I would be thrilled that Summers discovered that he was not going to be the next Fed Chairmen except for two major considrations: 1) Summers will probably not really leave the national stage and will likely become a frequent nag on the Sunday morning news shows, etc.; and 2) While Summers is perhaps the best known of the neoliberal cranks, there are a thousand more just like him ready to spread their official gospel of stupid.
Even so, there are progressives who seem to think that Summers' withdrawal from Fed consideration is a sign that support for the neoliberal Washington consensus is beginning to wane. Lord knows I hope they are right because it is hard to imagine any body of political thought that has left so many victims in its wake.
One simply cannot discuss the Fed without consulting Greider.
How The New Left Killed Larry Summers' NominationBy Susie Madrak September 18, 2013
I'm tired of people whining about the Occupy movement: "But they didn't do anything!" If they didn't do anything, wouldn't Larry Summers be the next Fed chair? Instead, we now talk all the time about the 1%, and politicians are nervous about being perceived as too close to Wall Street. Peter Beinhart:
But the main reason Summers dropped out is that he became identified with deregulatory policies that were far more tolerated inside the Democratic Party in 1999—or even 2009—than they are today. Four of the 12 Democrats on the Senate Banking Committee and 19 Democrats (plus one independent) of the 54 in the full Senate had already expressed their public opposition, meaning that Obama would have had to rely for Summers’ confirmation on Republican votes. The AFL-CIO had come out against Summers. So had MoveOn, Daily Kos, Chris Hayes, Paul Krugman, and the editorial page of The New York Times. By contrast, Summers had barely any high-profile defenders outside the administration. When people did speak up in his defense, it was often on background.All well and good. Let's remember, however, that Yellen is not a progressive. She's a technocrat who was sympathetic to the same bad policies Summers embodied -- including the chained CPI. I'm guessing this will come out in the confirmation hearing, and that Sen. Elizabeth Warren will give this her careful attention. more
What the Summers fight shows is how dramatically the financial crisis has reshaped the economic debate inside the Democratic Party. In 2008, his patron and ally, Robert Rubin, was rumored as a potential Obama running mate. Today, Rubin has largely disappeared from public view and, given his role in the deregulatory policies of the 1990s, any defense he offered of Summers would have hurt his cause. In 2006, an ambitious Democratic policy wonk like Gene Sperling could write a book that criticized liberals for being insufficiently pro business without worrying that it would hurt his chances of getting a top government job. No one would do that today.
The Summers fight shows how dramatically the financial crisis has reshaped the economic debate inside the Democratic Party.
It’s not that Wall Street no longer wields influence among Democrats. The party still relies on the financial services industry to help fund its campaigns, and its lobbyists can still shape legislation. But the danger of being too publicly associated with Wall Street has increased. Democrats who want to pass their time between government gigs and earning millions at an investment bank now have to think harder about the political risk. And regulators who coddle Wall Street have to worry more about becoming props in an Elizabeth Warren YouTube video gone viral.
Ironically, Warren may be the political loser in Summers’ decision to drop out. Had he come before her banking committee, their duel would have dominated cable news. And he would have served as the perfect foil for her populist challenge to the Wall Street branch of her party. Hillary Clinton, by contrast, would have had to explain on the stump whether she supported confirming as Fed chairman the man her husband had picked to run the Treasury Department.
The Democratic rebellion against Summers, like the Democratic rebellion against military action in Syria, bespeaks a deep frustration that party elites still share the economic and foreign policy assumptions that helped cause the disasters of the last decade. The next battle may be the Obama administration’s desire for “fast track” authority to help push through giant new trans-Atlantic and trans-Pacific free trade deals. If I were Hillary Clinton, I’d come out against it now.
Or Nichols. It is appropriate that someone raised in Wisconsin here explains Progressive thought. Gets it right too.
Why the Defeat of Larry Summers Is About More Than the FedWilliam Greider on September 16, 2013
The Sunday afternoon announcement that Larry Summers is giving up his quest to become Federal Reserve chairman resonates with meaning for reform—both for government and the Democratic party. After several decades of dominance by the center-right financial perspectives of New Democrats, this is a huge loss for the Rubin-Clinton wing. And it foretells more to come.
When the Obama White House let it be known in early summer the president expected to appoint Summers as successor to Fed chairman Ben Bernanke, the party erupted in rage and rebellion. It amounted to rewarding the very policy architects who led the country into ruin with their financial deregulation and Wall Street–friendly non-enforcement and bailouts for the too big to fail bankers. Instead of going along meekly, progressive Dems built a firestorm against Summers and kept throwing on new logs.
The White House leakers kept reassuring favored reporters that the deal was done, the president really wants Larry in this pivotal position determining policy on money and credit for the country. Leading reform senators—Sherrod Brown, Elizabeth Warren and Jeff Merkley—fired back and raised the ante. If Summers is nominated, these key members of the Senate banking committee intend to vote against his confirmation. That could well be fatal to Summers’s and Obama’s ambitions. To make it worse, Senator John Tester of Montana, a moderate by any measure, let it be known he would join them in voting to block Summers. Among other disabilities, Summers was contemptuous of policy opponents and known for refusing to acknowlege collosal errors—the very opposite of a consensus leader.
Finally, the White House mercifully pulled the plug on flawed Larry. (It seems very unlikely Summers got the message on his own, considering his record for stubborn egotism.)
This is a huge victory for the prospects for genuine economic reform—well beyond anything Obama has so far proposed or accepted. The president might fumble around for a similarly conservative appointment, but he has a chance to change the outlook dramatically by appointing a new Fed chair who understands the deep dislocations created in part by Federal Reserve policy during the last three decades, from Volcker to Greenspan to Bernanke, under Democrats as well as Republicans.
Obama can start the healing by naming Janet Yellen, the moderately liberal vice chair of the Federal Reserve, who well understands that much deeper change must be considered to get the US economy back in balance again. It will not come quickly, but this can be the political watershed—the moment when this Democratic president chose to focus on the future rather than clinging to the failed past.
In other words, Obama can create a quite different legacy for himself by restarting his economic policy and encouraging serious reform at the central bank and in traditonal policies. The president of course cannot complete this new agenda in his remaining years, but he can launch the action and teach public opinion what the task of economic reconstruction should involve. That is, he can begin the “new politics” many of us had hoped he would bring to Washington.
In the next few months, as it happens, President Obama will appoint four and as many as five new governors for the seven-member Federal Reserve Board. That is an unprecedented opportunity to influence the future if he chooses wisely and reaches beyond the usual list of safe choices with conventional views. The best part is this power is unilateral. This is one instance where Barack Obama doesn’t have to make nice with know-nothing Republicans or seek permission from Wall Street titans. He can do this on his own.
But the defeat of Larry Suummers tells the White House and this president they had better start listening to the restless reformers on the left of the party. Senators and progressive Democrats in the House have serious ideas for reform. Having won this pivotal victory, they are sure to push for larger goals. Instead of running away from the liberal-labor progressives, Obama’s presidency should put an arm around them. more
The Populist Rebellion That Tripped Up Larry SummersJohn Nichols on September 15, 2013
When it became clear that members of President Obama’s own party would not support a nomination of Larry Summers to serve as the next chairman of the Federal Reserve, something—or someone—had to give.
On Sunday, Summers gave up.
The former Treasury secretary, whose Clinton-era assaults on Glass-Steagall protections and opposition to the regulation of derivatives were blamed by critics for weakening safeguards against financial turbulence, withdrew his name from consideration for Fed’s top job.
Remarkably, the decision came exactly five years after the financial meltdown of September 2008.
Progressive critics of Summers had argued for months that he was not the right candidate to tame the big banks—or to address the fundamental challenges facing the US economy.
But Obama continued to consider the man who served as his director of the National Economic Council.
Now the president must find another nominee.
Obama is said to be considering several candidates. With Summers out, speculation will focus on the possibility that Federal Reserve Vice Chairman Janet Yellen, who has drawn significant support from key Democratic senators, may be chosen to replace outgoing Federal Reserve chair Ben Bernanke. But former Fed vice chairman Don Kohn is also thought to be in the running. And the president could consider others.
Obama does not have a lot of time, however. The selection must come before Bernanke is set to exit early next year.
The Summers withdrawal was a shocker. But it came for a reason.
Though he had friends in the White House, Summers faced mounting opposition from Democrats in the Senate and from grassroots progressive groups. The prospective nominee was criticized by women’s organizations for controversial statements made during his tenure as president of Harvard. He was criticized for revolving-door Wall Street ties. And in the most dramatic show of anti-Summers sentiment, key Democratic senators began to signal in recent days that they could not confirm a man who has so frequently opposed needed regulation of the financial sector of the US economy.
“The truth is that it was unlikely he would have been confirmed by the Senate,” said Senator Bernie Sanders, the Vermont independent who caucuses with the Democrats. “What the American people want now is a Fed chairman prepared to stand up to the greed, recklessness and illegal behavior on Wall Street, not a Wall Street insider whose deregulation efforts helped pave the way for a horrendous financial crisis and the worst economic downturn in the country since the Great Depression.”
Sanders has long argued that the Senate should get more serious about checking and balancing the Federal Reserve.
The Fed is a staggeringly powerful institution, with the resources and influence to define the direction of the US economy, the character of the nation’s “too-big-to-fail” banks and the extent to which unemployment issues are addressed.
Unfortunately, the Fed has a long history of serving Wall Street while neglecting the rest of the country. Be they Democrats or Republicans, be they theorists or doers, past Fed chairs have tended to embrace the thinking of the free-market fundamentalists and free-trade absolutists who have created an economy characterized by declining wages and expanding income inequality.
The trouble is that, as Franklin Delano Roosevelt explained almost eighty years ago, “We have always known that heedless self-interest was bad morals; we know now that it is bad economics.”
At an uncertain moment for the economy of the United States, and more importantly for the great mass of citizens whose depend on that economy, the choice of a new Fed chair took on a higher degree of significance in the eyes of senators from both parties. So critical, for so many Americans, that at least some Democrats began placing principle before party loyalty.
That’s why, as the speculation rose about the prospect that President Obama would select Summers, Democratic senators started announcing that they would vote with Republican critics of the administration to block confirmation of Summers.
As with Supreme Court nominations, nominations to chair the Fed must be confirmed by the Senate. That might not be a problem for many prospective nominees, even in a filibuster-frenzied Capitol. But when a significant number of populist Democrats indicated they would oppose Summers, prospects for getting from nomination to confirmation started to look tougher.
The objections expressed by key Democrats had historical and contemporary roots:
During Bill Clinton’s second term, Summers worked with then–Fed chair Alan Greenspan and then–Treasury Secretary Robert Rubin to block moves by Brooksley Born, who headed the Commodity Futures Trading Commission, to regulate the derivatives market. When that market began to deal in to include the toxic instruments that led to the 2008 financial market crisis.
A year later, Summers led the fight to gut Glass-Steagall rules, which had provided an additional measure of protection against bank meltdowns.
Early in Obama’s presidency, Summers resisted sufficient stimulus spending to jump-start the economy.
Summers has always been a militant free-trade advocate, and he showed little interest in efforts to renew American manufacturing.
Summers’s tenure at Harvard has remained a subject of clear controversy, with serious objections being raised with regard to his statements about women. The National Organization for Women complained about “Summers’ own history of misogyny—as president of Harvard he opined that women might lack an ‘intrinsic aptitude’ for science and engineering.”
“In short, Summers is simply the wrong person, male or female, to lead the Fed,” argued NOW.
Like many progressive organizations, NOW expressed discomfort with the approach Summers has taken to core economic questions. “Summers’ deregulatory zeal contributed directly to the Bush-era economic crash. Summers cannot be trusted to lead an institution that can do great good—but also great harm—to the economy overall and to women’s economic security in particular,” read a NOW action alert urging support for Yellen.
Progressive and populist Democrats who were in positions to do something about a possible Summers nomination shared the popular concern that the former Treasury secretary simply had not shown an inclination to steer the fed toward policies that are beneficial to the great mass of working Americans.
A key objection was that Summers defaults toward approaches that simply have not worked.
“I start from a position of being extraordinarily skeptical that his background is appropriate for the role of the head of the Fed,” said Oregon Senator Jeff Merkley, a Democrat on the Banking Committee. “If you nominate someone who is a life-committed deregulator to be in a regulatory position and if you believe regulation is necessary to prevent fraud, abuse, manipulation and so forth, then there’s a lot of questions to be asked: Why is this person appropriate?”
If a Summers nomination were to come to the Banking Committee, it was expected that Merkley would vote “no.”
Montana Senator Jon Tester, a Democratic committee member, emerged last week as a definite “no.” His office announced that “Senator Tester believes we need a consensus builder to lead the Federal Reserve. He’s concerned about Mr. Summers’ history of helping to deregulate financial markets.”
Ohio Senator Sherrod Brown, a Banking Committee Democrat who circulated a letter praising Yellen and urging the White House to consider nominating her, was also expected to vote “no.” Brown said that his letter—which attracted signatures from top Senate Democrats such as Illinois Senator Dick Durbin and California Senators Dianne Feinstein and Barbara Boxer—was pro-Yellen, rather than anti-Summers. “But,” he added, “there is obviously a lot of opposition here to Summers.”
That counted up to three probable “no” votes on a committee where the Democrats have only a two-seat advantage over the Republicans. Some Republicans were likely Summers backers, however. That prospect turned attention toward Senator Elizabeth Warren, D-Massachusetts, a committee member who reportedly told the administration that she had “serious concerns” about the prospect of a Summers nomination.
In August, Warren and Sanders circulated a letter that raised questions for whoever is nominated to chair the Fed.
Sanders and Warren argued that “the next Fed chair will have an opportunity to get our economy back on track and to help rebuild America’s middle class. But that will require the right temperament and a willingness to take on Wall Street CEOs when necessary. It is critical that the next Fed chair make a genuine, long-term commitment to supporting those who don’t have armies of lobbyists and lawyers to advance their interests in Washington—working and middle-class families.”
To test that commitment, the senators asked:
1. Do you believe that the Fed’s top priority should be to fulfill its full employment mandate?These were (and remain) questions, especially for Summers—who presumably did not to wantr to wrestle with the “repeal of the Glass-Steagall Act” issue raised in Question 3.
2. If you were to be confirmed as chair of the Fed, would you work to break up “too-big-to-fail” financial institutions so that they could no longer pose a catastrophic risk to the economy?
3. Do you believe that the deregulation of Wall Street, including the repeal of the Glass-Steagall Act and exempting derivatives from regulation, significantly contributed to the worst financial crisis since the Great Depression?
4. What would you do to divert the $2 trillion in excess reserves that financial institutions have parked at the Fed into more productive purposes, such as helping small- and medium-sized businesses create jobs?
He will not have to do so. But it should now be clear that whoever is nominated to replace Bernanke will have to take seriously not just those particular questions but the greater concern about whether the Fed will serve Wall Street or Main Street. more