Citing an unnamed source from “Team Obama”, CNBC announced that Larry Summers (shown in photo) will be named head of the Federal Reserve by President Obama to replace outgoing chairman Ben Bernanke, whose term expires December 31.
Despite much media conversation about other potential candidates for the position, chief among them Fed Vice Chairman Janet Yellen, Summers always had the inside track. Summers served as Bill Clinton’s treasury secretary and then director of President Obama’s National Economic Council. Prior to that he was president of Harvard University, where he returned following his departure from the White House staff in November 2010.
Summers is an establishment man through and through, holding degrees from MIT and Harvard and becoming one of the youngest tenured professors at Harvard at age 28. He was a visiting academic at the London School of Economics and served as chief economist for the World Bank in the early '90s. He caught the attention of Clinton’s Treasury Secretary Robert Rubin, who became Summers’ mentor. Summers served as Rubin’s deputy secretary and then succeeded Rubin as secretary in 1999.
Despite his connections and pedigree, Summers' resume has been sullied by bad judgments, poor decisions, and a lack of interpersonal relationship skills. In January 2005 his comments that women may be innately less capable than men in science and math created a storm of controversy that eventually led to his resignation from Harvard.
While president of Harvard, he persuaded the university's investment committee to gamble with more than $3 billion of the school’s endowment funds in a series of interest rate swaps which, while initially successful, collapsed with the onset of the Great Recession. By late 2008, those risky investments had led to a loss of $1 billion, causing margin calls that forced Harvard into the embarrassing position of having to borrow funds to meet its obligations. The school ultimately paid $500 million in fees to get out of those positions and will pay another $425 million over the next 30 years to cover those losses.
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Photo of Larry Summers: AP Images