Summers to Join Obama White House, Boosts Fed Chances

Summers to Join Obama White House, Boosts Fed Chances (Update1)
By Brendan Murray and Michael McKee
Nov. 21 (Bloomberg) -- Harvard University professor Lawrence Summers will join the Obama administration with a ready-made sales pitch for substantial economic stimulus and a chance that the role springboards him to the Federal Reserve.
Summers, 53, was Bill Clinton's last Treasury secretary. He will have a wide-ranging portfolio and help craft Obama's economic policies, a Democratic aide said. Summers's appointment, along with the nomination of Federal Reserve Bank of New York President Timothy Geithner to be the next Treasury secretary, will be announced Nov. 24, the aide said.
The return of Summers to Washington after eight years at Harvard gives President-elect Barack Obama a fierce advocate for fiscal stimulus to revive the economy. It also may position him to become a candidate to replace Fed Chairman Ben S. Bernanke, whose term at the helm of the central bank expires in January 2010, said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs.
``He's certainly on the short list, and perhaps on the top,'' said Reinhart, a visiting scholar at the American Enterprise Institute in Washington.
Summers couldn't be immediately reached for comment. Earlier this week during a panel discussion in Washington, he said it is ``crucial'' to jump-start the economy.
Economic stimulus should be ``speedy, substantial and sustained over a several-year interval,'' Summers said in a panel discussion with Treasury Secretary Henry Paulson and former secretary Robert Rubin.
`Impetus' for Growth
Without saying how big a stimulus package was needed, Summers said each dollar of spending generates an extra $1.50 for the economy.
``We're going to need some impetus to the economy for two to three years,'' he said. ``It's particularly important that the fiscal stimulus be linked to the country's long-term priorities around infrastructure, around energy, particularly renewable energy, around health care.''
The Obama administration, which starts Jan. 20, faces a host of economic challenges.
A credit crunch sparked by the collapse of U.S. mortgage finance has triggered a recession that shows signs of deepening, with U.S. job losses totaling 1.2 million this year. First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992, Labor Department figures showed yesterday.
Fed Rate Cuts
The Fed has reduced its benchmark interest rate by 4.25 percentage points since September 2007, to 1 percent, and rescued Bear Stearns Cos. and American International Group Inc. from failure with emergency loans. Economists forecast that the central bank will cut rates further.
The crisis has resulted in $967 billion in writedowns and losses for financial companies worldwide since the start of 2007. In response, Congress approved a $700 billion financial bailout program that is injecting capital into banks.
Treasury Secretary Henry Paulson and Summers earlier this week sparred during the panel discussion over whether President George W. Bush's tax cuts should be allowed to expire, with Paulson saying any increases would be ``not helpful.'' Summers countered that what matters is the overall fiscal position of the government, and that relief for middle-income families is most effective.
Asian Financial Crisis
Summers who was Treasury secretary from July 1999 to January 2001, had a lot of experience with crisis management at Treasury. He helped design bailouts for Mexico, South Korea, Indonesia and Brazil and worked closely with Russian officials trying to stave off that country's financial crisis in 1998.
In addition to teaching at Harvard, Summers serves as a managing director of the hedge fund D.E. Shaw & Co., where he works on what the company describes as ``strategic initiatives'' and ``high-level portfolio management activities.'' Shaw manages about $36 billion.
Summers has deep roots in economics. His mother and father were economists, and two of his uncles -- Paul Samuelson on his father's side and Kenneth Arrow on his mother's -- won Nobel prizes in economic science.
After earning his doctorate at Harvard in 1982 he became at age 28 that university's youngest tenured professor. He spent time on the staff of the White House Council of Economic Advisers in the 1980s before joining the World Bank as chief economist.
He joined the Clinton administration in 1993, the same year he won the John Bates Clark medal as the outstanding U.S. economist under 40. He took over as secretary in July 1999, after Rubin resigned.
To contact the reporter on this story: Brendan Murray in Washington at brmurray@bloomberg.netMichael McKee in New York at mmckee@bloomberg.net. Last Updated: November 21, 2008 17:17 EST