Eternal Summers

AP Photo/J. Scott Applewhite

Now that President Obama has made it clear in a meeting with the House Democratic Caucus that he is standing by his man, what comes next in the Larry Summers/Janet Yellen/Federal Reserve psychodrama? Will Obama damn the torpedoes and pick Summers to chair the Fed? Will he conclude that Summers has too much baggage and give the job to Yellen—or go with a third candidate?

What’s clear now is that Obama himself would like to appoint Summers. The lobbying for Summers by the group of Robert Rubin protégés around the president has been internalized by Obama himself.

But Obama insists that he still hasn’t made up his mind.

In the end, the president’s decision will boil down to two questions. Can Summers be confirmed? And even if he can win confirmation after a hard-fought vote, would the process unearth such messy information that the White House would conclude that it’s best not to try?

The letter by 19 Senate Democrats supporting Janet Yellen is probably the high water mark of Democrats who’d vote against Summers. Some of the signers said they were expressing a choice for Yellen, but would not deny their president his choice.

As Obama political adviser Jim Messina put it yesterday, “I think it is absolutely clear that Larry Summers could be confirmed by the United States Senate … All of the tough nominations [in the first term] were under my purview, so I think have a little credibility on that front.” 

On a pure head-count basis, Messina is right. There are perhaps 15 to 20 Tea Party Senate Republicans who are populist and anti-Wall Street on financial issues and might vote against Summers—senators like David Vitter who favors breaking up the big banks and libertarian Rand Paul. That plus 15 to 20 anti-Summers Democrats equals 40 negative votes at most—not enough to block a confirmation.

Consider the question from the perspective of the Senate Republican leadership. If Obama were to send up Summers to be Fed chair, would you rather embarrass the White House by voting him down, or would you rather get a nominee (Summers) who is closer to Republican views on both monetary and regulatory policy than Yellen?

Most likely, Republican Senate leader Mitch McConnell would conclude that it’s better embarrass Obama by using a hearing to bring out as much damaging material on Summers as possible—and then let the nomination pass in order to curry favor with Wall Street.

Of course, we still don’t know all of the information that might emerge in a confirmation hearing. We do know that Summers, since stepping down as Obama’s top economic adviser in 2010, has been paid a lot of money by Citigroup, but the amount has not been disclosed. The White House vetting squad knows how much, and that sum will have to be disclosed in a confirmation hearing. Taking money from Citi and then making policy that affects Citi’s profits and business model is a plain conflict of interest.

In 2008, when Obama was trying to decide whether to name Summers to be treasury secretary or head of the National Economic Council, one factor that tipped the balance against Treasury was that a cabinet job required Senate confirmation and the NEC post did not. Summers had a lot of baggage then. He has more now.

Among the issues that would be raised in a hearing would be Summers’ sponsorship as a senior Clinton official in the 1990s of a lot of the deregulation that caused the financial collapse; his preference in 2009 for policies to bail out and prop up rather than break up the big banks; the money he has taken from Wall Street both before joining Obama in 2008 and after he left the Administration in 2010; and his misadventures at Harvard.

Those include overruling Harvard’s professional money managers and losing billions of dollars of the Harvard endowment’s money; his well-known views on women’s intellectual capacity; his general propensity for bullying; and his role in the Andrei Shleifer affair.

Shleifer, a close personal friend of Summers, headed a Harvard advisory program on privatization in Russia. He used his privileged knowledge to make personal investments in Russian stocks. In the end, Harvard and Shleifer paid some $31 million to settle a federal lawsuit charging Harvard with breach of contract and Shleifer with conspiracy to defraud the government. 

One of the controversies that brought down Summers’ presidency of Harvard was his loyalty to Shleifer, his refusal to remove Shleifer from his tenured position in the economics department, and his responses to pointed questions that many senior Harvard faculty considered dishonest.

Presumably, all of this baggage gave Administration officials pause in 2008. It’s not clear that any one of these elements is a smoking gun, but Administration strategists might yet conclude that a confirmation hearing would be so damaging both to Summers and to Obama that winning would be a Pyrrhic victory.

This week, President Obama has been on the road stumping for an economy of good, middle class jobs. On Wednesday, the government reported that GDP growth in the first half of 2013 was a dismal 1.4 percent—less than last year’s growth rate and not nearly enough to bring down the unemployment rate or raise median wages.

In the very sluggish recovery from the collapse that Larry Summers helped produce by letting Wall Street run wild, the Federal Reserve under Ben Bernanke and Janet Yellen has been one of the few bright spots. Returning our central bank to the Rubinista faction would leave Wall Street’s outsized profits and political influence intact, and leave America even further away from the broad middle class society that the president professes to seek.

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