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Opposition mounts to Summers as possible Fed chief

Former U.S. Treasury Secretary Lawrence H. "Larry" Summers speaks during a financial and economic event at the London School of Economics (L
Former U.S. Treasury Secretary Lawrence H. "Larry" Summers speaks during a financial and economic event at the London School of Economics (L

By Pedro da Costa and Mark Felsenthal

WASHINGTON (Reuters) - President Barack Obama could be months away from announcing his pick to replace Ben Bernanke at the Federal Reserve, yet critics are already making an unusual public effort to stop one contender in the race - former U.S. Treasury Secretary Lawrence Summers.

The outcry has come not from Republicans, but the left wing of the Democratic Party. Summers advised Obama, was treasury secretary under former President Bill Clinton, led Harvard University and was chief economist for the World Bank. He helped tame the Asian financial crisis that threatened to sweep the globe under Clinton.

But liberals blame him for spearheading financial deregulation that they charge helped create the financial crisis, and say his work at hedge fund D.E. Shaw makes him the epitome of a revolving door between Wall Street and government.

A representative for Summers, who writes an opinion column for Reuters, declined to comment for this article, as did the White House and the Fed.

Some powerful Democrats, including former Treasury Secretary and one-time Citigroup executive Robert Rubin, have been speaking up behind the scenes for Summers, according to multiple sources with close ties to the Fed or the White House.

If Obama tapped Summers, he would be picking him over the Fed's current vice chair, Janet Yellen, who is seen as the other main candidate for the job.

Both Yellen and Summers would be expected to hew fairly close to the policy course set by Bernanke.

Supporters of Summers argue he should have an edge given his crisis-management experience.

"When there is consensus, who the Fed chair is hardly matters, and the times when it matters are the times when you have to think outside the box, and then his strengths shine," said Brad DeLong, a professor at the University of California, Berkeley, who worked with Summers in the Clinton Treasury Department.

According to aides, Senate Democrats who oppose him have penned a letter urging Obama to choose Yellen, who has been a major force in the Fed's efforts to stimulate a sluggish U.S. recovery using unconventional monetary policies. Yellen would be the first woman to head the central bank.

Democratic Senator Sherrod Brown of Ohio was circulating the letter, the aides said. It was unclear how many senators had signed it, but several Democrats have already spoken out in favor of Yellen and against Summers.

"I am for Janet Yellen. I am taking that position," Democratic Senator Tom Harkin of Iowa told Reuters.

A spokeswoman for Brown did not respond to emails requesting comment, and a Fed spokeswoman said Yellen declined to comment.

Bernanke's second four-year term at the helm of the central bank expires on January 31, 2014. While he has not discussed his plans, it is widely expected he will step down.

Some critics of Summers wonder why Obama might turn down a woman for a man who has been accused of sexism. As president of Harvard, Summers sparked a firestorm by suggesting intrinsic aptitude might explain why relatively fewer women reach top academic positions in math and science - comments for which he later apologized.

"The president's track record of appointing women is mediocre at best," Greg Valliere, chief political strategist at Potomac Research Group, said in a note to clients. "So there's a brilliant female candidate to replace Ben Bernanke; she's highly respected within the Fed - and Obama is going to appoint someone who will never live down his comments that women lack the qualifications for some university jobs?"

CONCERNS ON REGULATION

When he served as Treasury chief under Clinton, Summers helped clinch the law that revoked the Depression-era Glass-Steagall Act, which separated investment banking activities from those of commercial, deposit-taking institutions.

That opened the gate for commercial banks to get involved in riskier financial products, such as the credit default swaps that were at the heart of the 2007-2009 financial crisis.

Moveon.org, a liberal group that provided major support to both Obama presidential campaigns, is circulating a petition entitled: "Don't let Larry Summers head the Fed," which accuses him of laying the groundwork for the deep U.S. recession.

Senate Banking Committee member Jeff Merkley, a Democrat from Oregon, told Reuters he would find a nomination of Summers "disconcerting."

"Many questions need to be asked and answered related to his philosophy of regulation and deregulation," he said.

LEANING TOWARD SUMMERS?

A person with close ties to the Obama administration said he had reason to believe the president was closely considering Summers, and perhaps even leaning toward him. The source said Obama would likely view Summers' ties to Wall Street and crisis-management experience as important attributes.

At the same time, sources familiar with thinking inside the Fed say staff and some members of the central bank's board are concerned Summers' often blunt manner could be a detriment in shaping policy at the consensus-driven central bank.

Those sources requested anonymity given the sensitive nature of the personnel discussions.

Yellen has been the runaway favorite to replace Bernanke in media polls of financial market participants, but analysts say Summers has the advantage of a close relationship with Obama.

He also has powerful supporters.

"His allies have been ginning up support, making it clear that he's interested - and that's the kiss of death. If you want a major job in this town, you have to be coy," Valliere said.

A person familiar with the nomination process said Obama had yet to make a decision. An announcement is not expected until the autumn.

(Additional reporting by Jeff Mason and Rachelle Younglai in Washington, Jonathan Spicer in New York and Ann Saphir in San Francisco; Editing by Peter Cooney)

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