The (Possible) Return of Larry Summers

[Jamie_B]

Good thing I haven't eaten lunch yet, this makes me sick.

 

http://truth-out.org/news/item/17565-the-return-of-larry-summers

 

 

The Return of Larry Summers?

 

According to accounts in the business press, there is a campaign among Washington insiders to get Larry Summers appointed as Ben Bernanke’s replacement as Federal Reserve Board chair. This could end up being the scariest horror movie of the summer.

 

It is bizarre that Summers would be seriously considered as the next Fed chair if for no other reason that there is an obvious replacement for Bernanke already sitting at the Fed. Janet Yellen, the vice-chair, has in the past served as the president of the Federal Reserve Bank of San Francisco, a member of the Board of Governors in the 1990s and head of President Clinton’s Council of Economic Advisers. She also has an impressive academic background, having been a professor at both Berkeley and Harvard.

 

No woman has ever served as chair of the Fed and Yellen would be an obvious choice to break the barrier. She also has been a consistent advocate of expansionary Fed policy focused on reducing unemployment. In terms of people who could plausibly make the short list for Fed chair, it is difficult to imagine a better choice than Yellen.

 

But even if President Obama were to decide for some reason not to promote Yellen to Bernanke’s position, it is difficult to see why Summers would be the alternative. Memories tend to be short in Washington, but those of us removed from elite circles know that Summers’ policies played a central role in setting up the economy for the crash that got us where we are today.

 

Summers was a key actor in the Clinton economic team that pushed for bigger and less regulated banks. He was there for the repeal of Glass-Steagall. He was also among those hectoring Brooksley Born, when the then head of the Commodity Futures Trading Commission argued that it would be a good idea to regulate derivatives. And he famously ridiculed as Luddites those warning of the risks of financial deregulation at the Fed’s Greenspanfest in 2005.  

 

Even more important than his role in pushing financial deregulation is the fact that Summers played a direct role in promoting the imbalances from which the economy continues to suffer. The trade deficit was relatively modest through President Clinton’s first term in office, averaging just over 1 percent of GDP.

 

This changed dramatically in 1997 following the East Asian financial crisis. The basic story was fairly simple. The crisis knocked the fast growing economies of the region off their feet. South Korea, Thailand, and the other economies of the region saw a massive capital flight as creditors rushed to take their money home.

 

The I.M.F., acting under the direction of then Treasury Secretary Robert Rubin, Federal Reserve Board Chair Alan Greenspan, and Rubin’s top assistant Larry Summers, agreed to a bailout, but only with harsh conditions. They required the East Asian countries to pay back their debts in full. In order for this to be possible, the currencies of the region plunged in value against the dollar. This made their goods very cheap and allowed them to hugely increase exports to the United States.

 

Seeing the harsh terms imposed by the I.M.F. on the East Asian countries, developing countries throughout the world decided that they must protect themselves by accumulating vast amounts of reserves. This meant lowering their currencies against the dollar so that they could run large trade surpluses.

 

The resulting run-up of the dollar was the cause of the huge trade deficits the United States has seen over the last 15 years. The trade deficit peaked at almost 6 percent of GDP ($960 billion in today’s economy) in 2006, as the over-valued dollar made U.S. goods and services less competitive in the world economy.

 

The huge trade deficit created a gap in demand that was filled by the stock bubble in the late 1990s and the housing bubble in the last decade. Since the collapse of the housing bubble, much of the demand gap has been filled by the budget deficit. The need to fill the hole in demand created by the trade deficit has been the economy’s central problem over the last 15 years. And this problem has LARRY SUMMERS written all over it.

 

This fact alone should be sufficient to keep Summers safely removed from anything resembling a position of power well into his next life, but there’s more. Summers has been very close to the financial industry, pocketing millions of dollars in fees for speaking and consulting. Would this affect his willingness to put an end to Wall Street’s too big to fail subsidy as Fed chair?

 

Even Summers’ successes are failures. The business press often touts his role in the bailout of Mexico following the peso crisis in 1994. Those of us with access to I.M.F. data know that Mexico has had the lowest per capita GDP growth of any major country in Latin America over the last two decades.   

 

There has been more talk of “the new Larry Summers” than the new Dick Nixon. Maybe such an animal exists, but those of us who remember the old Larry Summers would like to keep anyone with that name far away from the levers of power for a very long time.

 

[Jim Finklestein]

the more shit changes, the more shit stays the same  :suicide:

[Jamie_B]

the more shit changes, the more shit stays the same  :suicide:

 

 

Yeah I already wrote both of my senators urging them to oppose even the possibility of this nomination. I urge everyone to do the same.

 

This is what I wrote, feel free to use it if you wish.

 

 

Senator X,

I recently read an article speculating that there are insiders in Washington that are campaigning for Larry Summers to replace Ben Bernanke as the head of the Federal Reserve. I must stringently object to this possibility due to the role Mr. Summers played in deregulating the banks that caused the fiscal crisis to begin with during his time serving under President Clinton. He had been warned about the potential for an oncoming crisis by several folks and fought with Brooksley Born over using the CFTC to regulate derivatives. I have seen no public mea culpa from Mr. Summers regarding his role in this crisis and as such am very concerned of what he might do as head of the Federal Reserve. If he does indeed become nominated, I strongly urge you to oppose any such nomination. In fact I would think it best for the public interest that you come out and object to even the possibility of his nomination now.

Thank you for your consideration,
Jamie B

[CincyInDC]

I was thinking Larry Sanders.  That Larry would probably do better as the head of the Fed.

[Jamie_B]

Colonel Sanders would be a better choice

[Jamie_B]

Thank God.

 

http://www.nytimes.com/2013/09/16/business/economy/summers-pulls-name-from-consideration-for-fed-chief.html?_r=0#h[MShMSh]

 

Summers Pulls Name From Consideration for Fed Chief

 

WASHINGTON — For Lawrence H. Summers, President Obama’s preferred candidate to lead the Federal Reserve, the messy debate over a military attack in Syria was the final sign.

 

After weeks of opposition to his candidacy from an array of progressives, the president’s inability to rally Congressional Democrats on Syria persuaded Mr. Summers that his most important audience — the Senate, which must confirm a Fed chairman — probably could not be won over.

 

He concluded that the White House was also unlikely to overcome opposition to his candidacy from many of the same Democrats, who view him as an opponent of stronger financial regulation, according to supporters who insisted on anonymity to describe confidential conversations with him.

 

“Clearly Obama couldn’t bring his own most enthusiastic supporters to back him on an issue of national security,” one supporter said. “How was he going to corral them for Larry?”

 

Mr. Summers’s decision, which he shared with the president in a phone call Sunday followed by a letter, was described as reluctantly made and reluctantly accepted. Mr. Summers wanted the job and Mr. Obama wanted to pick him. But the public opposition of three Democrats on the Senate banking committee, the first step in the confirmation process, surprised the White House and forced a calculation that this was a battle the administration could not afford to fight.

 

The embarrassing setback reveals an administration increasingly hamstrung by occasional opposition of liberal Democrats, not just its familiar Republican opponents. It adds to the rocky nature of Mr. Obama’s fifth year, following the failure of a gun-rights bill, the stalling of an immigration overhaul and the lack of progress on a budget deal, on top of the back-and-forth over whether to conduct airstrikes in Syria to punish the Assad regime for a poison gas attack that killed hundreds of civilians.

 

The withdrawal of Mr. Summers also leaves great uncertainty around the selection of a new Fed chairman, one of the most important economic policy decisions Mr. Obama will make in his second term. The successor to Ben S. Bernanke, the current chair, will shape how much longer and harder the Fed pushes to boost economic growth and reduce unemployment. The next Fed chairman will play a leading role in determining how forcefully the government seeks to constrain the financial industry.

 

White House officials have described Janet Yellen, the current vice chairwoman, as a finalist, and her candidacy has received widespread attention, but it remains unclear how seriously Mr. Obama is considering her. He does not know her well and White House aides have seemed unenthusiastic about her, despite the substantial support she enjoys from Democrats and outside economists.

 

If Mr. Obama does not name her — or Timothy F. Geithner, the former Treasury Secretary and Fed official who is well-liked by the president but said to be uninterested in the job — many Fed watchers say they are uncertain where the president will turn.

 

Mr. Bernanke plans to step down at the end of January, leaving ample time for the Senate to confirm a replacement, but the uncertainty has unsettled financial markets just as the Fed, which is beginning to retreat from its stimulus campaign, tries to assure investors that it will not move too quickly.

 

In a statement released by the White House on Sunday afternoon, Mr. Obama said he had accepted the decision by his friend, whom he praised for helping to rescue the country from the financial crisis that peaked in 2008.

 

“Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today,” Mr. Obama said in the statement.

 

He added: “I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future.”

 

The withdrawal ends an unusually public and contentious debate that began when the president declared in a televised interview in June that Mr. Bernanke would depart, opening the replacement process to public scrutiny before a nominee was even named.

 

Mr. Summers had long been viewed by Mr. Obama and his economic advisers as Mr. Bernanke’s presumptive replacement

 

Mr. Obama and his advisers regarded Mr. Summers as a singular talent: an economist deeply steeped in economic theory, but intellectually nimble, with a gift for pragmatic problem-solving. Some of them believed those skills would be particularly important in the coming years as the Fed unwinds its huge stimulus campaign, an unprecedented effort with unknowable complications.

 

But many Democrats who favor stricter regulation of the nation’s financial institutions have expressed concerns about Mr. Summers’s role in the Clinton administration’s opposition to regulating the derivatives market, a factor that many economists believe helped precipitate the 2008 market collapse. As the Treasury secretary to Mr. Clinton, Mr. Summers supported less oversight of derivatives, something Mr. Clinton has since said was bad advice.

 

Opponents also cited Mr. Summers’s combative personality, which they described as a mismatch for the work of leading the Fed’s fractious policy-making committee, and the lingering concerns over his 2005 comments, as president of Harvard, suggesting that the dearth of female scientists stems partly from inherent differences between the genders.

 

While Mr. Obama said repeatedly that he had not made a final decision, aides said privately that he trusted and respected Mr. Summers, a relationship forged in the crucible of the financial crisis. And Mr. Obama himself fueled Mr. Summers’s status as nominee in waiting by defending him to lawmakers and entertaining questions about him from the news media.

 

But the long wait for an official announcement may have worked against Mr. Summers, allowing opposition to coalesce — and allowing other issues, like Syria, to strain the administration’s relationship with Congress.

 

The White House had made some efforts to build support for Mr. Summers on Capitol Hill. Earlier this year Mr. Obama asked Rob Nabors, then his chief Congressional liaison, to work with Mr. Summers, and Mr. Summers himself sought meetings with a number of senators.

 

But some congressional aides said White House officials had made little effort in recent weeks to solicit support for Mr. Summers from key senators — and that they seemed unaware of the depth of opposition.

 

Senator Jon Tester, a Montana Democrat who sits on the crucial Senate Banking Committee, did not hear from the White House until Friday. It was not a long conversation. Asked whether he would be willing to vote for Mr. Summers, Mr. Tester simply said that he would not.

 

Mr. Tester’s opposition was a critical blow. He is not a member of the group of liberal senators that had opposed Mr. Summers from the outset. Instead, his opposition showed that other constituencies, including rural lawmakers who support community banks, might also rally against Mr. Summers.

 

It became clear to the administration that it would need more Republican support than it had anticipated just to get Mr. Summers’s nomination out of committee and presented to the full Senate. That meant cutting deals and making promises to Republican senators that the White House was unwilling to make.

 

In a letter to the president, Mr. Summers said that he had “reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the administration or, ultimately, the interests of the nation’s ongoing economic recovery.”

 

Mr. Summers’s withdrawal quickly reinvigorated supporters of Ms. Yellen, the Fed’s vice chairwoman since 2010. A central architect of the Fed’s efforts to stimulate the economy, she is seen by many liberal Democrats as sharing their commitment to stricter regulation of the financial system. She is also the preferred candidate of many economists who note the depth of her experience both as an academic economist and as a policy maker since the mid-1990s. She would be the first woman to lead a major central bank.

 

But some of the president’s advisers argue that the Fed needs an outsider to shake up its thinking as it begins to retreat from its stimulus efforts. Some officials within the administration have expressed irritation for some time at what they see as a campaign by Ms. Yellen or at least on her behalf that unfairly maligned Mr. Summers. That irritation is a sign of her lack of strong standing at the White House.

 

Ms. Yellen has frustrated some of her own supporters by her unwillingness to campaign, or to coordinate their efforts on her behalf. But some of those supporters played a crucial role in raising the concerns about Mr. Summers that proved to be decisive.

 

The president also has interviewed Donald L. Kohn, Ms. Yellen’s predecessor as vice chairman, who has stronger relationships with some of the president’s advisers because of his work during the financial crisis. But he lacks the academic credentials of Ms. Yellen and has never served in a Democratic administration, raising concerns among Democrats who are eager to seize the first chance in two generations to install one of their own atop the central bank.

 

The president long ago discussed the position with Mr. Geithner, who was president of the Federal Reserve Bank of New York before joining the administration as Treasury secretary. But Mr. Geithner had stayed at Treasury for Mr. Obama’s full first term reluctantly. More recently, exhausted after five years of crisis management, at Treasury and the New York Fed, Mr. Geithner made clear to the president that this time he would not reconsider, officials close to both him and the president said.

 

This is the second time in the last year that a candidate for one of the top positions in the Obama administration has withdrawn after resistance in the Senate seemed insurmountable. Susan E. Rice, who was a contender to become secretary of state, took herself out of the running after Republicans threatened to filibuster her nomination.

 

But this time, it was members of the president’s own party who were going to make any confirmation process extremely difficult. Democrats on Capitol Hill said that this was a showdown they were hoping to avoid.

 

“The truth is that it was unlikely he would have been confirmed by the Senate,” said Senator Bernard Sanders of Vermont.