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Senators Grow Anxious over Possibility of Summers at Fed

Tuesday, 30 July 2013 06:10 PM

The Senate’s second-ranking Democrat said he would “have a lot of questions” if former Treasury Secretary Lawrence Summers is chosen to replace Federal Reserve Chairman Ben S. Bernanke.

Senator Richard Durbin’s comments in an interview at the Capitol reflect anxiety within the Senate that President Barack Obama may nominate Summers. Durbin is among 19 Democratic senators and one independent who signed a July 26 letter to the White House praising Federal Reserve Vice Chairman Janet Yellen and urging Obama to nominate her to lead the central bank.

“If Summers is the nominee, I sure would have a lot of questions to ask him,” Durbin of Illinois said Monday. “He’s served several administrations, and I’d like to hear his point of view on the role of the Fed in terms of helping the middle class and creating jobs.”

Although the letter didn’t mention other potential candidates, it shows that Yellen is gaining support for the nomination and points up possible difficulties Summers, if nominated, may encounter in winning Senate confirmation.

Last month, Obama said in an interview with Charlie Rose that Bernanke had stayed in the post “longer than he wanted.” The Fed chairman hasn’t indicated whether he would seek or accept a third term. Bernanke’s four-year term ends Jan. 31.

Strong Ideas

White House spokesman Josh Earnest told reporters Monday that Obama has made clear “that this is something he’s been thinking about for some time, and I think he has his own pretty strongly held ideas about what he’d like to see there.”

White House officials have begun to focus on how Obama will leave his mark on the central bank. An administration official, who asked not to be identified in discussing internal planning, said July 26 that Obama won’t nominate a successor until at least September.

As lawmakers prepare to leave Washington at week’s end for a five-week summer break, some Democratic senators are becoming more vocal in backing Yellen and raising concerns about Summers’s role in advocating deregulation 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.

Glass-Steagall Act

Summers also sought repeal of the Glass-Steagall Act, the Depression-era law separating commercial and investment banking.

“I start from a position of being extraordinarily skeptical that his background is appropriate for the role of the head of the Fed,” said Oregon Senator Jeff Merkley, a Democrat on the Banking Committee who signed the letter, said Tuesday in an interview.

“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.

Summers spokeswoman Kelly Friendly declined to comment.

“The letter was not about this, I want to make that clear, but there is obviously a lot of opposition here to Summers,” said Senator Sherrod Brown, an Ohio Democrat who is a member of the Banking Committee.

Gaining Signatures

Brown, who approached lawmakers on the Senate floor July 25 to gain their signatures, said he hadn’t received a response from the White House.

“I don’t expect feedback, and I don’t expect them to say, ‘we agree’ or ‘we don’t agree,’” Brown said Tuesday in an interview. “I just want him to know that Yellen has a lot of support. That’s what the letter’s about.”

Brown said he could have gotten another half-dozen signatures if he’d extended his effort another day or two before sending the letter. That would be almost half of the chamber’s 54 Democrats.

Other senators who said they signed the letter are Barbara Boxer and Dianne Feinstein of California, Tom Harkin of Iowa, Angus King of Maine, Jay Rockefeller of West Virginia, Mark Udall of Colorado, Elizabeth Warren of Massachusetts and Sheldon Whitehouse of Rhode Island. All are Democrats except King, an independent who caucuses with the Democrats.

Two-Seat Edge

Warren is also a member of the Banking panel, which would vote on the Federal Reserve chairman nomination. Democrats have a two-seat edge on the committee, meaning opposition from three Democrats may spell trouble for a nominee if all the Republicans oppose the choice.

Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion, said it is “quite unusual to have the debate this far out in the public.” He is a former Fed senior economist.

Senate Historian Donald A. Ritchie said, though, that the Yellen letter didn’t strike him as “out of the ordinary.”

“It’s not unusual for senators to weigh in on nominations and to make it clear that there are people that they like in the process,” Ritchie said in an interview.

Asked whether he expected that Summers would have difficulty winning confirmation, Whitehouse said “yes,” and declined to elaborate, other than to praise Yellen.

“She’s been very right on things over and over again,” Whitehouse said. “I think she has a terrific track record, and I’d love to see her be the new director.”

First Female

Yellen, the No. 2 Fed official since 2010, would be the first female leader in the central bank’s 100-year history. She was a University of California, Berkeley, economics professor who specialized in labor-market research before serving as chairman of Clinton’s Council of Economic Advisers and president of the San Francisco Fed.

“Summers is obviously a bright guy and all that kind of stuff, but I think temperament-wise and knowledge base-wise, I just think that Janet Yellen is the best,” Harkin said.

Harkin said he had more confidence that Yellen would emphasize lowering unemployment, which he characterized as an overlooked responsibility of some recent Fed chairmen.

“The Fed has two responsibilities: One is economic stability and the other is full employment, and she understands that,” Harkin said. “I think some of our past Fed chairmen, like Mr. Greenspan and some others, they only looked at the price and stability and forgot about the full employment.”

Monetary Policy

Yellen, 66, has consistently backed the Fed’s accommodative monetary policy and led its unprecedented efforts to expand and overhaul its communications strategies. The Federal Open Market Committee is buying $85 billion in bonds each month and has kept the main interest rate near zero since December 2008 to spur growth and reduce unemployment that was 7.6 percent last month.

Summers, who served as president of Harvard University from 2001-2006, was criticized by faculty and women’s groups after he said in a 2005 speech that “innate” differences between the sexes could partially explain the shortage of elite female scientists.

Several Democratic senators said they didn’t think Summers’s comments at Harvard would influence how they would view him as a Fed nominee.

“I don’t really think they’re relevant to this discussion,” said Feinstein, who said she prefers Yellen over Summers. “I think comments on derivatives and that kind of thing are.”

First-Hand Experience

Yellen, who Feinstein knows from Yellen’s time at the San Francisco Fed, “has first-hand experience with the Federal Reserve, and actually that’s what the job is,” Feinstein said.

“I think she is by experience really well-equipped to handle it,” she said. “She has run a Fed, she’s participated in these meetings and discussions.”

Feinstein added, “Larry Summers is sort of into many more things than just the Fed.”

A third of those surveyed in a Bloomberg Global Poll of investors, analysts and traders in May said they expected Yellen to succeed Bernanke, while Summers was cited by 6 percent. In an April poll of investors by International Strategy & Investment Group, 65 percent said Yellen was most likely to take over compared with 5 percent for Summers.

“He’s very smart,” Boxer said of Summers. “I just think Janet is better suited.”

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The Senate's second-ranking Democrat said he would "have a lot of questions" if former Treasury Secretary Lawrence Summers is chosen to replace Federal Reserve Chairman Ben S. Bernanke.
Tuesday, 30 July 2013 06:10 PM
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