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Analysis: Battle over Fed - Summers' opponents seek to sway Obama

U.S. economist and Harvard University professor Lawrence Summers speaks during a luncheon at the Asian Financial Forum in Hong Kong January
U.S. economist and Harvard University professor Lawrence Summers speaks during a luncheon at the Asian Financial Forum in Hong Kong January

By Alister Bull and Rachelle Younglai

WASHINGTON (Reuters) - Progressive groups opposing Lawrence Summers as the next Federal Reserve chairman are stepping up pressure on President Barack Obama to make a different choice, emphasizing the price his Democratic Party would pay for nominating the former U.S. Treasury Secretary and White House aide.

They are confronted however by a well-coordinated campaign on Summers' behalf by former Obama administration officials who have succeeded in cementing the view that Summers has basically got the job.

President Barack Obama, who is expected to announce his nomination for the job within a few weeks, has said that both Summers and current Fed Vice Chair Janet Yellen are excellent candidates to replace Fed chief Ben Bernanke whose term expires in January.

Reports in the New York Times and Washington Post on Thursday suggested Obama was strongly inclined to pick Summers.

A number of former Obama administration officials, including Jim Messina and Stephanie Cutter, who ran his 2012 re-election campaign, are working behind the scenes to help promote Summers' candidacy, according to a former administration official. Neither Cutter nor Messina responded to requests for comment.

Former U.S. Treasury Secretary Timothy Geithner has also played a backstage role to ensure that Summers' work for Obama is accurately portrayed, the source said, while the president has publicly defended Summers and praised his White House service. Geithner declined to comment.

A source close to Yellen, who has not spoken publicly on the issue, says she feels that she is now the underdog in the race.

Odds displayed by online betting services also make Summers the favorite for the job, but his opponents are not giving up without a fight.

Women's organizations are furious that the president appears ready to pass over Yellen, who would be the first woman to ever lead the Fed, in favor of a man who has been harshly criticized for past remarks that they view as sexist.

More than 100 women leaders advocating on Yellen's behalf have signed a letter urging Obama to pick her instead. They plan to send it to the president and Senate Majority Leader Harry Reid after the Senate votes next week on a resolution authorizing U.S. military action against Syria.

"I don't know why the president doesn't get it," said Georgia Berner, a businesswoman and former director of the Pittsburg branch of the Cleveland Federal Reserve Bank who has signed the letter.

"I would love to see Janet Yellen as head of the Fed ... I also believe quite strongly that Larry Summers would make some very bad decisions," she said, citing his track record on financial deregulation.

As Treasury secretary in President Clinton's administration, Summers helped dismantle the law that separated commercial banking from investment banking, a change some believe helped lay the groundwork for the 2007-2009 financial crisis.

Summers declined to comment for this story.

PRESSURE POINTS

Obama is in his second term as president and does not need to win re-election, but many in his party face close races in mid-term election in 2014.

Some Yellen backers contend that nominating Summers could erode support among vital women voters and could potentially cost his party control of the U.S. Senate.

"He is absolutely shooting himself in the foot. He is going to make it harder to achieve his agenda," cautioned Terry O'Neill, president of the National Organization for Women, who said Obama would "deeply tarnish" his legacy by naming Summers.

"The president is ... just thinking in this very siloed mind-set: this is the Fed, this is a gift I'm going to give to my friend Larry. And because he doesn't have to get re-elected, I suppose he doesn't have to think about the repercussions this is going to have in his own support base," she said.

Summers is widely considered a brilliant economist and he has broad experience in a range of top economic policy jobs.

Still, some Washington veterans are perplexed that Obama is apparently willing to bypass Yellen, who is also viewed as well qualified, and are concerned that Obama risks an unnecessary congressional fight at a time when he could spend his political capital more wisely.

As well as battling for authorization to punish the use of chemical weapons by Syrian President Bashar al-Assad, the White House must currently also persuade lawmakers to raise the U.S. debt ceiling and forge an agreement to fund the federal government for the fiscal year beginning in October.

"Does Barack Obama want to play political football with the Congress on everything all fall?" asked David Rothkopf, a former Clinton administration official who is now president of Garten Rothkopf, an international advisory firm.

It was not clear how much clout progressive groups such as the National Organization for Women (NOW) have within the White House.

"I don't think all the noise around this matters unless it changes the way the president thinks about this," said the former administration official who was skeptical NOW's views would get traction within the White House.

For progressive groups, what they view as Obama's clubby approach to the Fed is a big part of their problem with a potential Summers' pick. They are also troubled by Summers' links to Wall Street, where he has earned millions of dollars in consulting and speaking fees.

"His strong ties to both the White House and the investment banking industry do not make him a good candidate for the chair of the Federal Reserve," said Jim Dean, chairman of Democracy for America, a grass roots organization.

"This institution has been the rock about whatever has been good about our economy since the (financial) debacle ... (Obama) is really risking his own credibility by appointing someone with such strong ties with the investment banking industry," said Dean.

(Additional reporting by Mark Felsenthal and Caren Bohan in Washington and Jonathan Spicer in New York; Editing by Tim Ahmann)

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