By Stephan Richter :ET : 19 Aug 2013
What a difference in the reaction to two candidates slated to take over a key country's central bank. When Raghuram Rajan was appointed as the next governor of the Reserve Bank of India, the verdict was near universal: an extremely qualified person had been selected for the post. The biggest concern was, and is, whether — given India's challenges — the tasks ahead are too big for anyone to shoulder successfully.
At the core, though, almost everybody readily agreed that Rajan is a man with a proven track record when it comes to a central banker's most important virtue: the willingness to speak truth to power. Rajan showed that ability most prominently a few years back when he singled out the lack of stability of the US financial system, a call highly unpopular with most American elites at the time, although entirely on target.
Rajan's presumed US counterpart, Lawrence Summers, hasn't gotten the official nod yet, although he has received a lot of presidential blessing as the right man for the job.
And yet I wonder.
Sure, Summers as an economist is as brilliant as Rajan. Both were star professors in the US economics scene. But in complete contrast to Rajan, Summers has excelled almost exclusively as a propeller and enabler of vested interests. His speciality is not speaking truth to those in power, but rather most agilely further empowering those in power.
That is precisely what former US Federal Reserve chairman Alan Greenspan did, with known negative results. Does the US — and, indeed, does the world — need another round of such self-centred highhandedness?
Boys and Bias
When it comes to selecting the US Fed chairman, three criteria are important: professional competence, open-mindedness and the ability to rest in oneself. Unfortunately, Summers scores only 1.5 out of 3. Janet Yellen, the vice-chairperson of the Fed, will be close to 3 out of 3 in my book.
Unlike Summers, who has been smarting ever since he did not get the World Bankpresidency years ago, Yellen has no temperamental issues. Of course, that does not stop those who raise the "woman issue" and do their level best to insert the age-old stereotype into the equation. The bias in the US political system to award the top jobs to another guy is still formidable.
Summers, his supporters say, has the "respect" of the financial markets. More likely, he has their backs — which is not what the American people need.
Street Cred
The trouble with Summers is twofold. One, he believes he has all the answers. Two, while some of his answers are good and on target, he mostly presents them as newspaper comments and when he is out of power. Whenever he was in power — first as Treasury secretary under Bill Clinton and then as White House economic czar under Barack Obama— he was an ardent defender of the powerful on the Wall Street.
We would do well to remember that in 2008, the year before he joined the Obama administration, Summers made more than $5 million in compensation from the DE Shaw hedge fund — for a reported one day a week of actual work. In addition, he received more than $2.7 million in speaking fees from Wall Street companies that received bailout money.
Now, in a market economy, everybody is free to sell their skills to the highest bidder. But at that exalted pay level, there were always legitimate concerns that what Summers received was "pre-pensation" for future actions — rather than compensation for actual services. And that, in his two-year stint in the White House, he most certainly did.
Along with the then Treasury secretary Bob Rubin and the understudy, Tim Geithner, Summers was in charge of making the world safe for AIG and Citibank.
With that track record, all the efforts of his supporters fall flat. Summers has proved the old rule: supporters will be keen to attest that the person they want "back in" has nothing but the noblest of motives. The American people would be justified in having their doubts.
(The writer is publisher and editor-in-chief, theglobalist.com)
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