Will Obama boot Bernanke, give Fed to Summers?
Analyst Dick Bove warns an Obama move to make Larry Summers head of the Fed could "stop the economic recovery"
Democrats in Congress and the Obama White House are plotting to remove Federal Reserve Chairman Benjamin Bernanke and replace him with Obama's chief economic adviser, Larry Summers, at the end of his term next year, writes veteran bank analyst Richard X. Bove of Connecticut-based Rochdale Securities in a report to clients. Summers is the brainy Main Line native, ex-Harvard president, and ex-Treasury Secretary who's trying to re-regulate the financial institutions he helped deregulate under President Clinton, causing the current mess.
A shift to Summers "is likely to be bad for the American economy, its financial system, and the banks. A change of this nature could in fact stop the economic recovery," warns Bove.
Bernanke or Summers - what's the choice? "Mr. Bernanke has demonstrated a willingness to act to defend both the economy and the financial system. Conversely, Mr. Summers has written the bulk of the proposals to regulate the financial industry," and these "would dramatically restrict fund flow to the economy and thereby economic growth."
Bove credits Bernanke, former Treasury Secretary Henry Paulson and FDIC chief Sheila Bair with the "bold, innovative action" that fixed the banking system and prevented a full government takeover last year. Bush and Obama at that time "did nothing." Congress was "the proverbial deer in the headlights."
Yet "the same people who were incapable of acting when there was a clear need for action will now make the decision as to whether the man who helped save the system should be removed." Bove counts Treasury Secretary Timothy Geithner in that camp: "Mr. Geithner was the President of the New York Federal Reserve when the excesses of the system grew... He did nothing to stop these excesses... He was promoted shortly after" by Obama.
Bove says Summers is pushing reforms that would mark "a return to 1937," when the Fed "kill(ed) economic recovery" by tightening bank reserve requirements too early.
What about the accusation that Bernanke abused his power by forcing Bank of America to buy Merrill Lynch? "I am not sure that he did it, but I think he should have done it," Bove writes. "If Merill Lynch collapsed the same weekend that Lehman Brothers failed," where would we be today?
Bernanke's under pressure. He's scheduled to testify before U.S. Rep. Barney Frank, D-Mass., and his House Financial Services Committee next Tuesday, July 21. He'll likely be expected to show how the Fed plans to reverse the scary growth in the money supply without slowing the economy. He'll be arguing for his job, too. Bloomberg story here.
