Down goes Summers! Down goes Summers!
Several days ago, I had written a post about the candidates that were in consideration to become the new FED chairman after Ben Bernanke. The two leading candidates were Federal Reserve Vice Chairwoman Janet Yelen and renowned economist Larry Summers. But on Sunday, Larry Summers stated to President Obama that he would be dropping out of the race.
“I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation’s ongoing economic recovery,” stated Larry Summers in his letter to President Obama
That sounds so noble but let me translate that for all of you.
“There is no chance of me becoming the next FED chairman so I’m throwing in the towel” is what Larry Summers really meant to say. If you think I’m being too cruel, allow me to explain.
The process for electing the chairman of the Federal Reserve is as follows: the President elects a nominee which is then voted on by the Senate Banking Committee. On Friday, senator Jon Tester of Montana became the fourth Democratic senator on the Senate Banking Committee that stated that they would not support Larry Summers. The other three dissenting Democratic senators are Elizabeth Warren from Massachusetts, Sherrod Brown from Ohio, and Jeff Merkley from Oregon. The reason why so many liberal Democratic senators dislike Larry Summers is because they believe that his policies of deregulating the financial markets in the 1990s (as President Clinton’s Treasury Secretary) caused the economic crisis of 2008. In order for the Senate Banking Committee to vote in favor of Summers, Obama would have to lobby votes from Republican senators and that is something he doesn’t have the time or leverage to do right now.
Thus, with Summers out of the picture, Janet Yelen appears to become an even greater favorite to become the next and first FED chairwoman. Her resume checks many boxes. She has experience with working in the FED, she would be the first woman FED chairman, and her support of quantitative easing is supported by Wall Street investors. Now recall that quantitative easing is the FED policy of pumping money into financial markets. Summers had at times spoken against this policy. Therefore it wasn’t a big surprise that the stock market increased following the news that Summers had dropped out of the race. It must be a horrible day for any person if you decided to give up on your dream and the financial markets rejoice.
A final candidate for the job is Fed Vice Chair Donald Kohn. Additionally, Timothy Geithner, the former Treasury Secretary under Obama’s first term, was also listed as a possible candidate. However, Geithner had turned the job down. Thus, Janet Yelen appears to likely be the next FED chairman.
In honor of Larry Summers, we remember him one last time by taking a look at his most memorable moments courtesy of Bloomberg.
“There are children who are working in textile businesses in Asia who would be prostitutes on the streets if they did not have those jobs.”