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Ezra Klein, Published: September 21 at 9:56 amE-mail the writer

Larry Summers’s campaign to replace Federal Reserve Chairman Ben Bernanke wasn’t doomed by any of the typical doubts about a potential Fed chief. Senate Democrats weren’t worried that Summers was too tolerant of inflation or insufficiently committed to quantitative easing. In fact, they weren’t worried about his opinions on monetary policy at all.

Summers fell because at least five Democrats on the Senate Banking Committee doubted his bona fides as a bank regulator. But even that doesn’t get at the whole truth. Summers really fell because those Senate Democrats — and many other liberals — don’t trust the Obama administration’s entire approach to regulating Wall Street. For all the talk of Summers’s outsized personality and polarizing past, he really lost because he was a stand-in for Obama.

Most clashes between the White House and liberals are disagreements over what’s politically possible rather than what’s optimal policy. On health care, the White House would have liked a public option but couldn’t find the votes. On the stimulus, the White House would have liked a bigger bill but didn’t see a way to pass it through Congress. On taxes, the White House would have liked more revenue but wasn’t willing to go over the fiscal cliff to get it. Liberals often disagree with the tactical compromises the White House makes to pass legislation, but the underlying philosophical divide is narrow.

The conflict over financial regulation is different. There, the White House really does disagree with its liberal base. The Obama administration didn’t oppose breaking up the big banks on tactical grounds. It opposed breaking them up because it thought that was bad policy. The administration would have opposed doing it even if Democrats had 80 votes in the Senate.

“When there was an opportunity to strengthen financial regulation in 2009 and 2010, the administration was less than enthusiastic,” says Simon Johnson, an economist at the Massachusetts Institute of Technology who has been a strong advocate of tougher financial regulations. “They didn’t support the Brown-Kaufman amendment to break up the big banks. Larry Summers isn’t  a fan of the Volcker rule. There was no interest in bringing back Glass-Steagall.”




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