FORTUNE — Love him or not, Larry Summers has abruptly risen as the frontrunner to be the nominee for the next U.S. Federal Reserve Chairman, the most powerful central banker in the world. He has a reputation for being brutal and blunt, having been criticized for making crude remarks about women during his presidency at Harvard University. Some blame him for planting the seeds for the financial crisis — Glass Steagall, the Depression-era law that kept commercial banks from taking on business ordinarily done at investment banks, was repealed when Summers was Treasury Secretary.
Despite his reputation, Summers appears to be President Obama’s pick. He’s expected to face stiff opposition during confirmation hearings, but Obama still seems inclined to go with Summers, at least for now. Here are four reasons why Obama’s bond with Summers is so strong:
They bonded during tough times
Bonds are often created during tough times. In the wake of the financial crisis, Obama had just started his first term as president. He entrusted Summers as his top economic adviser, a critical role that made him the mastermind of economic policymaking within the White House.
While the U.S. economy is far from perfect, and will for years feel the residual effects of the financial crisis, it’s hard to dismiss Summers’ role in stabilizing markets: He was the chief architect of the president’s stimulus plan to boost growth; he helped mold the U.S. auto industry bailout. And while far from perfect, he created a plan to help struggling homeowners when the housing market collapsed.
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Ultimately, Obama has seen what Summers is capable of doing during a crisis. They may not exactly be golf buddies, but the fact that Summers generally came through for Obama during a critical time has certainly left an impression on the president.
They agree on financial regulations
Despite all the criticism that Summers is far too soft on Wall Street, he wants banks to hold more emergency funds in reserves to curtail excessive speculation and bubbles — a goal the president has said will be important to carry out for the next Fed chairman.
Some say Summers was a longtime advocate of stricter capital requirements years before the financial crisis, but not everyone, including economist Dean Baker at the Center for Economic and Policy Research, buys it. Baker thinks he’s given too much credit, pointing out that it wasn’t until February 2008 (after the crisis was well under way) that Summers pressed for higher reserves.
Nonetheless, as the Washington Post points out, Summers caught Obama’s attention with his analogy of why the economy needs a new agency to protect consumer interests and that banking regulators could not do it: Just as you wouldn’t have the FAA be in charge of ensuring the profitability of airlines, you wouldn’t have the FDA be in charge of protecting the financial health of pharmaceutical companies, Summers has said. The Consumer Financial Protection Bureau became a centerpiece of Obama’s plan.
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The Clinton Effect
The top slots on Obama’s economic team are currently all held by econ experts from the Clinton Administration, so it comes as little surprise that the president would want Summers to head the Fed, Ezra Klein of the
Washington Post
points out.
Summers served as U.S. Secretary of the Treasury between 1999 to 2001 under President Clinton. If confirmed as Fed chairman, Summers would deepen the Clinton effect.
All this might sound very clique-ish, but it’s what has given Summers an advantage over other outsiders.
Obama knows Summers
Janet Yellen, currently vice chair of the Fed’s board, and rival Donald Kohn, a former Fed vice chairman, may be less thorny candidates, but Obama simply doesn’t know them like Summers.
The president may have named Yellen to be Fed vice chairwoman in 2010, and if he appointed her chairman, Obama could go down in history as having appointed the first female Fed chairman, but as the New York Times reports through interviews with insiders, the president does not know her well.
If Summers is named Fed Chairman, it may prove that it really is all about who you know.
