Ways and Means: Lying Low, Playing Nice

Ben Bernanke’s term as Fed chairman ends in January. Some people hope the President reappoints him. But insiders say Larry Summers really wants the job and is trying hard to keep his mouth shut.

By: Nicolas Owen

Larry Summers is being careful. Very careful.

Barack Obama’s brainy economic strategist attracts controversy at the drop of a word. So he’s choosing his words carefully while limiting his public exposure.

If Summers can stay out of trouble, he’ll do more than survive in his current post as point man to revive the economy. He’ll also put himself at the head of the line for an even more powerful appointment in January, one that’s a perfect fit for him cerebrally if not temperamentally: chairman of the Federal Reserve Board.

Summers is mum about it, but a colleague who has worked closely with him says, “From everything I know about Larry, he would want the job.”

Dodging political dustups is a tall order for a man who has been creating them for nearly two decades. Among them: signing off on an idea by a subordinate at the World Bank in the early 1990s that rich nations could pay poor nations to take their toxic trash and, in 2005, wondering whether men have greater innate aptitudes than women in some academic fields, such as science. The latter incident led to his resignation as president of Harvard in 2006.

Even when he’s keeping his mouth shut, the 54-year-old economic-policy whiz draws attention. In April, news photographers caught him dozing off at a White House meeting as Obama was addressing a group of credit-card executives.

A few weeks earlier, he had released his 2008 financial-disclosure statement, revealing an embarrassing conflict of interest. The disclosure showed he had earned more than $5 million from a hedge fund whose fate may now be in the hands of the administration and Congress as they debate new regulations. He’d also received millions in speaking fees from banks such as Citigroup and Goldman Sachs, financial institutions that have gotten federal bailout funds.

These headlines don’t seem to have hurt his chances for the Fed chairmanship in the places they count most: the Oval Office, where Obama must decide whether to reappoint Ben Bernanke when his four-year term expires January 31, and on Capitol Hill, where the Senate must confirm the President’s choice.

Associates say Summers has wowed Obama with his analytical skills and has strived to play nice with others on the White House team.

“The old Larry was an intellectual bully,” says a colleague from the Clinton administration, where Summers worked his way up the ladder at the Treasury Department to become Secretary. “He was always so sure he was right and would belittle others’ views. The new Larry is more open to other viewpoints—at least outwardly.”

Word in the Senate, which is filled with plenty of big egos, is that he has launched a charm offensive worthy of Leave It to Beaver’s Eddie Haskell. He has won points for answering questions patiently and politely, avoiding any hint of exasperation over some senators’ superficial knowledge of economics. “It’s remarkable how totally accessible he is,” Senate Finance Committee chairman Max Baucus said to Newsweek.

In terms of brainpower, Summers seems ideally suited for the Fed post. He is the son of two notable economists and the nephew of two Nobel Prize winners in the same field. For more than two decades, he has been internationally recognized as one of the brightest lights in economics.

But on a personal level, putting Summers in charge of the Fed is akin to making Ozzy Osbourne chief of protocol at Buckingham Palace.

The Fed is quiet and collegial. Larry Summers is loud and confrontational. The idea of Summers replacing the soft-spoken Bernanke puts some Fed members on edge.

“I admire Larry,” says one Fed official. “He is a brilliant economist. But he also is a very difficult personality. He would be a tough pill to swallow at the Fed, which has a very consensus-oriented culture.”

Some detractors say Summers’s abrasive behavior, more than his controversial comments, brought about his downfall at Harvard. Resentment toward his style had been building for several years, and his musing about gender differences in science aptitudes at an economics forum unleashed pent-up anger among faculty members.

“He lacked the manners to run Harvard, and his interactions with people, which was an important part of that job, left much to be desired,” sociology professor Orlando Patterson told the Boston Globe.

Summers has confided to colleagues that he learned from the Harvard episode and has worked to smooth his rough edges and avoid acting like the smartest kid in school. But that reputation still lives, and it was a factor in President Obama’s decision to give the Treasury Secretary post to Summers protégé Tim Geithner.

Summers wanted another shot at the job he’d held from 1999 to 2001, friends say, but it would have required a Senate confirmation hearing, and that could have brought up too many complaints about his past behavior. At a confirmation hearing, Summers also would have had “some ’splainin’ to do,” to quote Ricky Ricardo, about whether he helped plant seeds for the current economic meltdown during his years at Treasury. During the 1990s, he pushed for broad deregulation of banking and fought off a plan to require government oversight of the complex financial transactions known as derivatives. By naming him head of the White House National Economic Council, Obama was able to bring Summers aboard without Senate approval.

Summers probably is better off where he is. Geithner has become the lightning rod for critics of the administration’s economic stewardship, including the outrage over multimillion-dollar bonuses awarded to AIG executives with taxpayer money.

Working out of his small office in the White House rather than the Treasury Secretary’s ornate suite next door, Summers is closer to Obama. He’s the 800-pound policy gorilla who gets to whisper in the President’s ear on every economic issue that lands on Obama’s desk.

The Fed job would take Summers to a new level of clout. Often called the nation’s second-most powerful post, the chairmanship has strengthened in the power rankings under Bernanke. 

Bernanke was a noted Princeton scholar on the causes of the Great Depression before George W. Bush named him to the Fed in 2002, then made him chairman four years later after a stint as chief White House economist. Following the celebrated Alan Greenspan, Bernanke was expected to keep a low profile and stay on the course set by his predecessor. He was seen as someone who wouldn’t rock the boat.

Then the financial crisis struck. Using authority no chairman had exercised before and acting beyond the reach of Congress, Bernanke has committed trillions of dollars to prop up financial institutions, lower mortgage rates, spur auto loans, extend consumer credit, and turn around the slumping housing market—steps that the Fed hopes will avert another Great Depression.

Even while operating as the most powerful Fed chairman in history, Bernanke has maintained a self-effacing manner. Colleagues describe him as the anti-Summers—modest, considerate, always seeking out the views of others. If the economy improves later this year, Bernanke’s supporters will argue that he deserves reappointment.

It’s not uncommon for Presidents to reappoint Fed chairmen from the other political party as a way to reinforce the central bank’s role as an agency independent of the executive branch. Ronald Reagan kept Paul Volcker, originally a Jimmy Carter choice, for a second term; Bill Clinton reappointed Greenspan, first picked by Reagan.

But an economic revival might not be enough to give Bernanke job security. Most likely, any upturn will be accompanied by rising unemployment because employers tend to keep cutting jobs even as the economy gets better. Summers’s own private forecast sees unemployment approaching—and possibly surpassing—10 percent into next year.

There’s also a political calculation for President Obama. The desire to have your own guy in charge of the economy when you’re running for reelection may be a big factor. It might be particularly so three years from now, when there’s a good chance the Fed will be raising interest rates to contain inflation. That’s never a popular move. The first President Bush, who reappointed Greenspan, wound up regretting his decision, feeling that Greenspan cost him reelection in 1992 by keeping rates too high.

Bernanke’s admirers believe he has done a heroic job. “He has been creative, aggressive, and thoughtful,” says a Fed colleague. “He deserves the gratitude of the country for all he has done—and he deserves reappointment. But I also understand the politics of this.”

So does Larry Summers. All he has to do is avoid making waves for a few more months and the Fed job could be his.

For Summers, that might be more challenging than nursing a sickly economy back to health.

This article first appeared in the June 2009 issue of The Washingtonian. For more articles from that issue, click here