Summers at Fed prompts questions from concerned senators

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 July 29. “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 difficulties that Summers, if nominated, may encounter in winning Senate confirmation.

David Gergen, an adviser to Republican and Democratic presidents from Richard Nixon to Bill Clinton, said that to the best of his knowledge, the letter is “unprecedented.” He said he was taken aback by so many senators deciding to “make this a political question,” and added that the episode may complicate confirmation of either Yellen or Summers.

“Usually that advice is given in private,” said Gergen, a professor at Harvard University’s Kennedy School of Government. “It’s never pretty when a president faces tensions within his own party about an appointment and is caught in the middle.”

Strong Ideas

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.

White House spokesman Josh Earnest told reporters July 29 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 Clinton’s administration.

Derivatives Market

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.

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,” Oregon Senator Jeff Merkley, a Democrat on the Banking Committee who signed the letter, said yesterday 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.

Gaining Signatures

“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.

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 yesterday 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 gathered another half-dozen signatures if he had extended his effort another day or two before sending the letter. That would be almost half of the chamber’s 54 Democrats.

Other Signers

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.

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.

Advisory Role

Boxer said the letter represented senators exercising their constitutionally outlined advisory role on presidential nominees.

“I think this is the way to do it: Advise before there’s a decision made and let him know that we think this is a wonderful candidate,” she said. “It’s a good way to go, rather than wait for somebody else and then, you know, you’re not happy.”

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.”

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.

‘Bright Guy’

“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.”

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.

Harvard Comments

Summers, 58, 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.”

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.

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

Global Poll

Republican senators have been hesitant to discuss the nomination, saying they would wait until Obama announced a candidate before offering opinions. Even so, several said yesterday that they didn’t find Democrats’ efforts to influence the selection surprising.

“I know that each of the candidates has their own following, and I really wasn’t surprised by it,” said Tennessee Senator Bob Corker, a member of the Banking panel.

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." (Bloomberg)