The Lectern: Running into Larry Summers

The afternoon before the holiday break began at Harvard, I was sitting in a nearly deserted public space (the Forum) at the Kennedy School with a colleague who wanted to talk about his upcoming visit to the public policy school at Singapore National University. While we were chatting, Larry Summers, the former Treasury Secretary and Harvard president, now a University Professor (Harvard's highest academic title) whose office is actually at the Kennedy School, came by. I told him he was looking great and that I had never in my life seen him look so relaxed.

Then I asked him a question about the subprime mortgage/housing crisis. My question was what his probability estimate was that this crisis would produce a prolonged economic problem similar to that which Japan experienced after its real estate market collapsed at the beginning of the 1990s.

He didn't answer my question exactly, but he did tell me that one of the Wall Street firms was running a prediction market (minimum bet -- $20 million) where people bet on a prediction of at what percentage off its peak a certain housing price index would descend before hitting bottom. According to Summers, experts taking part in the project estimated that the housing market would decline 23 percent from its peak before hitting bottom.

He then added that currently the index was down 5 percent from its peak.

That afternoon I emailed my kids that this was probably not yet the time for them to be considering buying a condo.

On that note, I will wish everybody a good, and a peaceful, New Year. Thursday afternoon I am headed for a week in Dubai to teach performance measurement at the Dubai School of Government.  This will be my only post for this week, but I will post next week from there.