Obama may need Republican help if picks Summers for Fed

WASHINGTON Tue Aug 27, 2013 12:53pm EDT

Former U.S. Treasury Secretary Lawrence H. ''Larry'' Summers speaks during a financial and economic event at the London School of Economics (LSE) in London March 25, 2013. REUTERS/Jason Alden/POOL

Former U.S. Treasury Secretary Lawrence H. ''Larry'' Summers speaks during a financial and economic event at the London School of Economics (LSE) in London March 25, 2013.

Credit: Reuters/Jason Alden/POOL

WASHINGTON (Reuters) - President Barack Obama will likely have to contend with Democratic defections and bring some Republicans on board to support Lawrence Summers if he chooses the controversial former Treasury secretary as the next chairman of the Federal Reserve.

Summers, one of Obama's chief economic advisers during the financial crisis, and Fed Vice Chair Janet Yellen are considered the leading candidates to replace Ben Bernanke as the United States' top central banker.

Any nominee for Fed chairman is likely to face a contentious bid for approval by the Senate, where Obama's Democrats hold a majority.

Many lawmakers were unhappy with the unprecedented measures the Fed took to prop up the financial system during the 2007-2009 credit crisis, and some think the U.S. central bank overstepped its bounds by buying government debt to drive down borrowing costs. That sentiment could work against either candidate.

Still, Yellen, a former president of the San Francisco Federal Reserve Bank, may have an easier time. A majority of Senate Democrats have either indicated that they would support her or have privately expressed confidence in her abilities.

Summers, who writes an opinion column for Reuters, has drawn the ire of two Democrats on the committee that will need to clear his nomination. And a third of the Democratic caucus in the Senate sent Obama a letter urging him to choose Yellen, putting the onus on the president to court Republicans to reach the required number of votes if he picks Summers instead.

"The president would have to use more of his political capital to get those votes," said Phillip Swagel, an economic adviser in George W. Bush's Republican administration.

Summers has drawn criticism for a personality that many consider acerbic and for his role in deregulating the financial sector as Treasury secretary under former Democratic president Bill Clinton. Many Democrats believe deregulation played a role in triggering the financial crisis a decade or so later.

By contrast, Yellen has been praised by consumer advocates and liberals for spotting the threat posed by the housing bubble. With Democrats united behind her, Obama would not need to count on as many Republicans.

Summers has also faced criticism for comments he made as president of Harvard University questioning women's aptitude in engineering and science. But supporters give him the nod for his experience battling financial crises and his ability to think outside the box.

Bernanke's term ends January 31 and the White House has said an announcement on his successor is expected in the fall. CNBC television, citing a source from 'Team Obama,' reported that Summers will likely be named as Fed chairman in a few weeks.

The confirmation push will come at a particularly difficult time for the administration. Republicans are gearing up for a fight over a spending bill that needs to pass before October 1 to keep the government running and they also plan a battle over the nation's debt limit, which will likely need to be raised by November to avoid a default.


If Obama chooses Summers, the first hurdle would be getting through the Senate Banking Committee.

Obama's fellow Democrats have a 12-10 majority on the panel, but two of them are Summers' biggest critics within the party - Sherrod Brown of Ohio and Jeff Merkley of Oregon. Elizabeth Warren of Massachusetts, a consumer advocate and fierce critic of Wall Street, also sits on the committee.

Brown, who spearheaded the pro-Yellen letter, has told Reuters he would vote against Summers, while Merkley has said he has serious doubts about the former World Bank chief economist.

For her part, Warren is trying to reinstate a modern version of the Glass-Steagall Act - the 1933 law that barred banks from merging their investment activities with commercial banking, which Summers helped dismantle when he was Treasury Secretary in 1999.

If Brown follows through, the White House would need at least one committee Republican to support Summers for his nomination to be considered by the full 100-member Senate.

Things get trickier if Merkley and Warren also oppose him.

Obama may be able to count on Bob Corker of Tennessee or Mike Johanns of Nebraska, two Republicans who voted for Bernanke during his contentious confirmation for second term.

But Republicans on the panel have criticized the Fed for overreaching its authority during the financial crisis, and those feelings will likely color their consideration of any nominee. Republican David Vitter was so enraged that he tried to block Bernanke from serving a second term.

The White House, the Federal Reserve and a spokeswoman for Summers all declined comment.


Summers' path to confirmation becomes smoother if it reaches the full Senate, where a handful of Republicans are actively working with Obama on budget issues.

The group includes Republicans such as Lindsey Graham and John McCain, who have worked closely with Democrats on other contentious policy issues such as immigration reform.

If any senator tried to block the nomination by placing a "hold" on it, which seems likely, those Republicans could help Obama get the 60 votes that would be needed to clear the hurdle, a higher bar than the 51 votes needed for confirmation. Democrats control the Senate 54-46.

But politics could also work against a Summers nomination.

Even if Republicans agree with his approach to monetary policy and regulation, they may take exception to the political role he played in the last two Democratic administrations of Clinton and Obama.

Former Fed chairman Alan Greenspan, his successor Bernanke and Yellen have all served in previous administrations as chair of the Council of Economic Advisers, but that role is not considered overtly political.

Summers, in contrast, was Clinton's Treasury secretary and advised Obama during his first presidential campaign. Later, as director of Obama's National Economic Council, he coordinated the administration's response to the financial crisis.

"Even if Republican senators might have a positive view of Summers' monetary policies, there are lots of other reasons for them to oppose him, not at least of which is politics," said Tony Fratto, a former White House official under George W. Bush.

"In this case, Summers would be nominated by the very person he worked for politically," Fratto said.

(Reporting by Rachelle Younglai, additional reporting by Jeff Mason in Washington; Editing by Krista Hughes)

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Comments (16)
Well, count this among the one of the only times I’m counting on republicans to continue their obstruction of the president’s agenda. Summers is WAY too close to Wall Street for any rational person to consider him for this position (which, one again, just goes to show you how pro-capitalism Obama is). The repeal of the Glass-Steagall Act is one of the primary reasons for the financial collapse – the fact that Summers had anything to do with that SHOULD be an automatic disqualification.

Unfortunately, deregulation and propping up Wall Street is right at the top of the Republican agenda. So will they obstruct for obstruction’s sake, or realize that their goals are actually aligned on this issue? Given the alternative (Yellen) and my increasingly cynical nature, I’m going to predict that we’ll see bipartisan support confirm Summers. I hope I’m proven wrong.

Aug 27, 2013 1:36pm EDT  --  Report as abuse
Croato87 wrote:
I’m confused as to what everyone keeps referring to when they talk about Summers’ ability to “think outside the box.” I’ve heard this a dozen times but have yet to see any examples of said out-of-the-box thinking. Can anyone explain this to me?

So far the only thinking I’ve seen on his part is deregulation (a very in-the-box ideology at the time) and risky investing at Harvard. Both turned out to be disastrous.

Aug 27, 2013 1:47pm EDT  --  Report as abuse
Obsilutely wrote:
@USofRationality – That makes two of us.

Aug 27, 2013 1:58pm EDT  --  Report as abuse
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