Economy/Economic Policy

Yellen Hangs Glass Ceiling Over Wall Street Battle

Wednesday, August 21, 2013

The debate over who will take over at the Federal Reserve unites women's rights activists and Wall Street reformists. Their female champion faces an Old Boy favorite who once famously expressed doubt about women's intellectual capacity.




 

Janet Yellen is in the running to lead the Federal Reserve Board.
Janet Yellen is in the running to lead the Federal Reserve Board.

 

Credit: International Monetary Fund on Flickr, under Creative Commons (CC BY-NC-ND 2.0)

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(WOMENSENEWS)--Women's rights activists and those pushing to rein in Wall Street in the wake of the 2008 mortgage debacle are finding common ground in the debate over who will next lead the Federal Reserve Board.

Both are backing Janet Yellen, vice chair of the board.

If selected, Yellen would be the first woman to lead the world's most powerful central bank since its formation in 1913 after a series of bank panics.

"The appointment of Yellen to succeed Ben Bernanke when his second term expires in January would be historic," said Gail Cooper, vice president of programs of the New York-based National Council for Research on Women, a network of university-based research, policy and advocacy centers dedicated to advancing rights and opportunities for women and girls. "Unlike the State Department and the judiciary, men have retained their lock on the top positions of management of the U.S. economy."

No woman has served as secretary of the Treasury, president of the New York Federal Reserve Bank or comptroller of the currency. Sixty-seven-year-old Yellen would also be the first vice chair to be elevated to the post and the first Democrat to serve since President Jimmy Carter appointed Paul A. Volcker in 1972.

"The conventional excuse," Cooper said in a phone interview," is that there is a dearth of candidates because women aren't interested in leadership positions in economic institutions. But that's not true. There is a lot of latent sexism."

Yellen is up against Lawrence Summers, secretary of the Treasury in the Clinton administration and a heavyweight in economic policymaking throughout the Clinton and Obama administrations.

Gender-Role Debate

President Barack Obama's appointment of a new chair of the board of governors of the board will implement the changes of the 2010 Dodd-Frank financial reforms.

That's a major issue, but so is the gender-role debate that has flared up. Is the female contender tough enough to lead the bank? Is the male too much part of the Old Boy network that runs Wall Street to initiate reforms?

Summers resigned as president of Harvard University in 2006 following outcry over his claim that women lack the "intrinsic aptitude for math and science."

Margaret Blair is an economist who focuses on management law and finance at the Vanderbilt Law School in Nashville, Tenn. "The chipping away begins in graduate school with intellectual one up-oneship and evolves into a blood sport at the higher levels of these institutions," she said in a phone interview. "But throughout her three decades at the Federal Reserve Bank in Washington and as president of the 12th District Federal Reserve Bank in San Francisco, Yellen has held her own."

James K. Galbraith, the Lloyd M. Bentsen Jr. chair in government/business relations at the University of Texas at Austin, said Yellen and Summers differ in the way they approach policy formation.

"Yellen doesn't force her ideas on anyone," he said in a phone interview. "Unlike Summers, she is very careful about how she goes about exploring problems and listens to the ideas of others in reaching a consensus."

Another difference, Galbraith added, is that unlike Summers, Yellen has no ties to the financial industry and is not a protégé of Robert E. Rubin, who preceded Summers as treasury secretary under President Bill Clinton and served as senior counselor of Citigroup from 1999 to 2009.

Key members of Obama's economic team have been part of the revolving door to Citigroup, the nation's third largest bank.

Peter Orszag, former White House budget director, joined Citigroup in 2010 as vice chair of global banking. Treasury Secretary Jacob J. Lew was managing director and CEO of Citi Global Wealth Management from 2006 to 2008 and at Citi Alternative Investments in 2008 until early 2009.

Yellen Defended

The Washington-based National Organization for Women, the largest feminist organization in the nation, defended Yellen's accomplishments in a letter to the White House last week after quotes by anonymous supporters of Summers appeared in the financial press claiming that Yellen "lacked toughness, was short on gravitas and was too soft-spoken and passive."

"With years of experience at the Fed, an impressive academic resume and a comprehensive view of the American economy, Yellen clearly is the best person for the job--male or female," the letter by Terry O'Neill, NOW's president, said.

NOW also urged Obama to reject Summers because his "deregulatory zeal as secretary of the Treasury under Clinton contributed to the Bush-era economic collapse."

Summers oversaw the repeal of the Glass-Steagall Act, a Depression-era law that separated commercial and investment banks. This repeal triggered the growth of big banks that took on too much risk and had to be bailed out by the federal government in 2008.

During the fiscal crisis, Summers supported proposals from some in Congress to allow higher executive pay and bonuses for financial executives whose firms received billions in federal funds.

"Summers also resisted efforts to regulate derivatives, which led to the subprime mortgage crisis, which had a devastating impact on millions of Americans, especially on women and minorities who received a disproportionate share of these toxic mortgages," said Sylvia Allegretto, a labor economist and deputy chair of the Center on Wage and Employment Dynamics at the University of California in Berkeley.

Allegretto and other economists have also questioned whether 58-year-old Summers' financial ties to Wall Street will inhibit him from giving sufficient attention to the impact of Federal Reserve Board's policies on Main Street when the board begins overseeing the writing of several key new regulations from the Dodd-Frank financial reform bill of 2010.

In addition to earning $2.7 million in one year for speeches to Wall Street companies like Goldman Sachs and JP Morgan Chase, Summers was paid millions in consulting fees by the hedge fund D. E. Shaw, the exchange company Nasdaq OMX and Citigroup, which was rescued from the brink of bankruptcy by the federal bailout in 2008.

According to a financial disclosure form he filed in 2009 when he became a director of Obama's National Economic Council, which coordinates domestic and international economic advice and policy for the administration, Summers' wealth totaled between $7 million and $31 million.

Democrats Monitor Appointment

The appointment is also being closely monitored by progressive Democrats in Congress because the new chair's term will extend two years after Obama leaves the White House and will impact their records on stewardship of the economy.

About one-third of the 54 Democrats in the Senate signed a July 25 letter urging Yellen's appointment. Circulated by Ohio's Sherrod Brown, a proponent of overhauling the corporate tax code, the letter was signed by Massachusetts' Elizabeth Warren, who introduced a bill in July to reenact Glass-Steagall, and Washington's Patty Murray, chair of the budget committee.

Thirty-eight of the 62 female Democrats in the House also sent a letter last week to the White House in support of Yellen. Rep. Maxine Waters of California noted that Yellen was one of the few economists who had sounded the alarm about the sub-prime mortgage crisis.

Despite criticism by Democratic foot soldiers in both houses, Congress' top Democrat--Senate Majority Leader Harry Reid of Nevada--defended Summers as "a very competent man." Reid also said at a July 31 press conference that "no matter who is the president's choice, the Democratic caucus will back the nominee when the Senate begins confirmation hearings in the fall."

Summers is also counting on Obama's support. In his official biography, Summers notes that when he returned to Harvard in 2011 after serving as a White House advisor, Obama said: "I will always be grateful that at a time of great peril for our country, a man of Larry's brilliance, experience and judgment was willing to answer the call and lead our economic team."

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