WASHINGTON — President Obama gave an early Federal Reserve Chairman endorsement to former Treasury Secretary and White House economic adviser Larry Summers during a meeting with House Democrats on Wednesday.
In what Business Insider described as a “full-throated defense,” the president “took a minute to stand up for Larry Summers” as a possible candidate for the nation’s top banking regulator, according to California Democratic Rep. Brad Sherman.
Obama described to House Democrats how he believes Summers is being “unfairly criticized” in the media for various roles he has taken in past and current administrations, along with his tenure on Wall Street.
Treasury Secretary Summers led the fight for deregulation of the financial industry under the Clinton administration in the 1990s, and successfully championed the repeal of last components of the Glass-Steagall act and complex derivatives regulation.
Glass-Steagall was the law separating commercial banking from investment banking put in place after the 1929 stock market crash. Complex derivatives regulation prevented banks from using risky debt swapping and trading practices. Both where huge components in manufacturing the housing and financial crisis that sent the economy into recession from 2008 on.
In his new role as director of President Obama’s National Economic Council, Summers was tasked with pulling the country out of the Great Recession. In that capacity, Summers and then-Treasury Secretary Timothy Geithner engineered a $20 billion federal bailout of the auto industries based in the recently bankrupt city of Detroit, Mich.
While Congress worked to shape preventative legislation in the wake of the crisis, Summers vocally contested key components of the Dodd-Frank financial regulation reforms, including the Volcker rule, which bans banks from making high risk investments like those that influenced the crisis. Summers left the White House post in 2010 amid wide public perception of giving bad economic advice.
Summers currently acts as a consultant for various Wall Street entities, including Citigroup — the recipient of the largest bailout in the crisis fallout at more than $300 billion. Summers has reportedly earned millions from Wall Street consulting and speech-giving alone.
Vice Chairman of the Federal Reserve Board of Governors Janet Yellen is still the favorite within the president’s caucus to replace current Fed Chairman Ben Bernanke at the end of his term this year, while Summers seems be the overall favorite, given his longer tenure on Wall Street and Capitol Hill.
In a July letter to the president from the Senate, which will hold a confirmation vote on the president’s nominee, 19 democrats and one independent called on Obama to nominate Yellen to replace Bernanke.
Economists speculate Summers, given his deregulatory history, would be more apt to extend the record stimulus spending Bernanke has maintained during his tenure, while Yellen would be expected to rein in spending faster to secure her legitimacy.
In anticipation of the vote, some senators have publicly questioned Summers’ legitimacy as a candidate, while Yellen supporters speculate an unhealthy market reaction to a nominee with such a complex resume of mixed results.