fact wasn’t lost on Summers’s Square; the company initiated its low-dollar cash lending program in August 2020, just days after the first round of enhanced unemployment lapsed.
Summers also is a board member of Doma, a “machine learning” firm that claims to simplify the home-buying process, and is an investor in Belong, an online long-term home rental startup. Anything that makes real estate more profitable, like increased interest rates on mortgages, would assist ancillary companies in the space.
All of these outfits are aiming to cash in on the desperation of working Americans, shut out of more formal, fairer credit lines and consumer protection standards.
Fintech firms want to “disrupt” the financial sector, which simply means that they want in on the exact same profit-wringing model as the major lending institutions, but preferably with less oversight. And while Summers has been happy throughout his career to do the bidding of the big banks, in recent years he’s rented out his reputation to confer legitimacy on these dicier financial entities, especially those plagued by misconduct in ways that make Wall Street’s finest look like choirboys.
For example, Afterpay paid $900,000 in the state of California, after state regulators deemed late fees the firm was imposing on its customers to be illegal. In June, a class action lawsuit was filed against the company alleging deceptive marketing practices that target “those struggling to make ends meet” and obscured large undisclosed fees and interest.
In April 2018, meanwhile, the Federal Trade Commission charged LendingClub for regularly misleading customers about hidden fees and taking money from their accounts without authorization. Summers left the firm’s board just weeks before that penalty was announced.
Commitments to even dicier firms abound. Summers also sits on the board of Premise Data, a data collection gig-work firm that, as The Wall Street Journal reported in January, had its workers unknowingly providing information to the U.S. military.
Some of Summers’s other advisory gigs align with his public policy preferences, though he rarely discloses the arrangements. As far back as 2015, Summers has praised cryptocurrency companies as innovative and an “alternative to gold.” Summers is a senior adviser with the Digital Currency Group, an investment firm for crypto companies.
Summers declined comment on a series of questions about his affiliations.
Getting passed over for a formal White House position, when Joe Biden seemed adamant about putting the Obama band back together, was a clear comment on Summers’s weakened and even toxic reputation among progressives. His institutional affiliations reflect that too; gone are the Harvards and the JPMorgan Chases; in are the regulatory arbitrageurs and the financial bottom-feeders. If the White House wants to court Summers’s counsel (he recently met with senior officials), and re-legitimize his standing, it will also be burnishing the reputation of a handful of underregulated lenders that the administration is tasked with reining in.
