Larry Summers Withdraws Name For Fed Chair After Democrats Revolt

Larry Summers, who seemed to be well on his way toward replacing Ben Bernanke as Chairman of the Federal Reserve Board, surprised much of Washington yesterday when he withdrew his name from contention:

WASHINGTON — For Lawrence H. Summers, President Obama’s preferred candidate to lead the Federal Reserve, the messy debate over a military attack in Syria was the final sign.

After weeks of opposition to his candidacy from an array of progressives, the president’s inability to rally Congressional Democrats on Syria persuaded Mr. Summers that his most important audience — the Senate, which must confirm a Fed chairman — probably could not be won over.

He concluded that the White House was also unlikely to overcome opposition to his candidacy from many of the same Democrats, who view him as an opponent of stronger financial regulation, according to supporters who insisted on anonymity to describe confidential conversations with him.

“Clearly Obama couldn’t bring his own most enthusiastic supporters to back him on an issue of national security,” one supporter said. “How was he going to corral them for Larry?”

Mr. Summers’s decision, which he shared with the president in a phone call Sunday followed by a letter, was described as reluctantly made and reluctantly accepted. Mr. Summers wanted the job and Mr. Obama wanted to pick him. But the public opposition of three Democrats on the Senate banking committee, the first step in the confirmation process, surprised the White House and forced a calculation that this was a battle the administration could not afford to fight.

The embarrassing setback reveals an administration increasingly hamstrung by occasional opposition of liberal Democrats, not just its familiar Republican opponents. It adds to the rocky nature of Mr. Obama’s fifth year, following the failure of a gun-rights bill, the stalling of an immigration overhaul and the lack of progress on a budget deal, on top of the back-and-forth over whether to conduct airstrikes in Syria to punish the Assad regime for a poison gas attack that killed hundreds of civilians.

The withdrawal of Mr. Summers also leaves great uncertainty around the selection of a new Fed chairman, one of the most important economic policy decisions Mr. Obama will make in his second term. The successor to Ben S. Bernanke, the current chair, will shape how much longer and harder the Fed pushes to boost economic growth and reduce unemployment. The next Fed chairman will play a leading role in determining how forcefully the government seeks to constrain the financial industry.

White House officials have described Janet Yellen, the current vice chairwoman, as a finalist, and her candidacy has received widespread attention, but it remains unclear how seriously Mr. Obama is considering her. He does not know her well and White House aides have seemed unenthusiastic about her, despite the substantial support she enjoys from Democrats and outside economists.

If Mr. Obama does not name her — or Timothy F. Geithner, the former Treasury Secretary and Fed official who is well-liked by the president but said to be uninterested in the job — many Fed watchers say they are uncertain where the president will turn.

Mr. Bernanke plans to step down at the end of January, leaving ample time for the Senate to confirm a replacement, but the uncertainty has unsettled financial markets just as the Fed, which is beginning to retreat from its stimulus campaign, tries to assure investors that it will not move too quickly.

In a statement released by the White House on Sunday afternoon, Mr. Obama said he had accepted the decision by his friend, whom he praised for helping to rescue the country from the financial crisis that peaked in 2008.

“Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today,” Mr. Obama said in the statement.

He added: “I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future.”

The withdrawal ends an unusually public and contentious debate that began when the president declared in a televised interview in June that Mr. Bernanke would depart, opening the replacement process to public scrutiny before a nominee was even named.

The Democratic rebellion over what seemed like the inevitable Summers appointment was somewhat lost in the Syria coverage over the past week or so, but, as David Graham notes, the push back was very strong and it raises some questions about the Administrations relationship with Congress:

First, it suggests that the White House’s hands-off style towards legislators has backfired — or backfired yet again, depending on how you score it. Many political scientists and journalists (including me) have rolled their eyes at pleas for Obama to “reach out” to the Hill through dinners and golf rounds and the like. In short, the thinking is that opposition to Obama’s agenda is so hardwired into the current political situation that there’s no use making futile social gestures — partisan exigencies will still keep Republicans following the lead of conservative activists, even if they like the president personally. But here’s a case where the White House couldn’t even keep a hold on its own senators when it needed them. This is where personal relationships matter.

Second, Sunday’s events suggest the administration may have miscalculated its timing for the nomination to replace outgoing Fed Chair Ben Bernanke. Ever slow, methodical, and meticulous, Obama insisted he wouldn’t make any pick until well into the fall. But liberal activists and the press weren’t playing by his schedule. They had all summer to build up the case against Summers, get their message out, gather support, and make the argument for Yellen. Without even meaning to, Obama forfeited the game.

Third, what does this say about the state of discipline in the Democratic Party? It’s tempting, and dangerous, to read too much into a single incident. While dissension in Republican ranks — in both the House and Senate — against leadership has been an object of fascination, horror, and handwringing, the Democrats have run a tighter ship on most matters. In August, Jeffrey Smith argued on The Atlantic that liberals actually deserved Summers because they’d been so unwilling to learn the lessons of the Tea Party and challenge centrist Democrats to stop things like this nomination. Yet on Syria and now on Summers, Senate and House leaders have shown themselves unwilling or unable to unify their caucus behind the president. Maybe Republicans don’t have a monopoly on disarray after all.

The common speculation at this point is that Summers’ withdrawal clears the path for Janet Yellen, but if Obama wasn’t inclined to appoint here before I’m not sure why he’d be so willing to do so again.

FILED UNDER: Economics and Business, Quick Takes
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. Rob in CT says:

    Well, maybe he won’t go with Yellen, but right now she’s one of the big names left standing. It was clear that Obama wanted Summers because he had a personal relationship with him. He doesn’t have that with Yellen, and that might mean she’s not going to chair the Fed (unfortunate, if true). But for all we know, Obama will now back up to her as 2nd choice.

  2. OzarkHillbilly says:

    “Clearly Obama couldn’t bring his own most enthusiastic supporters to back him on an issue of national security,”

    Correction: Obama could not convince his supporters that Syria was an issue of national security.

    But here’s a case where the White House couldn’t even keep a hold on its own senators when it needed them.

    I had no idea Senators were bought and paid for by the White House. I thought only oil and gas companies were allowed to do that.

    Third, what does this say about the state of discipline in the Democratic Party?

    Duuuhhhh! Same old, same old, idgit!

  3. legion says:

    Summers only still had any government prospects at all because of the good ‘ol boy network of friends he’s cultivated, but that network clearly doesn’t extend into Congress. He’s proven, repeatedly, that he would be very poorly suited to this job, and everyone who wasn’t a close personal friend of his knew it. Even if we don’t get Yellen in at the Fed, we still dodged a bullet on this.

  4. al-Ameda says:

    Not the end of the world, as Washington insiders would have us believe.
    Philosophically, Yellen is in line with general non-austerity oriented Fed policy.
    Janet Yellen will be fine.

  5. Rob Prather says:

    The country dodged a bullet with this. Summers was an architect of the deregulation that likely got us into this mess in the first place.

  6. Gustopher says:

    Third, what does this say about the state of discipline in the Democratic Party? It’s tempting, and dangerous, to read too much into a single incident. … Yet on Syria and now on Summers, Senate and House leaders have shown themselves unwilling or unable to unify their caucus behind the president.

    It’s really just the S-things that Obama is having trouble with…

    It’s like congressional democrats are actually doing their job of oversight, or at least pretending that they will at some point in the future. Like government is supposed to function. Weird.

  7. gVOR08 says:

    I’ll worry about Democratic dissension after I see it in actual votes and when Daily Kos starts funding primary challengers to the left of the incumbent. I’ve been worrying about the GOPs filibustering anyone Obama nominates. I have no idea who’s playing what games, but I note that if Bernanke leaves without a confirmed nominee, the role of Chairman defaults to the Vice Chair. Who is, drum roll….Janet Yellen. If nobody does anything, we get a good outcome.

  8. anjin-san says:

    what does this say about the state of discipline in the Democratic Party?

    I’m not unhappy to see Obama getting some push back from Democrats in Congress.

  9. legion says:

    what does this say about the state of discipline in the Democratic Party?

    What it says is that the Democratic Party is not a dogmatic cult of personality like the GOP.

  10. Tyrell says:

    What is needed is someone who understands the need for a strong dollar, supports steps to lower inflation, understands the situation of the middle class who are squeezed by the government on one side and the financial/corporate complex on the other; in other words wants to give the regular person a break. There needs to be an independent audit of the Federal Reserve which will be released verbatim to the public by internet or regular mail if so desired. The new Federal Reserve chairman should regularly report to the people about the value of the dollar, prices of food, predictions, and steps to lower interest rates. Everything keeps going up except our pay. In the last few years the middle class has lost out completely. Yet the middle class is who pays most of the taxes.

  11. al-Ameda says:

    @Tyrell:

    What is needed is someone who understands the need for a strong dollar, supports steps to lower inflation, understands the situation of the middle class who are squeezed by the government on one side and the financial/corporate complex on the other; in other words wants to give the regular person a break.

    Two points:
    (1) right now the hyper-inflation rate is less than 3%.
    (2) the marginal income tax rates for middle class wage earners are now at the lowest levels in the post-WW2 era

  12. rudderpedals says:

    @Tyrell: Stop kvetching, you got exactly what you want. Disinflation and a strong dollar. All the fixins for destructive austerity.

  13. Tyrell says:

    @al-Ameda: I don’t go by those economic reports. I have my own data and it is like this: my pay has been flat for the last five years. Food prices have jumped 30 -50 % or more. I have the receipts that prove it. In three years a 12 oz. soft drink has gone from 50¢ to over $1. Lots of other things too. The government tries to paint a good picture on everything. We aren’t buying it.
    “Take this job and shove it , I ain’t working here no more” (Paycheck)

  14. anjin-san says:

    @ Tyrell

    In the last few years the middle class has lost out completely

    The middle class has been suffering erosion since 1980. I know it would be convenient for you if it was all Obama”s fault, but it’s just not.

    the last five years

    See above.

  15. anjin-san says:

    I guess it’s more or less official. In conservative circles, the Bush Crash of ’08 never happened. Everything was great until Obama took office.

  16. bill says:

    the honeymoon’s over maybe?

    It adds to the rocky nature of Mr. Obama’s fifth year, following the failure of a gun-rights bill, the stalling of an immigration overhaul and the lack of progress on a budget deal, on top of the back-and-forth over whether to conduct airstrikes in Syria to punish the Assad regime for a poison gas attack that killed hundreds of civilians.

  17. @Tyrell: Well, I guess that does it. We’re in a recession because Tyrell can’t buy as many soft drinks. Don’t need data, we have Tyrell’s Piggly-Wiggly receipts.

  18. Barry says:

    @Rob Prather: “The country dodged a bullet with this. Summers was an architect of the deregulation that likely got us into this mess in the first place. ”

    Ten thousand times yes.

    That corrupt, arrogant, destructive and far from brilliant b*stard should have stood trial in 2009, and then been publicly punished, along with every other economist who led us to disaster.

  19. Barry says:

    @Tyrell: “What is needed is someone who understands the need for a strong dollar, supports steps to lower inflation, ”

    We have low inflation. Stop lying.

  20. Barry says:

    @Tyrell: “Food prices have jumped 30 -50 % or more. ”

    That’s a lie.

    “I have the receipts that prove it.”

    That’s another lie.

    “In three years a 12 oz. soft drink has gone from 50¢ to over $1. ”

    Three years ago I was buying those for $1. Occasionally I’d see a 2 for a dollar special, but that was the odd, as they say, ‘special’.

  21. humanoid.panda says:

    @Barry: This a useful link to throw at people like Tyrell: a non governmental source, not privy to the great conspiracy to obscure the invisible hyperinflation wave of 2008-2012, still somehow showing very similar price level to the dreaded CPI:

  22. legion says:

    @Tyrell:

    I have my own data

    As someone once said, everyone’s entitled to their own opinions, but not their own facts. A guy living in Alaska probably doesn’t see much of a market for bikinis; that doesn’t mean a guy opening a bikini store in southern Cali is making a mistake.
    Middle-class pay hasn’t been for the last 5 years – it’s been flat for the last 30 years. Your prices haven’t doubled in the last 3 years, but they may have in the last 10-15. Yes, I’m sure you can show me a receipt from 3 years ago with a good sale price on it, but that doesn’t mean consumer prices have doubled. We have the statistics on that. You’re exaggerating.

  23. al-Ameda says:

    @Tyrell:

    @al-Ameda: I don’t go by those economic reports. I have my own data and it is like this: my pay has been flat for the last five years. Food prices have jumped 30 -50 % or more. I have the receipts that prove it. In three years a 12 oz. soft drink has gone from 50¢ to over $1. Lots of other things too. The government tries to paint a good picture on everything. We aren’t buying it. “Take this job and shove it , I ain’t working here no more” (Paycheck)

    Okay, it’s well established that you are a typical modern Republican – facts do not matter, you can create your own reality. However you do realize that the trend over the past 30 years is that overall middle class wages – adjusted for inflation – have been flat. These trends did not materialize with the inauguration of the president in 2009, they’ve been developing since the late 1970s.

  24. Barry says:

    @OzarkHillbilly: “Correction: Obama could not convince his supporters that Syria was an issue of national security.”

    I used to think that reporters would figure that out.

  25. grumpy realist says:

    @Tyrell: Dude, Japan’s had the equivalent of all that for the last 20 years and they’re desperately trying to get out of the deflation trap.

    Inflation is good in one way: it makes debts smaller.

  26. fred says:

    Good. Now Pres Obama should choose someone, unlike him, the President, who is more concerned with the plight of the poor and middle class rather than the rich and Wall Street. I voted for Pres O twice but he has been a total disaster for poor and middle class people and things keep getting worse for them rather than better. He has finally began to stand up to GOP but after 5 years dilly dallying with them his actions may be too late. When you have people from DNC and others like Gov Rendell, etc, going on shows such as Morning Joe, CNN and CSPAN and blaming “both sides” you can see why there is so much growing mistrust of the President. DNC and so-called DNC and democratic analysts are not helping the situation.

  27. grumpy realist says:

    Also, aside from being an aggressive SOB who doesn’t suffer fools gladly (guaranteed to not win friends with the Capitol Hill egomaniacs), Summers still has the stench of the Lehman Bros. collapse all over him.

  28. rudderpedals says:

    It’s nutty but it seems when Pres. Obama took office the banksters said “All these policies belong to you, except bankster regulation. Make no attempt to land regulations on us.”

    I don’t get this fealty to the Rubin-Greenspan combine. They’re still killing us.

  29. Barry says:

    @legion: “Summers only still had any government prospects at all because of the good ‘ol boy network of friends he’s cultivated, but that network clearly doesn’t extend into Congress. ”

    I hadn’t thought of it this way – Summers has a sweet executive branch network, but nothing in Congress.

  30. Tyrell says:

    @Christopher Bowen: I do not shop at any Piggly Wiggly. Food Lion or WalMart.