Appointing the head of the Federal Reserve is one of the most important appointments Presidents make. President Obama was reportedly backing Summers, as they had worked together closely during the darkest days of the global financial crisis.  Advantage:  Summers!  Yellen is currently Vice Chairman of the Fed.  Both are brilliant economists and intimately familiar with the details of the Fed.  Advantage:  Yellen!

Popularity played a bigger part in this drama than I have ever seen in choosing a new Fed head.  Yellen was considered a conciliator, who was thoughtful and gracious.  Summers could be expected to tell a U.S. Senator he was stupid, which makes great television but is not helpful.  Summers claims he withdrew his name because so many members of Congress have already promised to vote against him.

But, it is ironic that Republicans lined up against Summers, because the choice was not a question of economic brilliance, nor a personality issue, not even a male-female issue.  The real choice is between a hawk and a dove, relatively speaking.  Republicans blocked the hawk, the more conservative choice.

Summers, who grew up in an extended family of Nobel-winning economists, is more hawkish than Yellen, which means he would end quantitative easing or the buying of Treasury and housing bonds sooner and let interest rates rise faster.  Yellen is more dovish, which means she will taper more slowly and keep interest rates lower for a longer period.  Because Wall Street is nervous about the tapering of quantitative easing, stock markets around the world are giddy with joy that Summers withdrew.

My thought is that since both Summers and Greenspan were so instrumental in the deregulation of derivatives, neither should ever be or have ever been Chairman of the Federal Reserve System.  Both argued that derivatives are self-regulating, and they are . . . until they aren’t!