Somewhere in the West Wing, Larry Summers is smiling. The Obama administration economist, whose name is never invoked without brilliant attached to it, has been touted as a likely successor to Fed chairman Ben Bernanke whose four-year term ends in February, and the subject of his reappointment is starting to preoccupy the political class in Washington.
Summers was probably tuned in when his primary competition for the job endured withering questioning from members of the House Oversight Committee on the behind-the-scenes dealings in connection with Bank of Americas acquisition of Merrill Lynch. If Bernanke didnt advise Bank of America Chief Executive Ken Lewis to withhold material information from shareholders and didnt threaten to remove the board of directors and management if Lewis walked away from the deal, they wanted to know who did.
In their hostility to Bernanke, lawmakers were the very model of bipartisanship. He, of course could have used a presentation-skills coach and a make-up artist. He looked tired, which is understandable for someone running on little sleep and maximum stress. He was uncomfortable with the subject, preferring the arcana of output gaps and inflation expectations to fending off accusations of improper conduct on the part of the Fed. The Fed chief was asked repeatedly whether he threatened to fire Ken Lewis and his board, whether he promised a specific amount of government money if the deal were consummated and so on. But even as lawmakers grilled Bernanke on the Bank of America-Merrill Lynch merger, they praised him for the job he was doing holding the financial system together.
Which brings us back to Larry Summers and Bernankes reappointment. Economists downplayed the role of the testimony in any decision to reappoint the Fed chairman. They respect Bernanke and are glad they arent in his position. Financial-market types, on the other hand, were quick to declare Bernanke toast, crown Summers as the heir apparent and concoct a conspiracy theory to fit the facts.
Summers may have to wait his turn. It would be hard to find someone more suited for the job of Fed chairman than Bernanke. His performance yesterday has nothing to do with his unique qualifications for the position. All the elements for the worst financial crisis since the one he studied and wrote about (the real Depression) were in place when he became Fed chairman: a housing bubble built on a sea of bad loans and too much leverage.Bernanke has transformed the Fed into a collegial institution, which is a good thing because the Fed chairman needs all the help he can get right now.
Summers, for all his brilliance, consistently earns poor grades in plays well with others. Unless President Barack Obama wants a solo pilot, he would do well to tap Bernanke for a second term.