Obama's Choice for the Fed

Larry Summers is out. But who is in?

On Sunday afternoon, Administration sources leaked to the Wall Street Journal an exchange of letters between Summers and President Obama.

Summers wrote: "I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation's ongoing economic recovery."

Obama, in reply, praised Summers as "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 and made the kind of progress we are seeing today."

But behind the polite exchange, a frantic politics was at work. In such circumstances, at some point the political team realizes that a nomination is a lost cause, word is passed to the prospective nominee that it's over, and a gracious exchange of letters is drafted. It's hard to believe Larry Summers, of all people, voluntarily falling on his sword for the greater good.

This past week, a fourth skeptical Democratic member of the Senate Banking Committee, Sen. Jon Tester of Montana, made clear that he would not support Summers; Republican opposition mounted; Joseph Stiglitz published a devastating bill of particulars in the New York Times online; and the Times itself ran a scathing editorial.

A prestigious group of over 350 economists sent a letter to the White House urging the appointment of Fed Vice Chair Janet Yellen and not Summers. All of this gave a preview of an explosive confirmation hearing.

Meanwhile, the president and his allies in Congress have a looming government shutdown to prevent, and the last thing they need is a nomination that was becoming more contentious by the day. Well placed sources say Summers met with Senator Elizabeth Warren on Friday to see if he could enlist her support, and Warren declined. That was probably the coup de grace.

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