Economics is Personal: The Truth Behind Larry Summers' Withdrawl as US Federal Reserve Chairman Nominee

Well that was a surprise. Of all the nominees for big policy making positions in government, Larry Summers was probably one of the last people bettors would have thought willing or emotionally able to withdraw.

But the timing was nothing if not exquisite - and brought the reasons for the resignation into very sharp focus.

See, today's kind of a special day. For those who wish to remember these things, today is the day being touted as the fifth anniversary of the Big Crash, the starting cannonade of the financial crisis and its subsequent recession, in which most of the world is still mired.

One can only imagine the White House reaction as the grim realization set in: five years to the day, Syria's sort of settled - or at least off the front burner - so all anyone has to focus on is, whoa, Larry Summers' nomination. This should be fun...not.

The real issue, as the mashup below of two articles, one satirical from Barry Ritholtz's Big Picture and the other straight reporting from the conservative-leaning Politico explains is that Summers is tied not just with most of the deregulatory policy decisions that created the financial crisis but he's also made millions from his advisory work for a rogue's gallery of hedge funds, private equity firms and investment banks. And there was that spot of bother about his attitude towards women that forced him to resign as Harvard president. Not exactly the clean hands candidate.

Summers himself could be forgiven for asking who needs this: he's got tenure at Harvard, he's rich, he's still relatively young and this opportunity could come his way again in the future.

The opposition to his nomination was coalescing among Democrats so with yet another fight over the Federal deficit looming - and with Obamacare as the proximate cause - the last thing the White House needed was asking conservatives for a favor. And the market reaction to the announcement as measured by futures last night was...very positive. The question the President must now ask himself is how he got himself in this predicament to begin with. Repeat until numb: there is no such thing as a mandate. JL

Barry Ritholtz comments in the Big Picture blog and Ben White reports in Politico:

Here’s what President Barack Obama‘s statement on Lawrence Summers‘s decision to withdraw his name from consideration to be the next chairman of the Federal Reserve would have looked like after 40 milligrams of Sodium thiopental

From the Big Picture: “Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for Chairman of the Federal Reserve.
Larry was a critical contributor to the radical deregulation that was one of many causes of the worst economic crisis since the Great Depression. It was in no small part because of his lack of expertise, false wisdom, and inept leadership that the economy crashed and burned and even today is still failing to be to back to its full growth potential.
As Treasury Secretary, he helped to pass the Commodity Futures Modernization Act. This turned derivatives into a unique financial instrument with no oversight, reserve requirements, mandated disclosures, or listing minimums. The CFMA all but guaranteed that Derivatives would eventually implode. Summers further contributed to the crisis by Summers by overseeing the repeal of Glass Steagall. With this firebreak between Wall Street and Main Street effectively removed, the financial conflagration of 2008 spread from Wall Street to every corner of the economy.
Further, his terrible advice and lack of insight is in large part the reason we see so little progress being made today — the lack of economic growth, the concentrated bank power, the still dangerous financial system and of course, the sub par job creation.
I will always blame Larry for the way he damaged my presidency. To anyone who  to seek his guidance and counsel in the future, please don’t make the same naive errors I did.

I think is quite a bit more truthful than the nonsense we heard earlier today.

From Politico: Larry Summers on Sunday withdrew his name from consideration as chairman of the Federal Reserve, a defeat for President Barack Obama — who could not convince members of his own party to shelve their opposition to his former top economic adviser.
Summers, who previously served as Treasury secretary in the Clinton administration, director of the National Economic Council and president of Harvard, notified President Barack Obama of his decision with a phone call Sunday morning.
“Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today,” Obama said in a statement Sunday. “I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future.”
During their call, Summers told Obama he believed there was now too much political opposition to his nomination to move forward, a person familiar with the phone call said. Summers told Obama that his nomination now would create too much political uncertainty for the Fed and could thus be damaging to the economy. Obama accepted Summers’ rationale and did not attempt to convince him to continue as a candidate for the Fed job, the person said.
Summers was a top initial candidate for the Fed job among senior current and former White House officials. Obama was also inclined to appoint Summers to the post, people close to the White House said. But the longer time dragged on without a nomination, the more liberal groups and some Democratic senators were able to organize to oppose Summers, who many on the left viewed as too close to Wall Street and not strong enough on financial regulation.
Opposition to Summers among Senate Democrats has been obvious for weeks but it escalated on Friday when Sen. Jon Tester (D-Mont.) announced he would vote against Obama’s former economic adviser if he was nominated.

At least three other Democrats on the Senate Banking Committee were expected to oppose Summers — Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.) and Elizabeth Warren (D-Mass.) – raising the politically uncomfortably scenario of Obama needing to rely on Republican votes just to get his choice for a Fed chief out of committee.
Obama has said the other candidates for the job are Fed Vice Chair Janet Yellen and former Fed Vice Chair Donald Kohn. But Summers was said to be the president’s first choice and it’s unclear if he will fall back on one of these two candidates or look elsewhere.
The term of current Fed Chairman Ben Bernanke ends Jan. 31.

Liberal Democrats’ chief complaint with Summers has been the role he played in deregulating financial markets when he served as Treasury Secretary during the Clinton administration. Some, like Merkley, also argued that during the Obama administration, Summers fought against reforms they favored like the trading restrictions known as the Volcker rule.
Earlier this summer, about a third of Senate Democrats signed a letter to Obama endorsing Yellen and progressive and women’s groups have also sounded their support for her nomination

People close to Summers believed had the nomination come sooner then Summers could have been approved by the Banking Committee and the full Senate. Summers supporters believe that the former Treasury secretary could still be confirmed but that the nomination fight would be too long and difficult.
A person close to the White House said Summers was “absolutely no question” Obama’s first choice to lead the Fed but that events conspired to delay the nomination too long. Those events included revelations of NSA domestic surveillance and the Syria debate.
“You just had it hanging out there too long and in the end Larry felt strongly that as Fed chairman you can’t have this ugly political process,” the person close to the White House said. “And in the end, [Summers] felt it would be asking the president too much and asking him to spend too much political capital” to go ahead with a nomination. Given the Democratic opposition, however, others said Summers’ supporters were overly optimistic about his chances if the president decided it was fight he wanted to have.
“I think anyone who ever spent any time on nominations and the Senate understood a Summers confirmation was remote, and probably impossible,” said Tony Fratto, a former White House and Treasury official in the George W. Bush administration. “Everyone else thought they knew better.”
The Wall Street Journal first reported Summers’s decision Sunday.
Progressive groups had been preparing to increase their lobbying effort against Summers. The National Organization for Women and UltraViolet were expected to release a letter signed by women in the financial services industry who support Yellen and are against Summers, in part for the controversial remarks he made in 2005 while president of Harvard University. The remarks, in part, led to his resignation in 2006.
Jim Dean, chairman of Democracy for America – a grassroots political organization founded by former Gov. Howard Dean, said Sunday that Summers “did the right thing to avoid a contentions confirmation process that would have pitted progressives and many Democratic Senators against the White House.”
“Now, it’s up to President Obama to do the right thing and nominate the best person for the job: Janet Yellen,” Dean said.
The race for Fed chair comes as the central bank meets this week to consider starting to wind down its so-called “quantitative easing” program that involves buying hundreds of billions in government debt and mortgage bonds to keep interest rates low.
The fact that there is no longer the prospect of a bruising conformation fight over Summers may tend to boost markets at least a bit this week. Some analysts feared a combination of the Fed starting to wind down stimulus coupled with a nasty confirmation fight could send interest rates higher and choke off economic growth, which is already tepid at best.