I Know What You Did Last, Summers: The Shady Deals That Will Hand Larry The Fed
As today’s press conference made clear, President Obama is just about the only person left in this country — or at least the country outside of DC and lower Manhattan — who thinks it’s not completely batshit insane to nominate Larry Summers as the new Fed chief.
I’d been putting off writing about Summers’ impending nomination because I’d assumed it was just some silly rumor floating around. Surely even someone as grotesquely compromised as Obama wouldn’t consider something this stupid. No human being on this planet could possibly be a worse candidate for the job of Federal Reserve chief than Larry Summers — Bernie Madoff would make a better candidate, at least he’s not as slippery as Summers and the damage Madoff caused is a drop in the bucket compared to Summers’ financial holocausts.
The flaw here, I suppose, is in assuming that failure somehow disqualifies you from the gig. In this America, failure on the job is the key to success, and few people understand that like Larry Summers, serial failure, understands.
And so, as Obama made clear, Summers is a front-runner for the Fed chair nomination. Actually that’s an understatement, hopeniks: Larry Summers is THE front-runner. As Ron Suskind put it: “first among equals to replace Bernanke.”
That’s in reference to a deal Larry cut with Obama just before he took office in January 2009 . As crude and cronyist as this may sound — Obama basing his choice for Federal Reserve chief based on a backroom political “deal” he cut years ago — it’s worked for Summers in the past. It’s how he got the job as Treasury Secretary under President Clinton — at least, that’s according to Summers’ mentor and the man he replaced as Treasury Secretary, Robert Rubin.
In his memoir, “In An Uncertain World,” Rubin recounted how he cut a secret deal with Summers in the beginning of Clinton’s second term: If Larry agreed to stay on as Treasury undersecretary, then Rubin promised to step down in the middle of Clinton’s second term and hand the top Treasury job to Summers. Rubin writes:
I worked out a rather complicated proposal to make Larry comfortable with staying. I told him that my intention was to remain for two more years. I would try to get the President to agree that if I served two years into the second term, he would then name Larry as my successor—assuming, of course, that the President was still comfortable with Larry. [Ha-ha-ha, good one Bob, convincing display of humility!—M.A.] If I left sooner, there would still be what lawyers call a “rebuttable presumption” in Larry’s favor. If I decided to stay longer, Larry could do as he saw fit....
But we had an agreement in principle. For it to work, though, absolute confidentiality was essential. The only people who knew about this arrangement, as far as I knew, other than the President, Larry, and me, were the Vice President — whose agreement was requisite and readily given — Erskine [Bowles], Sylvia, and Judy. For two and a half years, no hint of this understanding ever leaked — which was remarkable.
If that alone isn’t a case-closed argument in favor of encouraging more government leaks...
So Rubin worked out a deal with Summers and Clinton – that Summers would stay on in return for getting the Treasury Secretary’s job. He stayed on; he got the job; he deregulated the financial industry and destroyed the economy.
But it was the thought that counted: On July 2, 1999, during his Treasury Secretary swearing-in ceremony in the White House Rose Garden, an emotional Summers, “on the verge of tears,” declared,
“I can’t begin to describe how much I have learned from Bob Rubin.”
That was in the 1990s. Nearly a decade later, another Democratic president took power, and that of course meant another sleazy backroom deal promising Larry Summers an even more powerful job if he’d agree to take a lesser job that he pretended not to want. And no, this isn’t Mexico or Russia we’re talking about folks, but we’re getting there.
According to Ron Suskind’s 2011 book “Confidence Men,” Summers had always been angling for the Fed job and, although he assumed Obama would name him Treasury Secretary in 2009 (with Geithner as his Number Two), he saw Treasury as a mere stepping stone to taking over the Fed:
Summers told Obama he would be very interested in the Fed job, a unique and prestigious position on the world stage. Summers had watched his old friend Greenspan turn the chairmanship into a seat of extraordinary, dynastic power. In twenty years on the job, Greenspan could lay claim to having been the most powerful public official of his era. At only fifty-three years old, Summers saw in the Fed post the long final chapter to a storied career. When Summers moved over, Geithner would move up.
Obama came up with what he thought was a better plan: Geithner at Treasury, which would be an easier sell to Congress; and Summers at the president-appointed position as director of the National Economic Council in the White House. Apparently Obama bases his choice on key personnel decisions much the way a country club jock from the Hamptons would:
both longtime tennis players, Summers and Geithner had played together for years, cementing a bond in athletic battle that Obama respected. He became enamored, as he thought about it, of the idea that Summers could spearhead economic debate within the White House while using his deep rapport with Geithner to keep the administration closely coordinated with Treasury’s emergency activities.
When Obama suggested this arrangement, however, Summers demurred. Having once been Treasury secretary, he considered the NEC job a step down. He hinted that he might be less than ideal for the position, pointing out that his strong suit was not in evenhandedly distilling rival ideas into distinct, unbiased choices. This was what the NEC job demanded.
Uh-oh, snag. But Summers, reluctant though he was, came up with a deal, straight out of the Robert Rubin playbook, that might change Larry’s demurring mind:
Then, for good measure, Summers added conditions: he would manage all information regarding economic matters that passed to Obama, and he would be first among equals to replace Bernanke.
Obama accepted his conditions.
Let me repeat that: “Obama accepted his conditions.”
This isn’t exactly the world’s best-kept secret. A longtime colleague and friend of Larry Summers, UC Berkeley’s Brad DeLong, wrote in 2011 that one of the reasons why he didn’t like Suskind’s book was because it didn’t answer why his buddy Larry hadn’t been given Bernanke’s job yet:
I had hoped to learn why Obama chose to renominate Bernanke Federal Reserve Chair over a candidate--Larry Summers--who had reason to think he was the default choice for the job...
Not a secret — but still jarring to re-read it today, given the disaster that awaits all of us just because Obama cut a backroom deal with a Wall Street-backed serial failure, who belongs in a prison, or on St. Helena, or sealed in a space capsule and fired off in the direction of the sun... anywhere but Washington.