How Obama Screwed Up The Fed Nomination

In August 2010, former White House Press Secretary Robert Gibbs lampooned the "professional left" for having unreasonable expectations. No deal, no pragmatic approach would be quite good enough to quench liberals' thirst for the progressive Obama administration they thought was owed to them.

"They will be satisfied when we have Canadian health care and we've eliminated the Pentagon," Gibbs told The Hill. "That's not reality."

Gibbs may be out of the White House, but the feeling of being burned by the progressive wing of the party might once again feel palpable this week. On Sunday, White House favorite Larry Summers withdrew himself from the running for chairman of the Federal Reserve. The nomination process, he wrote to the president, would be too "acrimonious."

That was a guarantee. The first hint of a possible Summers nomination drew so much ire that many have been left asking: Just what was Obama thinking here?

The White House may have expected it from liberals, but the academic community also fell in line swiftly behind Fed Vice Chair Janet Yellen. That came down to monetary policy over politics.

Last week, more than 200 big time economics professors signed on to an open letter calling on President Obama to nominate Yellen, who is seen as a sure hand and a steady continuation of Ben Bernanke's monetary policy positions.

"Many of us are greatly impressed by Janet Yellen's qualifications for the position, and were surprised to hear that the White House didn't find them compelling," Michael Woodford, a Columbia University economist and cosigner of the open letter, told Business Insider. "Some were opposed to Summers because of past policy positions of his, or guesses about policies he would support now (which may or may not have been well-founded)."

True or not, the narrative became that Larry Summers would be more "hawkish," meaning less likely to continue accommodative monetary policy. That's why markets rallied on the news that he withdrew his name.

"The nomination process is always political even though the appointment spans presidencies," said Joyce Jacobsen, economics professor at Wesleyan University. We've only had two Fed chairmen since the presidency of George H.W. Bush, but you'd hardly call that time politically consistent.

So while the chairman of the Federal Reserve is supposed to be an apolitical figure, the nomination requires Senate confirmation - an ordeal that often borders on downright theatrical.

By favoring a controversial figure like Summers, the administration always knew it would be a fight.

It's the past policy decisions over the 2009 stimulus and 90s-era deregulation that came to haunt Summers. In progressives' mind, Summers requested too small of a stimulus from Congress. It was a political decision, in their telling, and wasn't what was best for the economy at the time.

Couple that with Summers' controversial comments at Harvard on women and the sciences, and you had a well-organized resistance movement right from the onset.

"I do think the White House underestimated the depth of dislike of Larry Summers by a significant portion of his party," said Tony Fratto, a former White House and Treasury official under George W. Bush. "I think they were surprised at the ferocity of the anti-Summers campaign."

Progressives, Fratto says, "blame Summers for putting this president in particular in a more centrist place then they felt this president ought to be."

"They blame him and the Clintonites...for being a drag on what they saw as the more pure instincts of this president coming out of 2008," Fratto said.

After Summers' name leaked and the opposition began to mount, the White House was left with few options.

They couldn't really try to expedite the nomination process. If successful they'd leave Ben Bernanke in an awkward monetary policy position, sitting as a lame duck Fed Chair for five months.

So, had things gone differently, the White House would have had to wait until the fall to announce Summers' nomination.

But even then they were kidding themselves, Fratto says. The composition of the Senate Banking Committee meant Summers would surely lose the votes of Democratic Senators like Elizabeth Warren and Sherrod Brown, who have been so vocal about progressive economic issues.

When the dust settled, 20 Democratic Senators wrote to President Obama that they wouldn't support Summers. Even curveballs like Senator Jon Tester, on the banking committee, said he was a no.

Before the anti-Summers campaign kicked into gear, "Some of the mythology that emerged was... Republicans prefer Summers to Yellen, and so they will supply the votes to get him confirmed," Fratto said.

"You obviously have never spent any time working in Washington or in the Senate," Fratto added. "The idea that Republicans would rescue the president from his own party except for a very high price is just crazy."

What would the high price for Summers have been?

Obamacare or the debt ceiling, says Fratto. Two things the White House would never use as chess pieces.

"Not for Larry Summers."