From The Wall Street Journal:
Former Treasury Secretary Calls Obama, Cites ‘Acrimonious’ Coming ConfirmationBy David Wessel
WASHINGTON— Lawrence Summers pulled out of the contest to succeed Ben Bernanke as chairman of the Federal Reserve after weeks of public excoriation, forcing President Barack Obama to move further down the list of contenders to head the central bank.
One leading candidate is Janet Yellen, the Fed’s current vice chairwoman, who has garnered substantial support among Democrats in Congress and among economists. But the public lobbying on her behalf appears to have annoyed the president, say administration insiders, and may lead him to look elsewhere.
Mr. Obama has said he interviewed Donald Kohn, a former Fed vice chairman who is now a senior fellow at the Brookings Institution. Administration insiders say Timothy Geithner, the former Treasury secretary, also is a possibility, though a person close to him reaffirmed Sunday night that he doesn’t want the job. Dark-horse candidates include Stanley Fischer, an American citizen who recently stepped down as governor of the Bank of Israel, and Roger Ferguson, another former Fed vice chairman and now chief executive of TIAA-CREF, the nonprofit pension company.
More at the link. President Obama stated that Dr Summers, an economics professor and former President of Harvard University, was:
(A) critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth.
Translation: Dr Summers was fully on board with the 2009 stimulus plan, along with the massive increases in federal spending as part of the “ordinary” budget for FY2009, which skyrocketed the national debt but completely failed to produce the results promised for it. Yes, our economy is growing, but at a very low level.
And how do investors feel about Dr Summers withdrawal?
Treasurys, Stocks Jump, as Investors Had Expected Him to Quickly Wind Down Easy-Money Policies
By Tommy Stubbington and Michael Arnold | Updated September 16, 2013, 9:04 a.m. ET
Stocks and bonds staged a world-wide rally Monday after Lawrence Summers withdrew from the contest to lead the Federal Reserve.
Major European stock indexes shot higher. Germany’s DAX was up 1.3% after hitting fresh record highs in intraday trading.
U.S. stock futures pointed to a strong open. Dow Jones Industrial Average futures recently were up 160 points, or 1% higher, at 15471 after rising as high as 15508 in overnight trading.
Many investors believed that Mr. Summers, a former Treasury secretary who has been one of President Barack Obama’s top economic advisers, would be more aggressive in reining in the Fed’s bond-purchase program. Since the financial crisis, the Fed has been buying Treasurys and other bonds with the aim of stimulating economic growth through lower long-term interest rates.
Actually, your Editor would have preferred that someone like Dr Summers was leading the Fed, and more quickly pulling back on
printing money “quantitative easing.” The financial markets like quantitative easing, because investors, in the aggregate, believe that such leads to more profits.
The current assumption is that Janet Yellen, currently the Fed’s vice chairwoman, will be the nominee to replace outgoing Chairman Ben Bernanke, and that Mrs Yellen will moderate any pulling back from quantitative easing. It can be argued that slowing down the reduction of quantitative easing is a good thing, because it provides an easier path for the financial markets, but it also means that, during the “glide path” downward, the Federal Reserve will continue to add mortgage-backed securities to its portfolio . . . and it was the collapse of mortgage-backed securities which produced the 2008-2009 downturn.
That might not be a terrible thing, since credit restrictions added after the downturn have stabilized mortgages, but the President has already said that he wants banks to ease up on those restrictions, but the banks are still holding a trillion dollars in over-valued and underperforming mortgages.2 The more mortgage-backed securities which are added, coupled with the Administration’s push to once again ease credit restrictions for obtaining mortgages, is not a financial policy I see as sound.