The insiders' campaign to make Larry Summers head of the Federal Reserve Board is relentless. Now an anonymous White House aide has leaked another droplet, this time that Summers is being "vetted" for the nomination. Another has dribbled out that Summers chances are two out of three. Whatever the president's preference, the "boys club" that dominates administration economic policy -- consisting almost entirely of acolytes of former Clinton Treasury Secretary and former Goldman Sachs head Robert Rubin -- is all in for Summers.
President Obama came to Summers' defense when the trial balloon floating his name was strafed from all sides. The President said he defended Summers because he was "getting slapped around in the press for no reason..."
For no reason? As Rubin's aide de camp and successor as Treasury Secretary in the Clinton Administration, Summers was a leading advocate of the calamitous policies that helped unleash the Wall Street wilding that eventually blew up the economy and resulted in the worst recession since the Great Depression.
Summers championed financial deregulation. He pushed to repeal the Glass-Steagall Act, which divided commercial and investment banking, prohibiting bankers from gambling with government guaranteed consumer deposits. That ratified the creation of Citigroup and the wave of bank mergers that consolidated banks too big to fail.
Rubin and Summers joined in brutally squelching efforts even to discuss regulating the derivatives that Warren Buffett termed "financial weapons of mass destruction." With Rubin, Summers insured that the banks took first priority in the Asian financial crisis, suppressed efforts by the Japanese to mitigate the crushing austerity inflicted on the countries affected. This led directly to the Asian strategy of currency manipulation to drive export led growth so they could amass dollar reserves, devastating American workers in the process. Summers also joined Rubin as a tribune for the ruinous corporate trade policies that have racked up record trade deficits while shipping good jobs abroad.
Summers then, during and after a clamorous failure as president of Harvard University, received his just reward from the financial community he had enriched, earning millions giving speeches and consulting hedge funds.
When the housing bubble burst and the economy plummeted through 2008, Summers loudly advocated a stimulus that would be "targeted, timely and temporary." That translated into timid, tied to tax cuts and ineffective. Summers then joined the Obama administration where, to his credit, he became an advocate of a substantial stimulus.
But Summers supported the Bush administration policy of bailing out the banks without restructuring them, and defended paying out obscene bonuses to AIG and bankers dependent on taxpayer money. He worked to fend off efforts by the Senate to break up the big banks, and tried to eviscerate Paul Volcker's attempt to erect a new barrier to keep banks from speculating with government guaranteed deposits.
Then, once more, Summers departed from the administration to be rewarded by those he had helped, raking in millions giving speeches at $100,000 plus a pop to banking audiences, and consulting once more with Citigroup and hedge funds like D.E. Shaw and Co.
No reason? On the contrary, for his critics, this record on its face makes the notion of naming Summers to head the Fed, the leading regulator of the financial community, wholly bizarre.
This divide -- between the critics and the insiders -- dramatizes the looking glass world that is today's Washington. The two sides look at the same facts and draw diametrically opposite conclusions.
Accountability or a Learning Experience?
For the critics, Summers' record as a champion of ruinous deregulation in the Clinton years should disqualify him from consideration. He had immense responsibility and he got it wrong, big time. Failure should not lead to advancement. By all accounts a brilliant economist, Larry Summers would be well advised to return to the academy, study where he went wrong, and share those lessons with a new generation.
For the boys club, schooled by Robert Rubin and marinated in the Wall Street wing of the party, Summers' advocacy of financial deregulation was, in their words, "a learning experience." Summers, they argue, is a brilliant economist. He has extensive experience. He is one of the club. Everyone makes mistakes. His failures are simply an expression of a resume that recommends him for higher position.
Should elites be held responsible for the calamities produced by the policies they advocated? Are the Bush administration officials who drove the country into the disastrous war in Iraq to be rewarded for their "experience" or pay the price of their folly? Are the establishment experts who got it so badly wrong to be appointed to higher positions or should those go to the dissenters who turned out sadly to be right? Of course, on Wall Street, massive fortunes were made from the failed policies that Rubin and Summers championed. At the end of the day, the banks were bailed out, while American families paid the price. That, no doubt, makes Wall Street more forgiving than it otherwise might be.
The Revolving Door: Corruption or Insight?
For the critics, Summers personifies the dangers of a corrupting revolving door, where public service provides a path to private enrichment. He deregulates Wall Street and then makes millions giving speeches to the appreciative bankers he enriched. He bails out the banks, protects the bonuses and goes back out to pocket millions more from those he saved. This rather blatant revolving door corruption would, for the critics, make Summers' appointment to head the Fed inconceivable.
For his defenders, Summers' sojourns on Wall Street simply provide him with a better sense of how financial markets work. He may have amassed a fortune of tens of millions but he isn't interested in money. He was gaining better understanding that will make him a more effective regulator.
We want our public officials to be informed. Yet we need them to be independent. But in the big money world of Washington, legislators, regulators, attorneys all increasingly move from public service to private lobbies or law firms. One need not be venal to be compromised. It is hard not to develop a shared worldview, a view in which the health of the big banks is equated to the health of the economy, in which Gilded Age inequality is seen simply as a reward for brilliance, rather than a return on the investment made in rigging the rules.
The next head of the Federal Reserve faces forbidding challenges. If the economy ever recovers, she or he must unravel the extraordinary measures that the Fed has taken to stave off depression. And she or he must regulate a financial world still threatened by too big to fail banks that have emerged from the crisis more concentrated than ever. Wall Street clearly wants someone who is "clubbable." The country desperately needs someone independent and intent on cracking down.
The Boy's Club: Bane or Boon?
For critics like Sheila Bair, former head of the FDIC, the most powerful economic positions - Treasury, Commerce, head of the Fed - are still monopolized by the "boys club." Federal Reserve Vice Chair Janet Yellen is, like Summers, a brilliant economist, with a broad range of public service. Unlike Summers, she has direct experience with monetary policy - and a far better record of warning about the dangers of the deregulatory excesses of the last decades. She is not one of the Rubinites who got it wrong. Obama has a unique opportunity of breaking a glass ceiling, while choosing the most capable candidate.
Summers' supporters, in contrast, disdain Yellen as an affirmative action candidate. Instead of sexism locking her out, they argue that gender may give her an unfair advantage. For them, that fact that she isn't part of the boys club that has dealt with crises together is a detriment. They criticize her for being careful in preparing her public remarks, in not being able to make decisions on the fly. She's said not to have the "gravitas" needed to capture the market's respect. Their critique, as Ezra Klein noted, essentially encapsulates the dated sexist arguments levied against women leaders across the society.
Can Wall Street be Curbed?
Accountability or experience, corruption or insight, boys club or equal opportunity, "no reason" or many reasons? In the Looking Glass World of Wall Street and Washington, critics and defenders will not agree. They draw different conclusions from the same record. Are members of the club accountable? Or are they too powerful to be called to account? In this face-off, Lewis Carroll got it right:
"When I use a word," Humpty Dumpty said, in a rather scornful tone, "It means just what I choose it to mean, neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master - that's all."
The argument really isn't about gender. It isn't about Summers' famous brusque arrogance. At stake, fundamentally, is whether Wall Street -- and the big banks that have proved too big to manage -- can be curbed. Will the economy continue to be marked by financial speculation, booms and busts, and Gilded Age inequality? Or will we be able to curb the excesses so that banks once more serve the real economy rather than threaten it? Will the boys club that has thus far enabled, bailed out and protected the big banks stay in charge? Or can a more independent view be found with appointments from outside the club? The question is which is to be master -- that's all.