The Only Two Things You Need to Know About Larry Summers as Fed Chair

Item 1: He's controversial because he is such a horrifically bad choice:

The Washington Post's Neil Irwin looked this morning at what he sees as the many reasons the upcoming nomination of a new Federal Reserve chair became a circus, unlike past low-controversy nominations.

………

But among Neil's four factors, only one really matters at the margin: The White House appears poised to make a demonstrably bad choice for Fed Chair.

If Larry Summers withdrew himself from consideration, or the White House announced that it isn't going to pick him, the circus tents would pack up and we could all go home. The Fed Chair race would become uncontroversial and boring again, Business Insider's existence notwithstanding.

People oppose Summers for all sorts of reasons, but here are my two.

One is that while we don't know exactly where he (or Janet Yellen) would lead on monetary policy, I suspect Summers shares the White House's unhealthy lean toward tight money. It's particularly hard to figure out what Summers would do since he's not actually a monetary policy scholar.

The other is that I fear Summers would squander the comity and collaboration that make the Federal Reserve Board work, since he's had a tendency to do that at other institutions he's been tapped to lead.

Item 2: Wall Street, which has spent millions cultivating him, appears to be terrified at the prospect of Summers as Fed Chair:

The spreading expectation that President Obama will name Lawrence H. Summers to lead the Federal Reserve Board appears to be working against the central bank’s efforts to stimulate the economy.

The jitters even have some analysts betting that a Summers nomination could lead to slower economic growth, less job creation and higher interest rates than if the president named Janet L. Yellen, the Fed’s vice chairwoman.

Businesses raising money and people buying homes and cars all have faced higher interest rates in recent months as the Fed’s campaign to suppress borrowing costs has faltered. The rise in rates reflects optimism that the economy is gaining strength, and an expectation that the Fed will begin to pull back later this year. But a wide range of financial analysts also see evidence of a Summers effect.

Many investors expected that Ms. Yellen would be nominated to replace Ben S. Bernanke as head of the central bank, a choice that would have sent a clear message of continuity. Instead, investors are now trying to anticipate how Mr. Summers might change the Fed.

The unease is the product of a little information and a lot of speculation. Mr. Summers, a Harvard University economist who served for two years as Mr. Obama’s primary economic adviser, has said little about monetary policy in recent years. Investors are left parsing a handful of comments in which he has expressed some doubts on the benefits and concern about the consequences of the Fed’s policies.

“People don’t know what Larry might do,” said Mohamed El-Erian, chief executive of Pimco, the giant bond fund manager. “There’s a lack of a lot of information on Larry’s views. We don’t have enough information to make an assessment, just some second- and thirdhand accounts.”

Wall Street owns Larry Summers, but they don't want him to be Fed Chair.

The only thing to argue for him is cronyism and corruption.  Seriously.

If Obama nominates him, I am calling both of my Senators bring up his role in Andrei Schleifer's corruption in the market reforms in Russia.