Elizabeth Warren at Banking Committee
hearing, May 22, 2013
Nearly two weeks ago, Sen. Elizabeth Warren was one of 20 senators who signed a
letter to the president urging him to appoint Janet Yellen as next chairperson of the Federal Reserve Board.
If that was a surprise to anyone, it shouldn't have been. Because even though Larry Summers, the presumed front-runner for the chairmanship, had early on supported Warren's proposal that eventually became the Consumer Finance Protection Bureau (and his support may even have been the reason President Obama backed it in the first place), he didn't want her to head the bureau.
But the differences aren't personal, they're tied to policy: Summers's Wall Street-centric approach versus Warren's Main Street viewpoint. Even after Obama backed the consumer protection agency, Warren continued to criticize White House policy on bank regulations, policy heavily influenced by Summers's thinking.
Matt Viser at the Boston Globe writes:
In March 2010, Warren appeared on PBS’s “The Charlie Rose Show” and said some of Obama’s economic advisers—especially Summers and Geithner—were beholden to Wall Street interests. “I think we have different world-views,” she said.
She declined to respond to a question of whether they should be in their current jobs.
“Well, I’m going to say it differently,” Warren said. “I think that Summers and Geithner are smart. I think they’re honorable. I think they approach the economy and the world through the largest institutions. And they see the world from a top-down perspective. I spent 25 years somewhere else.” [...]
“It will not save us if a handful of Wall Street banks prosper and the rest of America fails,” she said. “Our focus, our energy, our heart has to be on the rest of America.”
If only we could clone Warren about 100x.
Summers has spoken about the need to do something substantive about the economic inequality that is eating away at the middle class, not to mention what it is doing to those who have never arrived at that level of affluence. The problem is, as BruceMcF recently pointed out, his prescriptions for fixing the decay that has worsened inequality to the 1920s level have nothing to do with the job of the chair of the Fed.
Before reading more analysis below the fold please sign our petition requesting that President Obama not appoint Larry Summers as Federal Reserve chair, and consider instead appointing a better-qualified person, such as Deputy Chair Janet Yellen.
For Summers the inequality problem stems almost entirely from technological advance and globalization. These certainly have had severe impacts. But they aren't the Fed's bailiwick. About what the Fed could do regarding inequality—say, changing the terms of the instruments it uses with banks to increase or reduce liquidity—he has nothing to say.
Janet Yellen is more concerned in the current circumstances with focusing Fed policy on the employment side of things than the inflation side. She's a much better fit for the Fed's more transparent recent approach to policy. She's not a hothead. She has a record of good predictions about where the economy was headed. She doesn't have a record of deregulating institutions, policies which, at the very least, exacerbated the financial crash that produced the Great Recession. It should not be forgotten that the Fed chair will play a central role in developing definitions under the Dodd-Frank financial reform, including the derivatives markets.
About those in 1998 testimony to Congress, Summers said that "to date there has been no clear evidence of a need for additional regulation of the institutional OTC derivatives market, and we would submit that proponents of such regulation must bear the burden of demonstrating that need."
That comment alone ought to keep him out of the chairmanship.