Larry Summers is running hard to succeed Ben Bernanke as chairman of the Federal Reserve. This is a terrible idea, on several grounds (which I'll discuss in a moment.) Even so, I'd place the odds of President Obama giving Summers the job at 50-50 or better, unless progressive Democrats get mobilized, and fast.
Summers would be terrible because he is part of the Robert Rubin crowd that brought us the financial collapse and then worked to save Wall Street from the mess the bankers made. As Clinton's Treasury Secretary, Summers worked to repeal the Glass-Steagall Act, to promote global financial speculation, to block derivatives regulation, and to isolate the heroic Brooksley Born. In the summer and fall of 2008, working in the Obama campaign, he managed to shove aside Paul Volcker, an early Obama supporter, into a purely ceremonial position.
Once appointed chief of economic policy, Summers with Tim Geithner was a prime architect of propping up and bailing out the biggest banks, rather than cleaning them out and altering the conflicts of interest at the core of Wall Street's business model. Today, the banks are more highly concentrated, more profitable, and less in the business of financing the real economy than ever. This is Larry Summers' legacy.
The prime alternative to Summers is Fed Vice Chair Janet Yellen, who is very much like Bernanke, only better. She has gone even further in expressing concern for the economy's persistent unemployment and in criticizing the bipartisan obsession with deficit reduction. I wrote about Yellen's stellar performance for the Huffington Post back in February.
Yellen deserves to be Fed chair purely on the merits. It pains me to write that if she gets the job, one other major contrast with Summers will weigh in her favor. She is female.
There has never been a woman chair of the Fed, and President Obama loves to break glass ceilings. Summers, by contrast, has an unfortunate history of being dismissive of women. It's too bad that the decision may come down to gender, but if Yellen does get the position we should be grateful whatever the president's calculations.
The Federal Reserve conducts both monetary and financial regulatory policy. It's not charged with fiscal policy but under Bernanke and Yellen, the Fed has also criticized the bipartisan obsession with budget discipline. A Summers Fed would probably not be as aggressive as Bernanke's has been in keeping interest rates low, and judging by his record Summers would be substantially worse than Bernanke on bank regulation and would be part of the Obama consensus on deficit reduction.
Summers is also entirely wrong for the job temperamentally. Even though he has a history of making big mistakes, Summers is a person who is often wrong but never in doubt. He's a bully. Bernanke, by contrast, has been the most collegial Federal Reserve chairman ever. Unlike his predecessors, who typically ran the Fed as a one-man show, Bernanke has gone out of his way to share authority with the other governors and to operate a collegial institution.
Nor would Summers be a slam-dunk for Senate confirmation. In the fall of 2008, Obama went back and forth between naming Summers to head the Treasury or the National Economic Council. He ultimately went with the NEC post, which did not require Senate consent, out of concern that a hearing would spread on the record Summers' embarrassing history.
None of that has changed. Indeed, Summers' history is that much more blemished because of his role in the bank bailouts. This time, he'd have Democrats testifying against him.
Given all of this, why is Summers even in contention?
First, the small group of senior economic advisers who are alums of the Rubin coterie want Summers to have the job. This includes Obama's Treasury Secretary Jack Lew and chief economic adviser Gene Sperling. Under Bernanke, the Fed has not been an entirely docile team player, pushing harder on financial regulation than Obama's people want, and criticizing the Obama obsession with deficit cutting. That crowd also includes former Obama senior officials such as ex-OMB chief Peter Orszag, now (where else?) at Citigroup, and former Treasury Secretary Tim Geithner.
What these men have in common is that they were both enablers of the speculative strategies that led to the collapse and defenders of Wall Street afterwards. Bernanke started out as part of this circle, but became more independent in time.
Secondly, Wall Street is pushing hard to give Summers the job, knowing that he would defend their profits. For all of his heavy reputation as an economic big thinker, Summers is safely captured by the financial industry. Like Jack Lew at the Treasury, he's Wall Street's guy. Every one of the inner-circle of Rubin/Clinton/Obama economic advisers, including Summers, was richly rewarded with high-paying jobs, consulting gigs, and speaking engagements, either during the Bush interregnum, or after they left Obama's employ, or both.
Obama takes his economic advice from a relatively narrow circle, and most of that circle is lobbying for Summers. I don't know which of the broader Democratic circle can get through to our president personally on the folly of giving Summers the job, but I hope every one of them is on the phone. That could include Senators Elizabeth Warren, Sherrod Brown, Carl Levin, Jeff Merkley, Maria Cantwell, as well as House Minority Leader Nancy Pelosi, and a vice president named Biden who supposedly stands for the ordinary working American. All of these people have seen Summers close up and know why he'd be a disaster. Maybe even other governors of the Fed should let the president know how they feel.
There is yet another reason why Summers shouldn't get the appointment. The Democrats have a tough mid-term election coming up in 2014. With several Democratic seats vulnerable, they could lose the senate, and it is a long shot for them to take back the House.
In case we forget, it was the right's success in tying Obama to Wall Street and the financial collapse that launched the Tea Parties. Larry Summers personifies that failure of policy and politics, a failure that was as much Obama's as Summers'. The next Fed chair should not have that mess on his resume, but should stand for recovery and jobs. It would be helpful if Obama's political advisers weighed in on that point.
In the last couple of weeks, the FDIC, the Fed, and the Commodity Futures Trading Commission have actually won some modest victories in the battle to implement a version of the Dodd-Frank Act with a few teeth. Bank capital standards are tougher than Wall Street wanted. The CFTC will have some authority over derivatives transactions that are booked offshore. Even the SEC has recovered from its coma.
This belated progress makes the next Federal Reserve chairman all the more important for Wall Street -- and for the rest of us. Obama is said to be concerned about his legacy. Surely he can do better than resurrecting Larry Summers.
Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.