Former Treasury Secretary Lawrence Summers has withdrawn his name from consideration to be chairman of the Federal Reserve, saying it would hurt the nation for him to go forward with what would be a contentious confirmation before the U.S. Senate.
“I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing recovery.” Summers wrote in a letter dated Sunday to President Barack Obama.
Obama said in a statement that he accepted Summers’ decision and praised his former economic adviser.
“Larry 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,” Obama said, saying he would “always be grateful to Larry.”
The dollar fell in early trading in Asia. It was down 0.6 percent to 98.75 yen in Japan, the lowest since Sept. 6, and weakened 1.1 percent versus the New Zealand dollar, to 82.24 U.S. cents. It fell 1 percent to 93.40 U.S. cents versus the Australian dollar.
Summers, 58, was one of three names that Obama had mentioned as possible replacements for Ben S. Bernanke, whose term as Fed chairman ends on Jan. 31. Janet Yellen, 67, the current Fed vice chairman, was also on Obama’s candidate list along with Donald Kohn, 70, a former Fed vice chairman, the president said earlier.
Summers up until Sunday was the president’s favorite. The Syria debate worked to Summers’ disadvantage, giving those opposed to his nomination time to keep pressure on the administration, according to a person familiar with the process who asked for anonymity.
Over the past several weeks, as the White House was immersed in Syria, members of the Senate were continually asked whether they’d support Summers or Yellen. Had the administration moved more quickly to name Summers, that might have been avoided, the person said.
Twenty U.S. senators, including 19 Democrats and one independent, signed a letter of support for Yellen in July. If nominated and confirmed, she’d be the first woman to be chairman of the Fed.
Montana Senator Jon Tester, a member of the Banking Committee, last week became the third Democrat to declare opposition to a Summers nomination, along with the one independent.
Senator Sherrod Brown, an Ohio Democrat who circulated the letter and is a member of the committee, said at the time that the letter wasn’t about Summers, “even though there is obviously a lot of opposition here to Summers.”
Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, predicted a continuation of Bernanke’s policies should Yellen succeed him.
“It tells you there will be no change in the leadership of the Fed and that the direction that it has taken under Bernanke is going to continue because his No. 2 is taking over,” Rupkey said. “If anything she is more pro-growth than Bernanke himself.”
“Summers was seen as the first choice, then Yellen, and everyone else is well down on the list of probabilities. There still could be some dark horse that emerges like Geithner, but otherwise it looks like Yellen,” Rupkey said, referring to former Treasury Secretary Timothy Geithner.
The potential Summers nomination was a hot-button issue for liberal groups for much of the past few months, most of whom raised concerns about his support of deregulatory measures for the banking industry during his time in President Bill Clinton’s administration.
“Larry Summers’ past decisions to deregulate Wall Street and do the bidding of corporate America has made the lives of millions of Americans more acrimonious. He would have been an awful Fed Chair,” said Adam Green, co-founder of the Washington-based Progressive Change Campaign Committee, in a statement e-mailed to reporters today.
The magnitude of the opposition in Congress increased last week, as the three Democrats – all on the Senate Banking Committee – declared their intention to oppose his nomination.
The decision by Senators Jeff Merkley of Oregon, Sherrod Brown of Ohio and Jon Tester of Montana to publicly announce their opposition to the nomination created a number problem for Summers on the panel, where Democrats hold a 12-10 edge. Republicans, none of whom have declared support for Summers openly, would be required to vote for the nomination for it clear the committee.
If Summers cleared the committee with Republican support, a Senate floor fight would likely follow, with lawmakers who have been critical of the Fed under Bernanke, such as Senator Rand Paul, a Kentucky Republican, and Senator Bernard Sanders, a Vermont independent, were seen as willing to try and hold up the nomination.
Sanders, in a July 28 letter to Obama, called Summers one of the “chief architects of financial deregulation in the 1990s.”
Behind the scenes, staff and lawmakers, even those that said they would support Summers, voiced concern in interviews about the intraparty fight a Summers nomination would cause. Democrats, which hold a majority in the Senate, face negotiations on the budget and an increase in the debt ceiling in the coming weeks.
Merkley, who signed the letter, said in a July interview that Summers didn’t seem to be a good fit at a time when Wall Street needs to be carefully overseen.
“If you nominate someone who is a life-committed deregulator to be in a regulatory position, and if you believe regulation is necessary to prevent fraud, abuse, manipulation and so forth, then there’s a lot of questions to be asked: Why is this person appropriate?” Merkley said.
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