The contest for the next Federal Reserve chairmanship has ostensibly narrowed to a two-horse race between Janet Yellen and Larry Summers.
Yellen, current Fed vice chair, is known to be careful, congenial, and an uncanny forecaster. Summers, however, though frequently branded as “brilliant,” has committed a string of horrendous mistakes.
- During the 1990s, while serving as Treasury secretary, Summers landed on the wrong side of many significant financial issues. His bailout of the east Asian economies helped push up the dollar and the American trade deficit, prompting the developing nations to build up their reserves and leading to the global imbalances undermining the world today.
- Summers, a leading proponent of financial engineering and deregulation, presided over the repeal of Glass-Steagall regulation, which had previously separated investment and commercial banking activities. And how he embraced those so-called “weapons of mass destruction”! When in 1997 Brooksley Born, chair of the Commodity Futures Trading Commission, called for added oversight against derivatives, Summers loudly accused her of fomenting the worst financial disaster since World War II.
- Summers, who remains a consultant to Citi, is deep in Wall Street’s pocket. As head of Obama’s National Economic Council, he did nothing to help rein in too-big-to-fail banks (although in fairness he did support Dodd Frank reform legislation). He has been staunchly against the Volcker Rule, and has opposed proposals to limit the size of the TBTF brigade.
- His presidency of Harvard was a fiasco. He alienated many people with sexist remarks about women’s capabilities, demonstrating his tin ear and inept communication skills. By the way, he also lost the university’s endowment $1.8bn.
- He has kept fairly mum on his planned economic policies, possibly to safeguard his viability as a candidate. Yellen’s widely published views, by contrast, are an open book, and would seem to sustain current Fed thinking.
Is Summers’ track record so “brilliant”? Yellen at least has quietly delivered the goods. Wall Street Journal reporters surveyed over 700 economic predictions from 2009-2012 made by Fed governors and regional presidents, and nominated her the hands-down winner. Now that’s truly impressive.