Ruggles, Auto Finance News
Or did we just get President Obama’s Second Choice?
Now that Larry Summers has taken himself out of the running for the position of Chairman of the Federal Reserve Bank of the United States, President Obama has appointed the current Fed Vice Chairman, Janet Yellen, to the post. If confirmed, it would make Yellen one of the most powerful woman in the world, with her hands on the controls of the globe’s largest and most powerful economy.
From the Federal Reserve website:
“The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
- conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
- supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system”
Why might we have “dodged a bullet?” Larry Summers has a LOT of baggage. Many say he is brilliant. According to Car Czar Steve Rattner, “No one is perfect, but I score Larry’s batting average and qualifications at the top of the heap. There’s that extraordinary intelligence: the most brilliant, most analytical and most surgical brain of anyone I’ve ever encountered.”
But Summers laid an egg in his stint as President of Harvard University. He resigned after a “no confidence” vote by the Harvard faculty after he made some less than complimentary statements about women, among other issues. Many think Summers, along with Steve Girsky, engineered the dealer terminations during the GM and Chrysler bankruptcies. In addition, it is well known that Summers participated in the ouster of Brooksley Born, then Chairman of the Commodities and Futures Trading Commission. It seems Summers, Robert Rubin, Clinton era Treasury Secretary, Alan Greenspan, then Fed Chairman, and others didn’t think it was necessary to regulate derivatives, including the credit default swaps which led to the bubble, the mortgage crisis, and the economic collapse of 2008. They thought the derivatives market would “self regulate.” Only the most extreme ideologues still believe that. It was looking like the President was going to have problems from his own party in any Summers confirmation hearings. So Summers withdrew his name from consideration
So what about Janet Yellen? Who better to carry on Ben Bernanke’s policies, which have not been perfect, but have been the best available under the circumstances. After all, the Fed tool box was empty when Bernanke inherited the Great Recession. Interest rates were already so low there was no place to cut them to goose the economy. Congress was handcuffed by obstructionism leaving the Fed with no best choices. We ended up with "quantitative easing," the best of the imperfect choices remaining. The new Fed Chairman will have to navigate difficult waters to ease off the Fed stimulus without cratering the economy or waiting too long, taking the risk fueling rampant inflation. Yellen has been Vice Chairman of the Fed through it all and understands the challenges.
Yellen is immensely qualified. Even though partisanship and obstructionism will make her confirmation an adventure, she is universally respected. She graduated summa cum laude from Brown University with a degree in economics in 1967, and received her PhD. in economics from Yale University in 1971. She has no history to indicate she would be a patsy to Wall Street. Her predictions are the envy of the Fed. She has more Fed experience than anyone in history leading up to her appointment. An added bonus is the fact that she is married to a Nobel winning economist, George Akerlof. Akerlof won his Nobel for his work on “asymmetric information.” As Bill Clinton famously said about his wife Hillary, “You get two for the price of one.”
I think the “second choice” is the “best choice.” Let’s hope Janet Yellen’s confirmation is as smooth as possible so she can get about the business at hand.