In somewhat surprising news Sunday, Larry Summers has withdrawn his name for the discussion of who will replace Ben Bernanke as Chair of the Federal Reserve when his term ends in January. All signs seemed to point to Summers as Obama’s first choice to replace Bernanke, which is what makes the news surprising. However, Summers has recently come under much criticism for past actions and the push from economists and politicians alike has been for another candidate – Janet Yellen.
In a letter sent to President Obama on Sunday, Summers stated that “I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation’s ongoing economic recovery.” Why would his confirmation prove so acrimonious? Summers’s appointment has come under much scrutiny from 3 Democrats who serve on the committee that would have to approve his nomination. These more-liberal Democrats find two main faults with Summers’s nomination: 1) Summers has a record of supporting deregulation in the US market; and 2) Summers has a history of being anti-feminist due to his relations with his female colleagues while serving as President of Harvard (A position he later resigned from due to increased tension and pressure from the faculty.)
Summers served as the Secretary of the Treasury under Bill Clinton and has since developed a deregulatory reputation due to certain actions during this tenure. First, Summers supported the deregulation of derivatives, which means that he supported lessening the oversight on future contractual payments that were originally created to lessen the risk parties would take when selling or purchasing products. With less regulation comes greater risk, however, in speculation. Many people have argued that the deregulation of derivatives was a large contributor to the financial crisis of 2008 due to increased speculation on future prices from banks, hedge funds, and insurance agencies.
Secondly, Summers supported repealing the Glass-Stegall Act, another action which many people believe helped the US crumble into the financial crisis in 2008. The Glass-Steagall Act was created under FDR during the Great Depression; It was an act which separated commercial and investment banking. By doing this, the FDIC was ensuring that the money individual placed into their checking or savings accounts would not be gambled with on the open market by banks. If a person wanted to invest their money into the open market and potentially reap the benefits of larger interest rates on their accounts, one could invest their money into an investment bank and let the market play out. The Glass-Steagall Act was eventually repealed under George W. Bush, which resulted in much market speculation by banks, higher interest rates, and potentially the housing and financial crises of 2008.
The current front-runner for the position of Chair of the Federal Reserve, now that Summers has withdrawn, is Janet Yellen. Yellen obtained her PhD from Yale and has been working with the Federal Reserve ever since. She was recently nominated to serve as Vice-President of the Fed by Barack Obama. Yellen’s main focuses during her lifetime have been on interest rates, inflation, and unemployment. Summers not only has immense intelligence and vast experience on her side, but she also has the support of politicians and colleagues. The Democrats on the committee for approval of the Fed nominee have voiced their support for Yellen, and over 350 economists have signed a letter making a plea to President Obama to nominate Yellen as the next chair of the Fed.
If Yellen was to become the next Chair of the Fed, it would be a monumental step for women in Washington. While President Obama has made pushes to include more women in Washington, Yellen would be the first woman to chair the Fed in its over 100 year history.
What do you think? Is Yellen the best candidate for the next Chair of the Federal Reserve? Voice your opinion in the Comments section below.
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