For much of the past five or six years, Ben Bernanke arguably had the second-toughest job in Washington. Only the president confronted more-onerous challenges -- here and abroad. As chairman of the Federal Reserve's Board of Governors, Bernanke -- along with President Bush's Treasury secretary, Henry Paulson, and later, President Obama's first Treasury secretary, Timothy Geithner -- spent most of late 2007 and 2008 trying to hold the U.S. financial system together with chewing gum and baling wire. He has spent the years since struggling (in vain, it sometimes appears) to yank the U.S. economy back into healthy growth territory.
Now his term as America's banker in chief is only months away from its end, and Obama is hunting for a replacement. His successor's road is likely to be less dramatic, lacking the cliff-hanger mega-bankruptcies and the 50% plunge in the stock market, but not much less challenging. Whoever follows Bernanke will face the daunting task of unwinding an unprecedented $3.6 trillion in Federal Reserve holdings. Accumulated in an effort to stimulate the economy, the massive cache demands delicate handling -- an ability to judge exactly when and how swiftly to reel back in the trillions in easy money that the Fed has released. Moving too swiftly risks checking the momentum of a growth spurt that could finally get the economy back into an upward spiral of rising output, wages and demand. Moving too slowly could unleash the evil genie of rampant inflation. In this precarious moment, two candidates for Bernanke's job have moved to the fore.
For months, Janet Yellen, Bernanke's colleague and Fed Board ally, was seen as the front-runner. Her credentials are impeccable: educated at Brown and Yale universities, a professor at Harvard, chairman of President Clinton's Council of Economic Advisers, a member of the Federal Reserve Board and president of the Federal Reserve Bank of San Francisco, before being appointed by Obama in 2010 as vice chairman of the Federal Reserve. As Bernanke's deputy, she is both familiar with and the candidate most closely aligned with the current chairman's policies. Considered a monetary policy "dove," Yellen is seen as more willing than some of her colleagues to trade off higher inflation for lower unemployment.
What she is not is a member of the old boys' club, closely tied to Wall Street. Is her exclusion on the grounds of gender? Maybe. In the club's championing of Yellen's chief rival for the job -- former Treasury Secretary Larry Summers -- there are echoes of earlier skirmishes against several other women in the world of finance. For example, Summers's principal backer, Robert Rubin, another former Treasury secretary, along with Bernanke's predecessor at the Fed, Alan Greenspan, and Summers himself opposed Commodity Futures Trading Commission Chairman Brooksley Born. She wanted to regulate the trading of credit derivatives, the exotic financial instruments that played a big role in the 2008 financial meltdown. Ditto, the old boys' lack of enthusiasm for former Federal Deposit Insurance Corp. chief Sheila Bair and former consumer financial protection advocate Elizabeth Warren (now a senator from Massachusetts), who both think commercial and investment banks should be separated again. Do the boys just not want to share the sandbox with the girls, or is it that they fear that like Born, Bair and Warren, Janet Yellen may prove too resistant to the charms of unfettered capitalism?
Larry Summers, on the other hand, is unequivocally a member of the club. He not only has Rubin's backing but also the support of Geithner. White House aide Gene Sperling is also in his camp.
Of course, neither candidate departs too far from the Bernanke mold. Under the leadership of either, the Fed isn't likely to dramatically change the course of U.S. monetary policy. Both embrace the Fed's role in promoting jobs and a more stimulative fiscal policy. Summers is a bit more concerned about inflation and the prospect of asset bubbles than Yellen. He'd likely move to phase out the Fed's bond buying and superlow interest rates more swiftly than she would. She's a bit more sympathetic to the need to lower joblessness further.
The second critical difference between the two is a marked difference in style. Often described as an arrogant hothead, Summers leads through sheer force of will. Yellen is soft-spoken, deliberative and inclined toward consensus. She has a track record as a very good administrator. Summers is touted as more experienced in managing crises. He has made some enemies on Capitol Hill and Senate confirmation would likely be tougher to come by for him than for Yellen.
Obama says he won't make his choice until fall and has thrown out the possibility of other candidates for the job. He even made a point of eliminating a third contender --Donald Kohn, a former Fed vice chairman. At Kiplinger, our money is on Yellen. Summers simply has too much baggage. But if Obama does opt for Summers, it will be instructive. Whatever other changes in political leadership this president embraces, it will be clear that the critical job of managing the country's money supply is still seen as best left in the hands of a Wall Street familiar.
Glenn Somerville, Kenneth R. Bazinet and Jerome Idaszak contributed to this story.