I have a hard time trusting larry summers because of the responsibility he shares for the deregulation of our financial institutions that lead to this great recession that we are still in and his unwillingness to reject the too big to jail attitude prevalent in congress, the Obama administration and the bank-financial regulatory agencies. Janet Yellen is may is an unknown, doesn't have the history of summers, isn't tainted by questions involving relationships with the bank-financial cabal. Here is a short outline on the qualifications and questions about policy on summers and Yellen from the Washington Post's Wonkbook....
The president’s decision on whom to nominate to be the next Federal
Reserve chair increasingly appears to be coming down to Larry Summers
and Janet Yellen. Ezra describes well what appears to be the state of
play here:
The president, or at least the people close to him, are leaning toward
Summers, but are in the midst of assessing just how stiff the blowback
will be if the polarizing former treasury secretary gets the nod.
But let’s back up a minute. What are the traits we really want in a
successful Federal Reserve chair, and what do we know about Summers’s
and Yellen’s capabilities, and limits, on each?
First things first: No one is really qualified to be chairman of the
Federal Reserve until they’ve done the job for a while, and some not
even at that point (cough G. William Miller).
It is in many ways an impossible job, requiring a person to be
simultaneously a skilled economist, crisis manager, politician,
administrator, and regulator; Bernanke himself was in some key respects
underqualified when he was first nominated for the job in 2005.
That is not a problem either Yellen or Summers would face. Both are,
on paper, extraordinarily qualified, having spent many years at the
highest levels of economic policymaking. But what do we know about their
specific skills and weaknesses on each of those frontiers? Here’s some
analysis, based on years of closely watching both Summers and Yellen and
conversations with those who have worked for or with them.
Economist. Above all else, the Fed chair needs to
make the right calls: When to hike interest rates, when to buy more
bonds or fewer. And that requires excellent macroeconomic judgment. Both
Yellen and Summers are accomplished academic economists with a long track record of publishing journal articles on macroeconomic topics.
Yellen is one of the key engineers of the Fed’s current strategy of
pairing monthly bond purchases with “forward guidance” to explain to
markets the future path of policy. Summers has been largely quiet about
his views on the proper direction of monetary policy in recent years, no
doubt in part to maintain viability as a possible nominee for Fed chair
(though the Financial Times reported today that he expressed skepticism
about the effectiveness of quantitative easing at a private conference
recently). Add it all up, and we just don’t know in advance how a
Summers Fed might differ from the Bernanke Fed, though we do know that
Yellen is almost certain to maintain continuity with the strategy she
helped put in place.
Crisis manager. When the financial feces hits the
fan, the chairman of the Federal Reserve invariably plays a crucial role
cleaning it up, as Bernanke knows all too well. The White House, according to Ezra’s reporting,
tends to view Summers more favorably on this count. It is true that he
was a key member of the team that led the response to international
crises in the late 1990s (his presence on the famous Time magazine
“Committee to Save the World” cover may seem cringe-inducing now,
however).
Yellen was at the San Francisco Fed during the darkest days of the
Fed’s response to the current crisis, not among Bernanke inner circle in
Washington and New York making the nitty-gritty, middle-of-the-night
decisions on whether to bail out this investment bank or that insurance
company. People who have worked with her describe her as exceptionally
careful and deliberative—usually desirable qualities in a central
banker. The question is whether, if a crisis hits during a Yellen
chairmanship, she can make the fast decisions with imperfect information
that are inherent to responding to a crisis. It’s worth adding that
Bernanke had no real relevant experience in this area before becoming
chair, and acquitted himself remarkably well.
Politician. The Fed chair must navigate the shoals
of politics, representing their institution on Capitol Hill and with the
White House. Summers has more experience in this aspect of the job,
having served as treasury secretary and chief White House economic
adviser. That doesn’t necessarily mean he will be better at it; he has a
frequently abrasive personality that has earned him plenty of enemies
on the Hill over the years. There has already been a surprising amount
of blowback from senators to his potential nomination in the last few
days, including a tweet from Sen. Jeff Merkeley (D-Ore.) that a Summers
nomination would be “disconcerting.”
But it’s also worth noting that Yellen has had a lower profile than
Summers over the last 15 years, and thus been less subject to the kind
of partisan maw that a Fed chair finds themselves in the middle of. In
three years as vice-chair of the Fed, Yellen has not testified before
Congress a single time. Indeed, the last time she did testify, in her
confirmation hearing to become vice-chair in July 2010, she initially
bungled her response to the first question. Sen. Richard Shelby pointed
out that many of the banks that Yellen regulated as president of the San
Francisco Fed had failed, and asked what role did she think a breakdown
in regulation played in those failures. She began her answer, “Working
with other regulators, I think that our regulatory oversight was careful
and appropriate,” prompting Shelby to interrupt her, seemingly
astounded that she was defending pre-crisis bank regulation. Yellen
recovered fine, acknowledging the failures of pre-crisis bank
regulation, but it was a small example of how she would need to work on
navigating minefields in testimony if named Fed chief.
In short, Summers has pre-existing sour relations with some lawmakers, but also less of a learning curve.
Administrator. The chairman of the Fed is the
ultimate authority over a sprawling, complicated Federal Reserve system,
encompassing 12 banks and 18,000 employees, responsible for everything
from regulating banks to managing the payments systems through which
trillions of dollars flow each day.
Yellen has a clear edge on experience, having served as president of
the San Francisco Fed and vice-chair of the Fed system; in that role she
has had particularly responsibility for overseeing “reserve bank
affairs,” such as reviewing and approving the banks’ budgets.
Summers has administered large organizations, namely the Treasury
Department and Harvard University, but his experience at Harvard, where
he resigned under pressure, is probably not a line on his resume he
wishes to emphasize. Incidentally, for the Fed economists and other
staff who work directly for the chair, either would likely prove a
demanding boss; both have reputations as expecting much from their
subordinates.
Regulator. Much of the immediate criticism to a
possible Summers nomination, particularly from the left, has boiled down
to this: He was part of the Clinton-era deregulatory zeal of the late
1990s that helped cause the financial crisis. And that’s true! But as Ezra reports,
the sense in the White House is that Summers is a changed man, and is
inclined toward a more restrictive view of what financial firms should
be able to do (and how much capital they need to hold) than he was in
the past.
One reason to give them some benefit of the doubt: Summers was a key
White House staffer as the Obama administration pushed the Dodd-Frank
financial reform act, so if he had been a force for loosening the law in
internal debates, the president and his inner circle would be well
aware of it.
Yellen, meanwhile, is known more for her role shaping monetary policy
than as an architect of bank regulatory policies at the Fed (which is
more under the purview of Governor Dan Tarullo), and would likely
embrace continuity with the Tarullo/Bernanke strategy of pushing for
higher capital requirements and other restrictions on mega-banks.
The post-crisis Fed chair faces a harder job now than when Bernanke
took it on eight years ago. And in making his choice, President Obama
will have to weigh which of these roles–and which type of
background–really matters.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/25/yellen-vs-summers-who-would-be-a-better-fed-chair/?wpisrc=nl_wnkpm
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