Before Lawrence Summers’ weekend announcement of his decision to drop out of the race for Federal Reserve chairman, Jim McTague‘s latest “D.C. Current” column in Barron’s explained how politics threatened Summers’ bid.
President Obama’s loss of face last week for his ham-fisted management of the Syrian crisis is bad news for his friend Larry Summers, who’s a candidate for the chairmanship of the Federal Reserve. Obama, desperate to polish his badly tarnished image, can’t risk a public spanking from Congress on the heels of the Syrian fiasco. Summers probably would engender this sort of rebuke—and much of it from Obama’s own party.
That leaves two candidates standing: Fed Vice Chairman Janet Yellen and former Vice Chairman Donald Kohn, now a scholar at the Brookings Institution. Both have respectable track records, and neither one of them generates much controversy.
SUMMERS IS SMART. He’s provocative. He’s accessible. He’s delightfully sure of himself, sometimes to the point of impatient gruffness, which sows petty resentments. And he’s a straight-shooter. But he carries an enormous amount of baggage. Quite a few Democrats loathe Summers, and they are not shy about derogating him. I’ve been buttonholed on the streets of Washington twice in the past two weeks by Democratic party insiders desperate to vent about him.
Summers’ biggest crime in their eyes is that as treasury secretary under Bill Clinton he was a vocal proponent of financial deregulation, which they dogmatically believe caused the credit-system collapse in 2007-2008. Another rap is that he remains too cozy with Wall Street tycoons, who, in their minds, criminally exploited deregulation. Critics begrudge Summers’ having made a reported $5 million in one year for advising asset manager D.E. Shaw Group. Hedge funds are anathema to left-wing Robespierres because they exploit the tax code to their benefit through a loophole known as “carried interest,” which allows them to claim favorable capital-gains treatment for what critics maintain is actually simple income. Obama often rails against the practice.
If nominated, Summers most likely would be eviscerated during the confirmation process by his fellow Democrats and might not garner enough votes of approval for the job or, at best, garner barely enough votes. Either outcome would be a public rebuke of Obama. Between the Snowden affair and Syria, Obama already has endured more than enough embarrassment for the year. The last thing he needs is a dash of Summers in his serving of humble pie.
