Larry Summers vetting report
by digby
Here's a nice piece in the Prospect by Robert Kuttner, written in the guise of a "memo to the president" from his political staff. The first part lays out the particulars on the Summers controversy on policy, which is pretty damning. And then it lays out the politics which are even worse:
Politically, our efforts to create a sense of inevitability for Summers over the past several weeks seemed to be working. But then, contrary to the White House story about an easy confirmation, three leading Democrats on the Senate Banking Committee, advised us that under no circumstances will they vote for Summers, and that was leaked to the press. See this piece from last Friday’s Wall Street Journal.
The New York Times also weighed in with a blistering anti-Summers editorial.
Even if we hold all other Democrats on the committee, that makes us reliant on the Republicans to get Summers out of committee. As you know, we have redoubled our efforts to get our Wall Street friends to lobby Republicans to support Summers.
Other things being equal, Republicans should be favorable to Summers because of his soft views on regulation and his concerns about inflation. But other things are not equal. Most Republicans do not like him personally. They will be torn between giving Wall Street a vote for a friendly Fed chairman and embarrassing the White House. If they smell blood in the water, we probably cannot count on their support.
It’s not at all clear whether we would prevent a runaway hearing. We have Committee Chairman Tim Johnson’s commitment to try to keep the lid on. Johnson has the back office operations of big banks in his home state of South Dakota thanks to their lax consumer laws and is one of the most Wall Street-friendly Democrats in Congress.
However, Johnson is not going to short-circuit a hearing if he has several committee members pressing for a full investigation. That would make him look bad for trying to railroad the nomination through.
We don’t yet know who will ask to testify. But the list could include several high-powered and prestigious people, such as other senators, former regulators, and senior Harvard officials, both present and former—people who could not be dismissed lightly. The hearing might drag on for days. We withdrew Tom Daschle as our Health and Human Services nominee for a lot less. It would not paint a pretty picture.
To reiterate, despite numerous conversations, we can’t know which way the Republicans will play this. In principle, there is no “linkage” between the Fed nomination and other pending battles. But in practice, you don’t have very many IOUs to call in with the Republicans and you need to consider if it makes the most sense to spend your limited bipartisan political capital on Summers.
One of our strongest cases for Summers is that he will reassure financial markets. But a confirmation hearing that turned out to be a donnybrook would do just the opposite. By contrast, we have unearthed nothing on the other leading candidate, Janet Yellen. A confirmation hearing for Yellen would be decorous, and the main opposition would be from monetary conservatives.
This raises one final question. The economy is still a lot softer than your economic team forecast. The Fed has been making noises about pulling back on monetary stimulus in the next month or two, a policy that would slow down the recovery. Summers has been more favorably inclined towards a pullback, while Yellen has stressed the need for continued stimulus to create jobs. Though she is not as personally well known to you and our economic team as Summers is, Yellen might actually pursue economic policies more in the administration’s political interest.
That last, almost throwaway concern, is the most important. I still can't get over the fact that people are cheering 7+% unemployment for years on end. There was a time when we considered that a very bad number.
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