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Summers did what was expected of him

Summers did what was expected of him

Confirmability was the key

by John Kornblum

Mon 16 Sep 2013

In the end, the issue of Senate ‘confirmability’ was indeed crucial to the nomination of the next Federal Reserve chairman. The writing was on the wall when three Democratic members of the Senate Finance Committee announced publicly that they would not vote to send forward Larry Summers’ nomination for consideration by the full Senate.

Given tight majorities, this step was a fatal blow to Summers’ hopes. Rounding up three more Republican votes to replace the wayward Democrats would have been an almost impossible task.

So Summers did what was expected of him. In a letter to President Barack Obama, released on Sunday, the former Treasury secretary said he had ‘recently concluded that 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 economic recovery.’

As I wrote two weeks ago (see OMFIF Commentary, 29 August), ‘the President appoints, but the Senate approves.’ I predicted Summers could be a stalking horse to help a less mercurial candidate gain easier approval and said the other main contender, Fed deputy chairman Janet Yellen, 'may finish a nose ahead.'

President Obama said he accepted the decision by his friend even as he praised him for helping to rescue the country from economic disaster early in the president’s term.

Most commentators have assumed that if Summers stumbled, the job would go to Yellen. This may still be the case, although former board member Donald Kohn has been mentioned as a strong contender. It’s possible that Obama will reopen the search and find someone not now on any list. If he does so, he must hurry. Ben Bernanke’s term expires in January. Ushering through a new chairman in the midst of a debate on Syria, a dispute over the debt ceiling and the Fed’s apparent plans to ‘taper’ its purchases of government bonds will not be easy.

Ultimately Summers was defeated by one of the unusual coalitions which have now become characteristic of US parliamentary bargaining. Conservative Republicans were ready to oppose him on principle. Add to this Liberal Democrats who felt that Summers, as a member of the stable of economists around former Treasury secretary Robert Rubin, had been too cosy with Wall Street and had blocked banking regulation during and after his time in government.

These views were represented by one of many comments to the Washington Post after the news was released: ‘Lawrence Summers is one of a tiny group of political economists (Summers, Rubin, Greenspan, Phil Graham) who sabotaged established banking regulations which led to the Second Great Depression which is yet to end. That President Obama even considered for a moment Summers’ appointment as head of the Fed is a further troubling indicator to Obama's supporters of his naiveté and that he can be intimidated by power.’

These are sentiments that Obama right now does not need. Larry Summers’ withdrawal was the right decision. It should help the economic and political healing process that has manifestly not yet ended.

John Kornblum, a former US ambassador to Germany, is senior counselor to Noerr and a member of the OMFIF Advisory Board.

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