I'm somewhat less worried about the money Larry Summers made during his time in the financial world than the people he met while working there. Summers, after all, would almost certainly prefer to go down in history as the guy who brilliantly coaxed the American economy out of a major financial crisis than the guy who was really, really appreciative to Goldman Sachs for ponying up a particularly impressive speaker's fee. And on a purely transactional level, his eventual earning prospects are much better if he emerges a hero than if he resigns a villain. The incentives aren't there for him to think of this in terms of a quid pro quo. The appearance may be improper, but the impact is probably minimal.But Summers' time working with Wall Street might have influenced his thinking in much more powerful and subtle ways. It's easy to mentally correct for the influence of a check. It's harder to account for influence of a friend. He may be unduly sympathetic to, and impressed by, his former colleagues. Being paid $5 million, and heavily flattered, by the principals at a hedge fund is the sort of thing that might make you pretty sympathetic to the principals at hedge funds. Plus, these are smart guys who know more about the topic than you do. How could your perspective not be informed by those relationships.And sure enough, buried in The New York Times report is this little graph: "Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House." Summers, of course, is dealing with a financial sector crisis. He needs financial sector expertise. This is particularly true, we're told, because virtually no one who works outside of Wall Street understands Wall Street. And that may well be correct. But it's a serious problem if the only people who can really help craft financial industry policy are the people who profit from the financial industry.Take health care as a counter-example. Though health care is also complicated, there are a lot of different pools of expertise. You have insurance industry executives, sure, but also advocates, doctors, hospital administrators, think tank fellows, regulators, academics, nurses, health economists, and many more. The interests behind the expertise are varied and often run counter to each other. You can engage the knowledge of stakeholders without being totally reliant on the perspective informed by a particular alignment of interests.That's less true in the financial industry. I'm not sure that Summers could do this without listening to a lot of hedge fund managers. But that doesn't change the fact that reforming Wall Street by listening mainly to traders is like trying to reform health care by listening mainly to insurance industry executives. It may be that Summers has no choice. But that doesn't mean it will result in a good outcome. WHO YOU GONNA CALL? (THE BANKERS!)
I'm somewhat less worried about the money Larry Summers made during his time in the financial world than the people he met while working there. Summers, after all, would almost certainly prefer to go down in history as the guy who brilliantly coaxed the American economy out of a major financial crisis than the guy who was really, really appreciative to Goldman Sachs for ponying up a particularly impressive speaker's fee. And on a purely transactional level, his eventual earning prospects are much better if he emerges a hero than if he resigns a villain. The incentives aren't there for him to think of this in terms of a quid pro quo. The appearance may be improper, but the impact is probably minimal.But Summers' time working with Wall Street might have influenced his thinking in much more powerful and subtle ways. It's easy to mentally correct for the influence of a check. It's harder to account for influence of a friend. He may be unduly sympathetic to, and impressed by, his former colleagues. Being paid $5 million, and heavily flattered, by the principals at a hedge fund is the sort of thing that might make you pretty sympathetic to the principals at hedge funds. Plus, these are smart guys who know more about the topic than you do. How could your perspective not be informed by those relationships.And sure enough, buried in The New York Times report is this little graph: "Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House." Summers, of course, is dealing with a financial sector crisis. He needs financial sector expertise. This is particularly true, we're told, because virtually no one who works outside of Wall Street understands Wall Street. And that may well be correct. But it's a serious problem if the only people who can really help craft financial industry policy are the people who profit from the financial industry.Take health care as a counter-example. Though health care is also complicated, there are a lot of different pools of expertise. You have insurance industry executives, sure, but also advocates, doctors, hospital administrators, think tank fellows, regulators, academics, nurses, health economists, and many more. The interests behind the expertise are varied and often run counter to each other. You can engage the knowledge of stakeholders without being totally reliant on the perspective informed by a particular alignment of interests.That's less true in the financial industry. I'm not sure that Summers could do this without listening to a lot of hedge fund managers. But that doesn't change the fact that reforming Wall Street by listening mainly to traders is like trying to reform health care by listening mainly to insurance industry executives. It may be that Summers has no choice. But that doesn't mean it will result in a good outcome. 
