When critics of Summers were alerted by the Financial Times in late May that he was the president's favorite for replacing current chairman Ben Bernanke when his term runs out in January, they pointed out what a bad, bad choice he is. Some of their critics said it was premature to be knocking him when only unnamed sources were saying Obama wanted him for the job. From additional reports, however, it became clear fairly soon that Summers was, at the very least, high on the list. Eventually, the president himself said so, noting that Yellen and some others were as well.
Before that admission, however, an opposition to Summers had started growing. It included 19 senators who wrote a letter to the president urging him, without mentioning Summers's name, to choose Yellen. This opposition spurred the president to defend Summers vigorously at the end of July.
Summers is, in fact, a rotten choice for the post. As the Times board points out:
Mr. Summers’s reputation is replete with evidence of a temperament unsuited to lead the Fed. He is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful. Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction.There's more from the distant and recent past. All in all, plenty of reasons not to appoint Summers to a post in which the regulatory role of the Fed will be greater than ever before. That's something Yellen is way more suited for temperamentally and philosophically than Summers.
His record on financial regulation is abysmal, and he has not acknowledged the errors. In the late 1990s, Mr. Summers was instrumental in deregulating derivatives and in repealing the Glass-Steagall banking law. He has said that the resulting financial crisis was unforeseeable, which is wrong. He waged public battles against regulators who correctly argued for regulating derivatives and disparaged the comments of a prominent economist who early on identified risks in the too-big-to-fail banking system. This is precisely the wrong background for the next Fed leader, who will take charge in the middle of the delayed rule-making for the Dodd-Frank financial reform law.
Before dropping below the fold to read more, please join us in urging President Obama not to appoint Larry Summers as Federal Reserve chair, and consider appointing Deputy Chair Janet Yellen instead.
Much has been made of the fact that Yellen and Summers are practically twins on monetary policy. That would be true of anyone with a ghost of a chance of being picked as chair. (If Ron Paul or some other gold-bug were in the running, there would be some contrast in that arena.) But it's Yellen's record as a believer in a cooperative approach and her support for regulation rather than deregulation that matters when picking between her and Summers.
Much has also been made by some critics about the idea that Yellen is "Wall Street's candidate."
This assessment arose after release of a CNBC survey in July. What a joke. The claim is based on CNBC's on-line monthly Fed questionnaire. Just 40 “economists, traders and strategists” returned the questionnaire. Of these, 28 said Obama would choose Yellen and 20 said he should do so. Wow! Fifty percent!! But the idea that the support of 20 people makes Yellen Wall Street's choice is ludicrous.
Obviously there are other possible candidates. For instance, Christina Romer, the former chair of the Council of Economic Advisers, who butted heads with Summers when they were both in the White House, and recently noted that he might contribute to dysfunction were he selected to head the Fed. Or Thomas Hoenig, currently chairperson of the Federal Deposit Insurance Corporation. Or Sheila Bair, the former chairperson of the FDIC. Or someone way outside the box, say, Ann Markusen. But realistically speaking, it's Summers or Yellen.
The Times says:
Senators who have endorsed Ms. Yellen would do well to let Mr. Obama know, either publicly or through back channels, that their endorsement translates into a no vote for Mr. Summers.On the 22-member Senate Banking Committee are three Democratic senators who are likely to say no: Jeff Merkley of Oregon; Sherrod Brown of Ohio; and Elizabeth Warren of Massachusetts. Huzzah to them. And may they persuade several of their committee colleagues to do likewise.