L’affaire de Larry Summers is over. And thank goodness. The grand circus of leaks, posturing and trial balloons was no way to select the next leader of the Federal Reserve. Summers deserves credit for withdrawing his name from consideration.
The 58-year-old former treasury secretary and Harvard president was too polarizing and too sympathetic to Wall Street to have the confidence of the country, or even a lot of Senate Democrats. (Advice to future contenders: For starters, cut your consulting work for Citigroup Inc. before you begin seeking the post, not after.) US President Barack Obama had pegged Summers as his favourite to take the Fed post when Ben Bernanke’s term ends in January, if we’re to believe what we’ve been reading in the papers the past few months. The other two candidates Obama had mentioned were Janet Yellen, 66, the current Fed vice chairman, and Donald Kohn, 70, a former Fed vice chairman, although few people seem to have taken Kohn’s candidacy very seriously.
The shrill public catfighting between partisans for Yellen and Summers over the last few months was in no small part Obama’s fault. The president went on Charlie Rose’s TV show in June and all but declared that Bernanke wouldn’t be appointed to another term. Summers made it known he wanted the post, or maybe the White House orchestrated a let-Summers-draft-himself campaign. (Memories of which came first are fuzzy now.) The backlash began almost immediately. It’s hard to remember a time when the Fed was more politicized than it is now.
Given the unprecedented growth in the Fed’s balance sheet and its interventions in the capital markets, the job of leading the central bank has never been more important to Americans’ daily lives. Many of us wonder if and how the Fed will ever curb its easy-money ways without sending interest rates skyward and tanking stock prices and the housing market in the process.
The Fed’s policy during the last two chairmen’s tenures has been to seed new bubbles to get us out of the wreckage of old ones. Perhaps Summers would have been different. We’ll never know now. His nomination was doomed by his reputation as another Robert Rubin acolyte of the sort that have dominated the Obama administration—and, before it, Bill Clinton’s administration. The opposition to Summers should be a signal to Obama to find another crowd to anoint.
This doesn’t mean that Yellen should get the post automatically. The best course for Obama would be to start the process over—quietly. Find the best possible person for the job. Then tell the country one day who his nominee will be, the way it’s usually done with presidential appointments. If that person winds up being Yellen, so be it. If it’s someone else, so be that. Just remember this: If Obama puts up another Rubinite, he’s just asking for a divisive political brawl all over again. Bloomberg
Jonathan Weil is a Bloomberg View columnist.