The White House was ready to nominate Larry Summers for the top Fed position in spite of political opposition from all sides, so the withdrawal of his name may signal a change in approach. Four years ago, Summers was in charge of economic policy at the White House, and the policy then was continuity at all costs. This kept Wall Street standing but left the broader economy in a minor depression. There is little doubt that President Obama is still a big fan of continuity as a root policy, but the withdrawal of Summers’ name may indicate that Obama is now willing to weigh the costs of continuity, and might perhaps permit changes where they are most needed.
Some people this morning are expressing puzzlement at the opposition to Summers from Wall Street — after all, he is, at heart, one of their own. It makes sense if you consider the effect of the Bush-era policies Summers championed when he worked in the White House. Those policies that Summers insisted could not give way were the same policies that had brought Wall Street to the edge of collapse. So if Wall Street is experiencing nightmare flashbacks at the mention of Summers’ name, it is for a good reason.