The Memorable Moments of Larry Summers
Lawrence Summers’s withdrawal as a candidate for
Federal Reserve
chairman came after an unprecedented campaign to stop a Fed nominee
even before he was announced, spearheaded by Democratic senators who
took on a president of their own party.
People close to the process said
Lawrence Summers, former secretary of the U.S. Department of the
Treasury, was President Barack Obama’s top pick all along, even though
White House officials late last week insisted the president had yet to
make a decision. Photographer: Joshua Roberts/Bloomberg
Sept. 16 (Bloomberg) --
Andrew Balls, head of European portfolio management at Pacific
Investment Management Co., discusses Lawrence Summers's withdrawal as a
candidate for Federal Reserve chairman and expectations for a Fed led by
Janet Yellen.
He speaks from London with Francine Lacqua on Bloomberg
Television's "The Pulse." (Source: Bloomberg)
Sept. 16 (Bloomberg) --
Simon Johnson, a professor at the Massachusetts Institute of Technology
and a Bloomberg View columnist, talks about Federal Reserve policy and
Chairman Ben S. Bernanke's potential successor.
Johnson speaks with Sara Eisen and Tom Keene on Bloomberg
Television's "Surveillance." (Johnson is a Bloomberg View columnist. The
opinions expressed are his own. Source: Bloomberg)
Sept. 16 (Bloomberg) --
Edward Lazear, a professor at Stanford University's Graduate School of
Business and former economic adviser to President George W. Bush, talks
about Lawrence Summers’ withdrawal from consideration as a candidate for
Federal Reserve chairman.
Lazear, speaking with Betty Liu on Bloomberg Television's "In the
Loop," also discusses the 2008 financial crisis. (Source: Bloomberg)
Sept. 16 (Bloomberg) -- U.S.
Senator Elizabeth Warren, a Massachusetts Democrat, talks Lawrence
Summers’ withdrawal as a candidate for Federal Reserve chairman and
financial regulations.
Warren speaks with Peter Cook on Bloomberg Television's "In the
Loop." (Source: Bloomberg)
For the Obama administration, the
push for Summers to replace Bernanke served to ignore a dynamic that
has developed in the Senate Banking Committee. Photographer: Andrew
Harrer/Bloomberg
The decision by Summers, the former Treasury secretary and economic adviser to President
Barack Obama,
followed Democrats on the Senate Banking Committee publicly and
privately signaling their concerns about Summers to the White House.
Several Democratic senators, including
Jeff Merkley
of Oregon and Sherrod Brown of Ohio, mounted a sustained lobbying
campaign, pressing colleagues in their own party to oppose Summers on
the grounds that he was too lax on financial regulation. They pressed
forward as the White House was focused on building support for a
military strike in Syria.
“Any possible confirmation process for
me would be acrimonious and would not serve the interests of the Federal
Reserve, the administration, or ultimately, the interests of the
nation’s ongoing recovery,” Summers wrote in a letter yesterday to
Obama.
People close to the process said Summers was Obama’s top
pick all along, even though White House officials late last week
insisted the president had yet to make a decision.
Leading Candidates
Summers, 58, and Fed vice chairman
Janet Yellen, 67, were reported to be the leading candidates. Obama also has said he interviewed
Donald Kohn, 70, a former Fed vice chairman. Former Treasury Secretary
Timothy Geithner isn’t interested in the job, even after Summers’s withdrawal, said a person familiar with Geithner’s thinking.
Investors
are debating the speed at which the Fed will taper its $85 billion in
monthly bond purchases. Traders had speculated that, given Summers’s
past questioning of the effectiveness of quantitative easing, he may
have pulled back stimulus faster than other candidates such as Yellen.
Stocks rose and the dollar fell today.
The U.S. currency weakened
against 15 of 16 major currencies tracked by Bloomberg. It fell 0.4
percent against the pound and 0.6 percent versus the euro. Treasuries
rose, pushing the 10-year yield down 8 basis points to 2.81 percent.
The
Stoxx Europe 600 Index advanced 0.8 percent to a five-year high and the
MSCI Asia Pacific Excluding Japan Index added 1.6 percent with Japanese
markets closed.
Tester’s Announcement
Democratic
opposition to Summers’s possible nomination had been building, spurred
in part by the efforts of Merkley and Brown, who placed calls to
advocacy groups and used weekly caucus lunches to lobby fellow lawmakers
to oppose Summers.
On Sept. 13, Montana Senator Jon Tester, a
Democrat, announced he would oppose Summers, bringing the number of “no”
votes on the Senate Banking Committee to three, including Merkley and
Brown.
The pitch from Merkley and Brown to fellow Democrats was
this, according to Senate Democratic aides: if you think you’re going to
vote against Summers, speak up now, because it’s less embarrassing to
Obama to stop Summers before he’s nominated than after a messy
confirmation fight.
Senator
Elizabeth Warren,
a Massachusetts Democrat and critic of Wall Street, also was involved.
She informed the White House last week she would oppose Summers,
according to a person familiar with the matter.
“Larry was not my first choice for Federal Reserve chair,” Warren said in an interview today with
Peter Cook on Bloomberg TV.
Yellen ‘Fan’
“I’m
a big fan of Janet Yellen,” Warren said today. “I think she’s terrific.
She’s got the right experience and I think she’d make a terrific
Federal Reserve chair.”
Her vote would have meant at least four
Democrats on the banking committee were opposed to Summers. The White
House would have had to rely on several Republican votes to get him out
of the 22-member committee.
The Democratic effort spilled into
the open when a senator off-handedly acknowledged in late July the
existence of a letter of support for Yellen. That letter, drafted and
circulated by Brown, was signed by 20 senators.
The letter
touched a nerve in the White House, and with Obama himself. He defended
Summers days later in a closed-door meeting with Democrats on Capitol
Hill, while mentioning that Kohn also was under consideration.
As
Democratic opposition grew, Summers’s supporters say the White House
didn’t effectively push back. Summers was left vulnerable to what some
called a “perfect storm” of events: the delay in his formal nomination,
the debate raging over Syria, and the upcoming budget fights with
Congress, according to a person familiar with the matter.
Syria Distraction
In late August, the White House sanctioned former administration officials
Stephanie Cutter and
Jim Messina
to work to counter anti-Summers reporting without ever marshaling
current administration officials, many of whom, including most of the
economic team, supported Summers, according to people familiar with the
situation.
A tight circle of the president’s advisers, convened
to weigh various Fed candidates, stopped meeting once Syria dominated
the agenda and Obama’s attention turned to the divisive debate of
whether to begin a military strike in response to the Aug. 21 chemical
weapon attack that killed more than 1,400 people.
While Obama’s
aides insisted that the Fed chairman’s confirmation process wouldn’t get
wrapped up in the budget fights set to start in September, Summers was
emerging as collateral damage, the person familiar with the situation
said.
‘Critical Member’
Obama, in a statement yesterday,
called Summers “a critical member of my team as we faced down the worst
economic crisis since the Great Depression.” He touted Summers’s
“expertise, wisdom and leadership” for helping guide the crisis response
and nascent recovery.
Since June, when Obama in an interview with
Charlie Rose indicated he wouldn’t appoint
Ben S. Bernanke
to another term, intrigue over whether the president would pick Summers
or Yellen turned into a political process that Fed watchers called
unprecedented.
The central bank is considering whether to begin
to reduce the unprecedented bond purchases that have fueled a four-year
market rally. Bernanke’s term ends Jan. 31.
As signs over the
past few months continued to point to Summers as the leading candidate,
40 percent of investors, analysts and traders who are Bloomberg
subscribers saw Summers getting the job, according to a Bloomberg Global
Poll.
Still, Yellen was viewed more favorably among investors,
with 60 percent of respondents holding a positive view, compared with 37
percent for Summers. Thirty-five percent had a negative view of
Summers, compared with 15 percent for Yellen.
Clinton Record
Summers
was pegged by his opponents as a deregulator for his support of
loosened rules on the financial industry during President
Bill Clinton’s administration.
In 1998, Summers, then-Fed Chairman
Alan Greenspan and Treasury Secretary
Robert Rubin, blocked efforts by
Brooksley Born,
then-chairman of the Commodity Futures Trading Commission, to regulate
the derivatives market. It later expanded to include the toxic
instruments that led to the 2008 financial market crisis.
Summers also sought repeal of the Glass-Steagall Act, the Depression-era law separating commercial and investment banking.
“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?” Merkley said in a
July interview.
Budget Negotiations
Even those that
said they would support Summers voiced concern in interviews about the
intraparty fight a Summers nomination would cause in the weeks ahead.
Democrats, who hold a 54-46 majority in the Senate, face negotiations on
the budget and an increase in the debt ceiling.
“In light of
everything he needs from Democrats on the Hill in the weeks and months
to come, the last thing he can afford is to antagonize them over the
Summers nomination,”
Jim Manley, a former senior aide to Senate Majority Leader
Harry Reid, said of Obama in a telephone interview.
A
tough confirmation fight that split Democrats was an unwelcome
possibility, three aides familiar with the discussions said. That
message was conveyed to the White House by the camp opposed to Summers,
according to one of the Senate aides.
Senate Republicans
Some
Republicans were approached by the White House as late as last week as
the administration tried to get a better sense of whether Summers could
win the required support, one of the aides said. While the entreaties
were not rejected, the potential price of the votes was considered too
steep, as was the reliability of the Republican lawmakers.
“If
they really thought they could pick up the Republican votes necessary to
provide a comfortable margin they still can’t figure out what’s going
on up on the Hill,” said Manley.
By Sept. 13, what was becoming
apparent to the White House earlier in the week would be hammered home.
Tester, the Montana Democrat, released a statement announcing opposition
to Summers.
Two days later, Summers’s letter arrived, on the
five-year anniversary of the peak of the financial collapse that ushered
in the crisis Summers fought side-by-side with Obama to contain.
To contact the reporters on this story:
Julianna Goldman in Washington at
jgoldman6@bloomberg.net; Cheyenne Hopkins in Washington at
chopkins19@bloomberg.net; Phil Mattingly in Washington at
pmattingly@bloomberg.net
To contact the editor responsible for this story: Steven Komarow at
skomarow1@bloomberg.net
