Lawrence Summers, reportedly the White House’s preferred candidate to become the new chairman of the Federal Reserve, ruled himself out this week. Whichever candidate President Barack Obama nominates this autumn has to be confirmed by the Senate, and Summers acknowledged that he was unlikely to muster the support of a majority of lawmakers in the upper house. His withdrawal makes the current vice-chairwoman, Janet Yellen, the new frontrunner for the job. Current chairman Ben Bernanke’s terms ends on 31 January 2014. Global equity markets rose on the news.
What the commentators said
Summers’ “enemies on Capitol Hill are a broad church”, said Stephanie Flanders on BBC.co.uk. But the main problem seems to have been his efforts to liberalise financial markets in the 1990s. He helped free up investment banking and trade in derivatives. All this paved the way for the financial crisis, said Alex Pareene on Salon.com. Along with a handful of others, including Alan Greenspan, “he is more responsible than almost anyone else alive” for the disaster, and he hasn’t apologised. He’s a “toxic failure”.
“Judging by market moves,” choosing the world’s most powerful banker is “of paramount importance”, as Lex pointed out in the Financial Times. But investors are overreacting. For one thing, there is actually little evidence that Yellen is much more dove-ish than Summers might have been, as the markets appeared to assume. And in any case, the chair of the Fed is just one person. “It is not as if Ben Bernanke” started discussing tapering the money-printing programme “without talking to anyone else first”.
The wider issue, of course, is why “central bankers continue to be seen as superheroes” at all, as Allister Heath put it in City AM. As MoneyWeek has often pointed out, if central bankers were remotely competent, there would never have been a credit bubble and bust in the first place.