Selling Larry Summers as the successor to Ben Bernanke as chair of the Federal Reserve Board is a tough job. The basic problem is that Summers has a dismal track record to overcome, while his main competitor, Janet Yellen, the current vice-chair, has an outstanding record.
Summers was a big supporter of financial deregulation in the 1990s and 2000s. He pooh-poohed concerns over the stock and housing bubbles. He thought the over-valued dollar and resulting trade deficit (and loss of millions of jobs) was great. He was a protector of the Wall Street banks when they were flat on their backs, and he thought the economy could get back to full employment without additional stimulus. And he has the distinction of being effectively fired as president of Harvard.
Meanwhile, Yellen was the first person at the Fed to recognize that the collapse of the housing bubble was going to be a serious problem. The Wall Street Journal recently scored the Fed governors and bank presidents on the accuracy of their economic forecasts. Yellen came in first by a wide margin.
But the pro-Summers White House insiders know how to do their jobs – and they had no intention of letting stubborn facts get in their way. They managed to story after story in the top news outlets telling the public that they had Larry Summers all wrong. He actually was prescient about the risks from the financial sector and knew all along that we faced a long difficult road to recovery.
For example, on 4 September, the Washington Post told readers:
Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve – a position he had been pushing years before the crisis.
Incredibly, the linked article in the paper was from February of 2008, long after the crisis was well under way, certainly not "years before the crisis".
The article later adds that "people familiar with Summers' thinking" say that he could be counted on to impose strong capital requirements on banks. "Associates" are cited as assuring us that he would look out for consumers.
A New York Times article last month told readers that Summers has "long argued that government must protect people from abuses". As proof, it cited a joint report from the Treasury Department and the Department of Housing and Urban Development (HUD) on predatory lending practices from 2000, when Summers was Treasury Secretary:
[The report] recommended modest changes in federal law but Congress, then controlled by Republicans, made none. The Fed and other banking regulators also ignored the findings. Years later, however, it was a source for elements of Dodd-Frank.
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If the NYT's discovery of this Treasury-HUD report involved research rather than what I presume to have been a handout from a White House source, it might have found this line from a news story on the report printed in June of 2000:
An administration report on abusive mortgage lending practices that is due to be released today has raised concerns from consumer groups and key congressional Democrats … Complaints that the report and the legislation it proposes will not go far enough to protect consumers and would 'undercut' a bill by Sen Paul S Sarbanes (D-Md) and Rep John J LaFalce (D-NY) could even block the report's release, several consumer groups and congressional sources predicted.
Rather than being a prescient effort to promote consumer regulation, this report was seen at the time as the exact opposite: an effort to obstruct serious regulation. But nothing in last month's New York Times piece would have alerted NYT readers of this 180-degree reversal of reality.
The Summers supporters in the Obama administration have managed to get their puff pieces out to the public without leaving fingerprints. All of the pro-Summers pieces in major news outlets have been packed with quotes from "highly placed sources" (for example, here, here, and here).
In principle, news outlets are supposed to be restrictive in their use of anonymous sources. For example, the New Times policy, which is the benchmark for newspapers, is to only use anonymous sources in exceptional cases:
The use of unidentified sources is reserved for situations in which the newspaper could not otherwise print information it considers reliable and newsworthy. When we use such sources, we accept an obligation not only to convince a reader of their reliability but also to convey what we can learn of their motivation.
And the New York Times' public editor, Margaret Sullivan, has repeatedly criticised abuses of the practice – most recently, just last week.
So, did the Washington Post, for example, really provide important information to readers when it gave the views of "people familiar with Summers' thinking"? Could it really not provide more information about its sources than simply describing them as "associates" of Summers?
The media have once again failed the country horribly by not using even minimal judgment and common sense in their reporting on the battle for Fed chairmanship. People from the White House are not talking to reporters about Summers as leakers exposing abuses of power; they talk to reporters because they want what they say to appear in the newspaper and influence the public debate.
It's incredible that reporters at major news outlets still don't understand this simple fact. As a result, we could get Larry Summers as Fed chair.