When the White House floated the name of Larry Summers as a “leading candidate” to head the Federal Reserve upon Ben Bernanke’s retirement, the trial balloon was quickly strafed with as many bullets as a shooting gallery target at an NRA convention.
A letter supporting Janet Yellen, the current vicechair of the Fed, gathered “nearly half” of the Senate Democratic caucus. Women’s groups issued protests, led by the National Organization of Women and UltraViolet. Progressive bloggers and analysts, as well as many independent Wall Street analysts voiced their criticism. By the end of the week, the president let it be known that no appointment was imminent, and that he would name his choice over “the next several months.”
No doubt, some of the heat against Summers came from his well-founded reputation for being something of a cad. He is infamous for bullying those who disagree with him. As Harvard president, his comment that women are somehow innately unable to compete in the higher levels of math and sciences triggered widespread faculty dismay and contributed to his abrupt resignation from the presidency. And as former FDIC chair Sheila Bair pointed out, “unlike Larry Summers,” the superbly qualified Yellen was “not part of the deregulatory cabal that got us into the 2008 financial crisis.”
That Obama would consider nominating Summers over Yellen stupefied many women leaders. But the backlash against the White House feelers on the Fed reflected much more than the sensible desire to break open what Bair called the “exclusively male marbled offices of big bank regulators.”
The Summers’s feelers ran into the incipient but growing reaction against the destructive hold that the Wall Street wing of the Democratic party has on this White House and its economic policy.
Summers is a poster boy for this Wall Street wing — literally. He joined then-Treasury Secretary Robert Rubin and Federal Reserve Chair Alan Greenspan on the infamous 1999 Time magazine cover celebrating “The Committee to Save the World.” That, of course, was before the Wall Street wilding they helped to unleash ended in financial collapse and the worst global downturn since the Great Depression.
Summers, along with his mentor Rubin, pushed deregulation of the banks under Clinton. He helped drive through the repeal of Glass-Steagall, allowing for the consolidation of mega-banks like Citibank (Rubin joined Citigroup after leaving the Treasury). He scorned then-Commodities Futures Trading Commission Chair Brooksley Born when she sensibly sought to regulative derivatives, which Warren Buffett calls “weapons of financial mass destruction.” Summers’s supporters — led by Rubin and his acolytes around the White House — argue that he has learned from the “experience.” Across the country, Americans still struggle to recover from that “experience.” For someone in the inner circle like Summers, there is neither accountability nor shame.
Like Rubin, Summers also personifies the revolving-door culture between Wall Street and government. After getting pushed out at Harvard, Summers pocketed millions with the large hedge fund D.E. Shaw. While in that role, he dismissed as “Luddites” those who warned about the dangers of the growing housing bubble.
Back in the Obama White House as an economic advisor, Summers helped consolidate the decision to bail out the banks without reforming them. He isolated stronger voices like former Fed chairman Paul Volcker, and worked to weaken Volcker’s attempt to limit the big banks’ abilities to speculate with taxpayer-guaranteed deposits. Summers and Treasury Secretary Tim Geithner also opposed any effort to break up the big banks or limit their size. After leaving the Obama administration, Summers again made millions as a consultant for Citigroup, which had received generous rescue packages from the U.S. government during the financial crisis.
For the anointed, this unseemly revolving door isn’t considered corrupt. Summers’s supporters argue that his consulting provides invaluable experience, gaining the “perspectives” and the “relationships” with Wall Street movers and shakers vital to “command the respect of the markets.” But his opponents know different.
The next chair of the Federal Reserve will have to guide the institution and the country through treacherous terrain. He or she will have to gain a consensus among governors on whether, when and how to “taper” down the extraordinary measures the Fed has undertaken to keep the economy from sinking. He or she will have to continue the effort to bring order back to the financial markets, curb the banks too big to fail and too big to manage, and strengthen the necessary regulations to make banking boring again.
The opposition to Larry Summers isn’t simply an objection to the old boys club. It represents an incipient but growing reaction against the old ways of doing business. Over the last 40 years, Democratic and Republican administrations have helped to build an economy that works remarkably well for the wealthiest Americanswhile the middle class sinks. Global banks and corporations have thrived while U.S. manufacturing has been devastated. Corporate and bank profits are at record levels while workers’ income share of the economy is at record lows. Big banks have been deemed too big to fail and too big to jail. Trillions have been spent to save them, while the middle class struggles to stay afloat. Increasingly the cloistered club and the revolving door seem in service less of the public than of the few. The pushback against the Summers nomination may be an inside-the-beltway scuffle, but it hints at a much more potent backlash.