Why Larry Summers Won't Lead the Fed

After an unusually divisive few months leading up to President Obama's Fed chair nomination, possible nominee Larry Summers decided he didn't want to be considered for the job anymore. What ultimately derailed Summers' candidacy was his record on deregulating the financial services industry, but the story that got all the attention was sexism.

After an unusually divisive few months leading up to President Obama's Fed chair nomination, Larry Summers decided he didn't want to be considered for the job anymore. Summers was considered to be Obama's top pick for the post, but a lot of Democrats, not to mention women's groups, actively campaigned against him. What ultimately derailed Summers' candidacy was his record on deregulating the financial services industry, but the story that got all the attention was sexism.

On Sunday morning, Summers called Obama to remove his name from consideration. In the letter that followed, Summers wrote,

I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation's ongoing economic recovery.

Four Democrats on the Senate Banking Committee were thought to oppose a Summers confirmation, meaning that a fair amount of Republican support would be needed to get him confirmed. Though Summers' withdrawal came as a surprise, it was probably the right thing to do — Obama and Senate Majority Leader Harry Reid would have had to do a lot of campaigning to their own party to get the Senate in line.

Sen. Jon Tester, one of the four Democrats on the banking committee to oppose Summers, has said in the past that Summers tends to favor large financial institutions over small community banks. Critics see Summers as too chummy with the banks and responsible for the deregulation during the Clinton years that led to the financial crisis. Sen. Jeff Merkley, another banking committee member who indicated he would vote against Summers, called a Summers candidacy "disconcerting." In July, a third of Democratic senators sent a letter to Obama urging him to pick Janet Yellen instead. The letter didn't mention Summers, but at the time, one of its signers, Sen. Tom Harkin, expressed his concern with the former treasury secretary: “He was one of the architects of getting rid of Glass-Steagall, of getting rid of other regulations.” It's a significant complaint, but one that usually gets mentioned second. The charge of sexism — against Obama and Summers — is the one that got all the attention in the Summers debate. 

As Jonathan Chait at New York points out, nominating and confirming a Fed chair usually isn't so "acrimonious": "Four years ago, Obama nominated Republican Ben Bernanke . . . with nary a peep of protest." The reason things got so heated over a possible Summers nomination is that he's a guy at a time when Obama faces criticism for failing to promote women in his administration.

The Fed chair nomination has become Obama's sexism test, and he has a well-liked woman he could pick — Yellen. Summers is 1) a man and 2) accused of being a sexist man. Commentators and women's groups have repeatedly brought up a questionable speech he made as president of Harvard University in 2005, in which he suggested that the lack of women in science and engineering could be due to natural differences between the sexes. A female MIT biologist present at the speech walked out, claiming if she hadn't, she "would've either blacked out or thrown up." Though Summers apologized, insisting he doesn't believe "that girls are intellectually less able than boys, or that women lack the ability to succeed at the highest levels of science," people haven't forgotten the speech, and they won't. Amid debate over Summers' qualifications this August, NOW President Terry O'Neill called him a "sexist who isn't that good at his job."

Summers' record on deregulation got key Senate Banking Committee Dems to speak out against him, but it was Obama's record on nominating women that sealed his fate. Given Summers' history and Obama's, it was too easy to oppose a Summers candidacy, especially with Yellen available to take the post. We'll see whether Obama picks Yellen, a woman who economists and Democratic legislators alike think is the best pick for the job.