Adios Larry Summers

What a pleasant surprise when I walked in the door from my daughter’s softball game and saw that Larry Summers had withdrawn his name from consideration to succeed Ben Bernanke. It’s not a new topic here nor in my commentary in the media that I thought Summers was the wrong person at the wrong time for the job. The man doesn’t play well in the sandbox with others and stuck his feet in his mouth regarding women when he was president of Harvard.

There is no argument that Larry Summers is brilliant, but there are many brilliant people on earth who should not be running the most powerful central bank on earth. Let’s not forget that Summers was a strong proponent of repealing Glass-Steagall, the depression era legislation separating banks and brokerages. That didn’t work out so well for Citi, Bank of America, Wachovia, etc. in 2008. And to go a step further when he worked in the Clinton administration, Summers was also one of the architects who allowed those derivatives of mass destruction, credit default swaps, etc. to be created and allowed to exist unregulated. You remember those, right? The alphabet soup of fancy products that no one understood.

Finally, as I have mentioned before, the Fed has an almost $5 trillion balance sheet, something I forecasted years ago and was laughed at. Even if Larry Summers did not have all the baggage he does, it’s not the right time for a Fed chair who basically was opposed to Bernanke’s quantitative easing (money printing) and would unwind it much quicker than a more dovish person.

Once again, Janet Yellen becomes the front runner and with the bipartisan support already in place, her nomination should sail through. I keep scratching my head why President Obama would push so hard for Summers when congressmen in his own party are so opposed that they felt it necessary to sign a petition supporting Yellen. And that doesn’t take into account how fierce republican opposition already was for Summers. To a dummy like me, Summers nomination was DOA…

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Announcement from Bernanke & Co. Just Around the Corner

Here are my thoughts on the Fed meeting today and into the fall as well as Bernanke’s impending successor. I think this was one of the clearest, most concise Fed discussions I have had.

What do you think?

For today, anything other than what Bernanke said in front of Congress last week will be a big surprise. And no, I absolutely do not think Bernanke knows what Friday’s jobs report will be. As a tiny business who participates in the survey, I don’t input my information until the day before (Thursday).

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Bernanke’s Successor

First President Obama says that Ben Bernanke has stayed on longer than he planned. Then he slaps him upside the head by saying that he has stayed longer than he was supposed. And when given the opportunity to walk that comment back, the president not only declines but also doesn’t give Bernanke any real ringing endorsement. All very interesting to say the least!

Federal Reserve Vice Chair, Janet Yellen, is the odds on favorite to succeed Bernanke next year and what the market is discounting. Other names being floated are former Treasury Secretaries Tim Geithner and Larry Summers, Christina Romer and Roger Ferguson, none of which are favored by the markets. Long time readers know how little I think of Geithner (disaster would be a complement), but given his desire to be with his family in New York, I doubt that he is a serious candidate. From my seat (and others) Summers is an arrogant, condescending bully who does not play nicely in the sandbox with others. It also seems like he wants the job too much.

I believe that choosing the right Fed chief depends on the economic environment. During strong times, the markets favor more of a hawk who has laser focus on inflation. During crisis times and the aftermath like today, markets are more comfortable with a dove who is obsessed with fighting off deflation. Yellen falls in the latter camp, even more so than Bernanke.

As I have said more times than I can count since 2008, I am thankful every day that Ben Bernanke and Hank Paulson were in charge during the market crisis. I may not have fundamentally agreed with all of their actions, but I firmly believe that they successfully fought off another depression. They may have been late in realizing the contagion and gravity of the crisis, but once they did, it was all hands on deck. Not to be melodramatic, but I sincerely believed they saved the almost free market financial system around the world.

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