So, on paper, Summers is a superb candidate to succeed Bernanke in a post that the brilliant 58-year-old Harvard professor has pined for since his earliest days in Washington, according to longtime associates. Obama is reportedly fond enough of Summers that he may name him in the next few weeks, passing on a chance to appoint Janet Yellen, the widely admired current vice chairwoman, who is said to be the other major contender, as the first female Fed chief in history.
And yet Summers is a very risky choice for chairman—far riskier than Yellen, who would undoubtedly win overwhelming confirmation and was recently rated the Fed's most accurate forecaster since 2009 on issues from growth to jobs to inflation.
The Federal Reserve chairman wields such enormous power, with so little accountability, that he or she is said to be the second-most-powerful person in government after the president. Decisions are habitually made in secret. The job requires a person of great personal tact, subtlety, and self-control. It requires someone who knows how to build consensus at the highest levels for the right kind of policies—someone who possesses the maturity and character to admit error and shift course when needed.
But, according to numerous accounts from those who have worked with him, Summers has often displayed the opposite attributes during his long career. Behind the scenes, he has used his power, combined with intellectual arrogance, to bully opponents into silence, even when they have been proved right. He has refused to allow his dissenters a voice at the table and adopted a policy of never admitting errors.
And Summers has made a lot of errors in the past 20 years, despite the eminence of his research. As a government official, he helped author a series of ultimately disastrous or wrongheaded policies, from his big deregulatory moves as a Clinton administration apparatchik to his too-tepid response to the Great Recession as Obama's chief economic adviser. Summers pushed a stimulus that was too meek, and, along with his chief ally, Treasury Secretary Timothy Geithner, he helped to ensure that millions of desperate mortgage-holders would stay underwater by failing to support a "cramdown" that would have allowed federal bankruptcy judges to have banks reduce mortgage balances, cut interest rates, and lengthen the terms of loans. At the same time, he supported every bailout of financial firms. All of this has left the economy still in the doldrums, five years after Lehman Brothers' 2008 collapse, and hurt the middle class. Yet in no instance has Summers ever been known to publicly acknowledge a mistake.
Wielded by a Fed chairman, those personal traits and policy attitudes are a potentially combustible mix at a time when the Federal Reserve has become, more than ever, the most powerful economic institution on earth, and when re-regulation of the global financial system is substantially in the hands of the Fed. The man whom Summers once considered a model chairman, Alan Greenspan, offers an example of the dangers of being too certain of one's views without much accountability. Back in 1994, Congress instructed the Fed to police unfair and deceptive practices related to mortgage loans. But because the chairman believed in minimal regulation, no rules were ever written; Greenspan quietly slapped down efforts by governors such as Ed Gramlich to warn him; and the Fed did little to intervene in the emerging subprime fraud.
There is no question about Summers's intellect and experience. But would he have the character, temperament, and maturity to listen to a naysayer enough to admit error and reverse course in the next crisis? His history suggests otherwise.
by Michael Hirsh, National Journal | Read more:
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