Updated 16 September 2013 3:07pm
Econintersect: The Financial Times is reporting that former Treasury Secretary Lawrence Summers has withdrawn his name from consideration to be the next Chairman of the Board of Governors of the Fedreal Reserve Bank. The reason cited by FT is opposition from a number of key Democratic Senators. Econintersect has published a number of Op Eds and has made editorial comment detailing why Summers was the wrong person to head the U.S. monetary policy function and to be in charge of bank regulation.
A key factor for Democrats was the role that Summers played in implementing financial deregulation during the Clinton administration years when he had key economic roles, first as Deputy Secretary of the Treasury under Robert Rubin and then succeeding Rubin in that the top post 1999-2001.
Summers has been considered one of the “Big Three” in pushing through financial deregulation which completed the dismemberment of safeguards for the banking system implemented during the Great Depression. The following Time Magazine cover from 15 February 1999 commemorated the high regard in which the three top monetary figures in government were held.
The crowning achievement of the efforts of Summers and his collaborators was the repeal of what was left of the 1933 Glass-Steagall Act which separated depository banking from investment banking. This occurred with the passage of the Gramm-Leach-liley Act (GLBA) 0f 1999 which removed separations between speculative investing and traditional commercial depository banking. GLBA opened the era of essentially unregulated derivative creation and trading. Nine years later the Great Financial Crisis brough about a collapse of banking and finance the likes of which has not been seen in more than 80 years.
Some Democrats argue that deregulation, which Summers championed, was significantly responsible for the GFC of 2008. Some Republicans argue that the crisis resulted from too much government interference remaining in the financial system and a truly completely free market would not have experienced the problems.
Here is the letter Summers sent to President Obama:
An article published by CNBC contained quotes from a number of people who were disappointed that Summers withdrew.
GEI Opinion has an article by Dan Kervick who explains why he thinks Summers’ move is a good thing.
GEI Investing has an article by Jeff Miller discussing the possible implications for investors. Initially the reaction seems positive as U.S. stock futures are up strongly overnight.
Update (16 September 2013 3:07 pm): Sober Look pointed out today that Janet Yellin as the next Fed chair is not a done deal. He says that President Obama is big on nominating people he has been close to and has personally worked with. Obama (and none of his top inner circle ) have worked directly with her in any capacity. And, even if the president does nominate her, her dovish reputation may make it difficult ot garner any Republican votes. The administration may not want to propose a polarizing nominee.
Source:
Summers withdraws from Fed race (Richard McGregor and Robin Harding, Financial Times, 15 September 2013)
Larry Summers withdraws name from Fed consideration (Zachary Goldfarb and Ylan Q. Mui, The Washington Post, 15 September 2013)
Summers withdraws his name for Fed chair (CNBC, 15 September 2013)