And Eventually, We'll Line Up Behind Him
Chairperson Ben Bernanke is leaving the Board of Governors of the Federal Reserve, and President Obama has a decision to make. A letter circulated among Senate Democrats (and posted by Greg Sargent) reads, "Few individuals have more influence upon the United States economy than the Chairman of the Board of Governors of the Federal Reserve System." Few would argue, though "few" might more accurately yield to "no one."
The letter initiated with Ohio Senator Sherrod Brown, urging the President to appoint the Fed's current vice-chairperson, Jessica Yellen, as Bernanke's replacement. Yellen has "an impeccable resume; as an academic, as a member of the President’s Council of Economic Advisers, as Chief Executive of a Regional Federal Reserve Bank, and Vice Chair of the Board of Governors."
Ezra Klein observes that Larry Summers, however, is very popular with individuals who have "worked or fundraised at high levels in Democratic administrations." But David Dayen reminisces
In the 1990s, Summers and then-Treasury Secretary Robert Rubin led the effort to stop Brooksley Born from regulating derivatives, precisely the financial instruments that magnified the housing bubble and accelerated the financial collapse. Under his watch as treasury secretary, Congress eliminated Glass-Steagall’s firewall between commercial and investment banks, legalizing the merger of Citigroup (where Rubin would serve as director, senior counsel and Board Chairman). He further oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, even from state anti-gambling laws. Even Bill Clinton has apologized for deregulation of the riskiest sector in finance; Summers has not. Even well after the crisis, in 2011, Summers pronounced himself “more cautious than many about constraining financial innovation,” a not-so-thinly veiled code for encouraging a return to casino activity on Wall Street.
Following government service, Summers served a short stint as president of Harvard University, where he distinguished himself with a risky investment strategy and offensive remarks about roughly half the population. After he left in 2005, he minimized the threat of a housing bubble at almost the identical time Yellen would state
Certainly, analyses do indicate that house prices are abnormally high—that there is a “bubble” element, even accounting for factors that would support high house prices, such as low mortgage interest rates. So a reversal is certainly a possibility. Moreover, even the portion of house prices that is explained by low mortgage rates is at risk.
Yellen is widely viewed as someone with a particularly strong relationship with the Federal Open Markets Committee and has promoted the value of better communications at the Fed, considered a vitally important facet of its leadership. While Summers lacks support, as Klein maintains, in the economics blogosphere, he has one critical booster- President Barack Obama- who "really likes Summers" and is "surrounded by Summer's longtime colleagues and friends."
The good ol-boy network is gearing up. Former FDIC head Sheila Bair writes
The "whispering" campaign against her among industry types has been deafening. "Doesn't understand markets." Translation: She may not bail us out if we get into trouble again. "Not assertive enough." Translation: She won't stand up for us against the populists who want more regulation. "Lacks gravitas." Translation: She doesn't show up very often in the financial media. (Rest assured that if she were more vocal, they would accuse her of not being a "team player.")
Thus far, the names of the Senators who have signed Sherrod Brown's letter have not been made public but, Sargent maintains, "the fact that a third of Senate Dems is backing her should theoretically make it harder for the White House to pass her over." And Paul Krugman, who supports Yellen but finds Summers acceptable, concludes " if the final choice isn’t Janet Yellen, I think the president is going to have to offer a very good explanation of why not, or face a lot of grief from people who want to think the best of his administration."
Really, now. If the choice is not Yellin, Democrats will, after some initial grumbling, back President Obama's choice. On June 27, the Senate cast its most important vote- on cloture- on the comprehensive immigration reform bill, strongly supported by the President. All 54 members of the Democratic caucus voted to cut off debate and move the bill to a final vote. Then the Senate approved the legislation itself with all 54 members of the Obama caucus voting in favor.
When the President appoints someone as Chairman of the Federal Reserve, after a decent interval allowing Senate Democrats to express publicly their conscience, all or virtually all of them will vote to support their President. They will do so because, hey, we just have to support the guy who is criticized as Muslim and foreign and socialist and all that.
This impulse parallels the support among Democratic politicians- and especially among independent-minded Americans- for retaining Bill Clinton as president amid the overreach by Repub politicians and Kenneth Starr over l'affaire Lewinsky. Similarly (and with less cause) Democrats now have ostensibly decided that, conservative talk show hosts and others on the far right cannot get their way with outrageous, nonsensical claims. And so, we'll rally around the flag yet again for a center-right president we're deathly worried would otherwise fail to achieve his agenda and be viewed a failure.