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Larry Summers as The Next Fed Chairman?

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    While Ben Bernanke hasn't officially announced that he will be leaving the Federal Reserve after his term expires in January, the chatter about his possible replacement has reached a fever pitch in recent days after it was reported that President Obama is leaning towards nominating Larry Summers to replace Mr. Bernanke when and if he announces that he will be stepping down. The rumors have elicited a strong reaction among liberal activists that are not big fans of Mr. Summers and would much rather have the President nominate Janet Yellen to the post. If he does go with the latter, Ms. Yellen would be the first woman nominated to become the chair of the Fed. It would also most likely invoke a name change from chairman to chairperson, considering the obvious fact that Ms. Yellen is not a man.

    It seems as if everyone except for the President has a negative opinion of Larry Summers, but when it all boils down to it, his is the only opinion that matters. Should President Obama go with his gut or listen to the activists that helped elect and reelect him? Has he honestly contemplated the backlash that he could face from his base at a time he needs it the most? And what would it mean if he decides to instead go with Ms. Yellen and nominate the first female to the post in the Fed's history?
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    In reviewing the history and bio of Larry Summers on Wikipedia, I would have to say "no." There is nothing in his record that would appeal to the ordinary folk, and he has also made derogatory comments about the intelligence of women.

    Summers is a Wall Street "bankers man." He is a follower of libertarian economist Milton Friedman, and upon his death wrote an Op-Ed in The New York Times entitled "The Great Liberator" arguing that "any honest Democrat will admit that we are now all Friedmanites." In it Summers wrote that even though Friedman's contributions to monetary policy had been highly lauded, his most important contribution may have been "in convincing people of the importance of allowing free markets to operate."

    As such he supported the repeal of the Glass Steagall, opposed regulation of the financial derivatives market, and while president of Harvard the University entered into a series of interest rate swaps totaling $3.52 billion, financial derivatives that can be used for either hedging or speculation. According to Wikipedia, "by late 2008, those positions had lost approximately $1 billion in value, a setback which forced Harvard to borrow significant sums in distressed market conditions to meet margin calls on the swaps. In the end Harvard paid $497.6 million in termination fees to investment banks and has agreed to pay another $425 million over 30–40 years. The decision to enter into the swap positions has been attributed to Summers and has been termed a "massive interest-rate gamble" that ended badly."

    William Greider writing for the Nation Magazine, has described Summers as "a toxic retread from the old boys’ network and a nettlesome egotist who offended just about everyone during his previous tours in government. More to the point, Summers was a central player in the grave governing errors that led to the financial collapse and a ruined economy."

    I think that describes Summers aptly.

    I didn't know much about Janet L. Yellen until I started reading about her. She certainly seems highly qualified to me, as she currently serves as Vice Chair to Ben Bernanke. However, as Ezra Klein reports, those that want Larry Summers as the new chairperson have started a whispering campaign against her.

    Ezra Klein, Washington Post: The subtle, sexist whispering campaign against Janet Yellen

    "The clear front-runner is Federal Reserve Vice Chairman Janet Yellen. But she’s by no means a sure thing. One important reason she’s not — and I don’t know another way to say this — is sexism, as evidenced by the whispering campaign that’s emerged against her. She lacks “toughness.” She’s short on “gravitas.” Too “soft-spoken” or “passive.” Some mused that she is not as aggressively brilliant or intellectually probing as other candidates — though they hasten to say she’s clearly very knowledgeable about monetary policy. Others have wondered whether she could handle the inevitable fights with Congress.

    "An interesting wrinkle is that the current chairman of the Federal Reserve doesn’t fit the default masculine leadership model himself. Bernanke is soft-spoken and conciliatory. He doesn’t pound the table in meetings or preen at conferences. When he took the job, there were concerns about his gravitas. He’s not a social or political force around Washington in the way his predecessor, Alan Greenspan, was. He leads by consensus, with none of the high-stakes showdowns that burnished the legend of former Fed chairman Paul Volcker. Yet Bernanke has managed to pull the Federal Reserve through an extraordinarily turbulent period.

    "Yellen’s background bears similarities to Bernanke’s, though she’s got more Washington and Fed experience than he did at the time of his appointment."

    So I would share Ezra Klein's view. The old boy's network would much prefer Larry Summers, but since they cannot knock Yellen's impressive resume of experience, they instead resort to a whisper campaign of undermining her.

    I vote for Janet Yellen over Larry Summers...a clear choice for me based on a quick review.