Clinton Admits He Was Wrong on Financial Deregulation But Larry Summers Never Has

     While I've never been a Larry Summers basher and I still tend to agree with both Matt Yglesias and Paul Krugman that he'd be very good as Fed Chairman I have to admit that the optics of Summer look bad. I mean imagine putting someone with a history of sexist comments about women's abilities over a woman with great ability, Janet Yellen. 

     "Summers would get the nod over the previous favorite, Fed vice chair Janet Yellen, in part because top-level officials have stressed to the president that Yellen is somehow “not strong enough” for the job, and would subsequently lack the confidence of financial markets. This gender-coded whisper campaign against the woman who would become the first female Fed chair in history is in line with an undercurrent of sexism about the selection — and the fact that Summers has an unfortunate history on this, from infamous comments he made while president of Harvard University (alleging there exist “innate” scientific aptitude difficulties for women) just amplifies the potential problem for the White House with its liberal base."

     http://www.salon.com/2013/07/24/sexist_larry_summers_will_destroy_the_economy/

     It seems to me one of two things are true about this choice:

     1. Yellen and Summers are two very qualified candidates to lead the Fed and either will do a stellar job. 

     2. Summers has some real 'blind spots' as Noam Schrieber puts it. 

     http://www.newrepublic.com/article/114009/larry-summers-fed-chairman-over-janet-yellen#

     He has a bad reputation of not working well with others-especially those who believes aren't his equal and the Fed is a very collegiate institution that requires consensus-for a Fed Chairman to get even 2 dissenting votes can be cataclysmic. 

    What's more, I have to say that while I tend to agree with 1, the Summers bashers make a compelling case. David Dayden:

     "The Fed’s biggest preoccupations at the moment are 1) whether to continue monetary stimulus to prop up an economy that remains ailing, and 2) whether to implement financial regulations from the Dodd-Frank Act in a way that is adversarial or friendly to Wall Street."

      "On the first count, Summers’ public statements on the economy since leaving the Council of Economic Advisers in 2010 have largely been confined to fiscal policy, something that would be out of his reach as Fed chair (and which is also stuck due to Congressional gridlock). For what it’s worth, the Administration is confident that Summers would take seriously the full employment mandate of the central bank. But sources close to the situation worry that Summers would be more likely than Yellen, an inflation dove, to prematurely pull back on quantitative easing measures, and more important, become accepting of the current high levels of unemployment, without experimenting on bolder measures. Inflation would remain the primary Fed concern, a benefit to bankers, rather than full employment."

      "Summers’ true position on monetary policy is more conjectural (actually a problem when putting someone into a position of running monetary policy). But there’s no question that, on financial regulation, Larry Summers has perhaps the worst track record of any major economic figure in America. And the Federal Reserve plays a key role, perhaps the primary role, in regulating banks. Led by point person Daniel Tarullo, the Fed has recently doubled leverage requirementsfor the largest financial institutions. It’s hard not to see the Summers pick as designed to babysit Tarullo, and blunt any policies that come down hard on the banks. Tarullo and Summers are personally close, but Summers typically listens to his own set of sources on financial regulation – the ones in the very expensive suits – and this has had disastrous consequences for over 15 years."

   http://www.salon.com/2013/07/24/sexist_larry_summers_will_destroy_the_economy/

    He also points out that Summers unlike Clinton has had no second thoughts regarding the amount of bank deregulation in the 90s. Here is Clinton in 2010:

    "On derivatives, yeah I think they were wrong and I think I was wrong to take [their advice] because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency,” Clinton told me.

“And the flaw in that argument,” Clinton added, “was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.”

The former President also said he was also wrong about understanding the consequences if the derivatives market tanked.  “The most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries, not investors, and I was wrong about that.”

     http://abcnews.go.com/blogs/politics/2010/04/clinton-rubin-and-summers-gave-me-wrong-advice-on-derivatives-and-i-was-wrong-to-take-it/

     On the other hand, here's what Summers has to say with the privilege of hindsight:

      "In the 1990s, Summers and then-Treasury Secretary Robert Rubin led the effort to stop Brooksley Born from regulating derivatives, precisely the financial instruments that magnified the housing bubble and accelerated the financial collapse. Under his watch as treasury secretary, Congress eliminated Glass-Steagall’s firewall between commercial and investment banks, legalizing the merger of Citigroup (where Rubin would later become CEO). He further oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, even from state anti-gambling laws. Even Bill Clinton has apologized for deregulation of the riskiest sector in finance; Summers has not. Even well after the crisis, in 2011, Summerspronounced himself “more cautious than many about constraining financial innovation,” a not-so-thinly veiled code for encouraging a return to casino activity on Wall Street."

     No doubt about it. The more you think about it, the White House should listen to Krugman:

     "So what we have here are two highly qualified candidates, head and shoulders above anyone else I’ve heard mentioned and inconceivably better than the men who might have been in contention if that guy who ran with Paul Ryan had won. But if the final choice isn’t Janet Yellen, I think the president is going to have to offer a very good explanation of why not, or face a lot of grief from people who want to think the best of his administration."

      http://diaryofarepublicanhater.blogspot.com/2013/07/why-everyone-doesnt-love-larry-for-fed.html#comment-form

      Whether you agree that Summers is highly qualified or not-I tend to think he is, but if he isn't the answer is the same-Yellen is the choice. All this again, makes you think that Yglesias is on to something: this talk yesterday of Summers leading the pack may well have been orchestrated by Yellen supporters as all it;s done is show how many detractors Summers has and how much baggage he carries. If Obama goes with him now, then he must really, really like Summers, even more than is believed.