Larry Summers, the Winklevoss twins, and the Facebook start-up
There is no doubt that Larry Summers is one of the central figures in the derivatives fiasco and the financial crisis. The movie Inside Job does a great job of explaining how he kept getting in the middle of all major financial decisions at a time when the market was booming. It also shows how his decisions helped enable the financial meltdown just a few years later. So how is Larry Summers also involved in the founding of Facebook? Let me explain.
After leaving the U.S. Treasury Department when President Clinton’s term ended in 2001, Summers made a quick fortune as a consultant to derivative trading companies. That was explained in a previous blog. After making this fortune, Summers was offered the position of President of Harvard University. At this time, Summers looked like a genius. The real estate market was booming, and he had just left a high profile position in government. He was also a Harvard grad. It seemed like a logical choice. Then a student by the name of Mark Zuckerberg started an online social networking website called thefacebook.com. That’s when all hell broke loose. Here’s how Summers is involved.
When Mark Zuckerberg started thefacebook.com, he was immediately challenged by Cameron and Tyler Winklevoss, twin brothers who alleged that Zuckerberg stole their idea. The twins had approached Zuckerberg a few short months before to ask him to finish building The Harvard Connection, a social media site that was exclusive to Harvard students. Zuckerberg liked the concept and agreed, but stonewalled the brothers while building his own social media site, thefacebook.com. The Winklevoss twins tried everything short of a lawsuit to stop Zuckerberg, but nothing worked. Their last resort before litigation was to see the President of Harvard to inform him of a violation of Harvard Code. When they entered Larry Summers’ office, they thought that they had a rock-solid case.
Summers, an extremely arrogant man, was astonished that undergrads were ACTUALLY in his office. No undergrads were ever allowed to see him. Fortunately for the Winklevoss twins, their father had connections and was able to secure the appointment. When the twins explained to Summers their case, they expected Summers to take action against Zuckerberg. What they got was nothing short of a slap in the face. Summers told them that he had no jurisdiction over the matter, despite the fact that it was written clearly in the Harvard Student Handbook that no student shall steal anything (even intellectual property) from another student. The bottom line is: Summers didn’t want to be bothered. He told them that the website probably wouldn’t go anywhere (700+ million users today), and that they shouldn’t worry about it. He said that they should just get another (this was their idea) idea and let Zuckerberg have his site (worth about $50 billion now). Needless to say, the twins were appalled. They stormed out of Summers’ office and had no choice but to litigate. They ended up settling for $60 million dollars.
As for Larry Summers, to this day he has failed to acknowledge that he was wrong in what he told the Winklevoss twins. In fact, he was quoted this year as saying that he has never met two more arrogant people in his life. That was his impression from their meeting. He didn’t mention anything about his own arrogance or blunder.
Larry Summers may be a very bright person, but public relations isn’t his thing. He is terrible speaking in public. He is too serious and self-conscious to accept blame for anything. It’s always somebody else’s fault. It’s truly amazing that one man could be at the center of controversy in two of the biggest events in U.S. History: The Great Recession (as one of the catalysts) and; the founding of Facebook (where he was in the wrong place at the wrong time but nevertheless found a way to do the wrong thing). As intelligent as he may be, he has put himself in a place where he isn’t comfortable: in the spotlight as a villain in both cases.