WASHINGTON In the summer of 2009, with the U.S. economy badly wounded and the nation's financial calamity still a vivid memory, President Barack Obama's closest aides began a vital discussion about who he should nominate to run the Federal Reserve.
It was, according several former insiders, a short conversation. Fed Chairman Ben Bernanke was battling resolutely to restore growth, hiring and financial stability, and little serious consideration was given to an alternative.
Furthermore, Obama's most trusted adviser on financial matters, Treasury Secretary Timothy Geithner, who had formerly led the New York Fed, had a deep relationship with Bernanke and was a strong advocate for not changing horses in mid-stream.
Four years later, continuity will again be a big factor as the White House begins to think about who should succeed Bernanke if, as widely expected, he steps down when his second term as chairman expires at the end of January.
The stakes are huge. The U.S. recovery remains fragile, and financial markets are anxious about how long the Fed intends to continue its massive and unconventional stimulus: $85 billion a month of bond purchases that have helped propel stock markets to record highs and driven interest rates to historic lows.
Bernanke has said nothing publicly about his plans. But the former Princeton professor has not torpedoed the notion he does not want a third term, a view that gained traction with his plan to skip the Fed's big annual economic summit in Jackson Hole, Wyoming, in August, the first Fed chair to miss it in 25 years.
The White House has also declined to comment on the Fed choice, widely expected by September. Were Obama to look beyond Bernanke, he could weigh several criteria: policy continuity and market credibility; Senate confirmability; crisis management credentials; and trust.
Following is an assessment of how the likely short list - Fed Vice Chair Janet Yellen, former Obama and Clinton aide Lawrence Summers, Geithner and former Fed vice chairs Donald Kohn and Roger Ferguson - stacks up against those requirements.
CONTINUITY AND STREET CRED
Financial markets could react poorly to a candidate perceived as poised to discontinue the Fed's stimulative bias, particularly with the rest of Washington now favoring austerity.
In time, though, it is likely the Fed will face different challenges - perhaps an inflation shock as it unwinds its $3.3 trillion balance sheet. The next chair may need to be ready to school those corners of the market prone to test the Fed, the so-called bond vigilantes, and to prevail in that standoff.
For policy continuity, Yellen would be the top pick. She is viewed as an inflation dove who has worked closely with Bernanke to champion unprecedented monetary policy action to boost the U.S. recovery, particularly employment growth.
Anyone else would be seen as less dovish.
Summers, however, was a forceful advocate for bold government intervention to help the economy when he led Obama's National Economic Council. He still shares Obama's views on the importance of tackling unemployment and would probably not be an advocate of hastily tightening policy.
Geithner could be seen as more hawkish. He would be more likely to worry that the Fed is sowing the seeds for future financial market instability, which could persuade him to rein in its ultra easy monetary policy sooner than Yellen would.
Neither Kohn nor Ferguson have publicly elaborated on current Fed policy, making it hard to know how they would lean.
Administration sources say a smooth Senate confirmation process will factor in Obama's thinking. Here, Yellen is the easy choice. She can expect a grilling over the Fed's controversial bond purchase program, which many Republicans have slammed. But Senate Republicans, especially those facing re-election in 2014, would have a hard time opposing the appointment of the first woman to run the Fed because they say she cares too much about the unemployed.
Summers, on the other hand, would face a brutal confirmation. Republicans could turn the hearings into a referendum on Obama's economic policy. Then there are his 2005 comments, while president of Harvard, that the reason fewer women enter the sciences and engineering than men may be due to a lack of aptitude, remarks that were sharply criticized as sexist. Choosing Summers over Yellen could enrage the left wing of Obama's Democratic party, who want more women in top jobs.
A Geithner confirmation hearing could also be used by Republicans to attack Obama's economic record. But Geithner mended fences with Republicans during his four years at Treasury, albeit after a very rocky start. This included an excruciating confirmation process, when he was nationally embarrassed for having failed to pay some taxes. Opponents could dredge that up to question his fitness for the top Fed post.
The deck gets shuffled yet again if trust is the prime attribute sought by Obama.
Former and current administration officials say Geithner remains one of Obama's most trusted confidants. The problem is, he insists he doesn't want the job and his associates say to take him at his word; he has closed up shop in Washington and is working on a book that won't be published until next year. While Obama talked Geithner into staying at Treasury for a full four years, the president may be reluctant to lean on that friendship again to lure him back to Washington.
Summers is also a known quantity to Obama, who respects his intellect although White House insiders would not call them close friends. Ferguson, who would be the Fed's first black chairman if chosen, also has White House ties. Ferguson was an economic adviser to Obama's 2008 transition team and was a member of the president's Economic Recovery Advisory Board from 2009 to 2011.
In this context, Yellen, according to several sources, is not at all well known to Obama.
Even if Geithner is not asked to take the job, the president will likely seek his advice about the Fed selection, given that he has few people in his inner circle with Geithner's financial savvy. It is not clear who Geithner might recommend, although a former colleague recalls that he always expressed high regard for the opinions of Kohn.
Every modern Fed chairman has faced some form of crisis: Bernanke had the 2008 meltdown and related recession; Alan Greenspan navigated the 9/11 attacks, the collapse of hedge fund Long Term Capital Management and the 1987 stock market crash; Paul Volcker fought stagflation in the late '70s and early '80s.
The mettle to soothe markets at such junctures and the wit to solve the crisis are prized attributes in a Fed chairman.
Geithner has excellent crisis management credentials earned the hard way, during the 2007-2009 financial crisis, when he was at the center of the battle to save the U.S. financial system.
Another veteran crisis manager is Summers, who served as Treasury secretary under President Bill Clinton. As deputy Treasury secretary in 1997 he was pictured on the front page of Time magazine with Greenspan and Treasury Secretary Robert Rubin under the headline "The Committee to Save the World" - a recognition of their efforts battling the fallout from the Asian financial crisis. But that image may not do him any favors if it is tied to his hands-off approach to financial regulation, which critics say contributed to the more recent crisis.
Yellen's crisis management credentials are less robust. Her primary experience in that regard is leading the San Francisco Fed during the financial crisis.
Both Kohn and Ferguson, meanwhile, were at the Fed during the September 11, 2001 hijack attacks. As vice chairman at the time when Greenspan was overseas, Ferguson issued a statement that the Fed was ready to provide liquidity, which was credited in helping stem panic in financial markets.