Why Janet Yellen should succeed Ben BernankeJuly 22, 2013: 9:54 AM ET
Janet Yellen is clearly the most qualified person to follow Ben Bernanke as chairman of the Federal Reserve. It's also time to break that glass ceiling.
By Sheila Bair
FORTUNE -- When I was a young Senate staffer in the early 1980s, I had the amazing privilege of working on the confirmation of Sandra Day O'Connor, who was to become the first female Supreme Court Justice. O'Connor was one of a handful of role models for young professional women at that time. Senior women in government were still in short supply. Others included Sen. Nancy Landon Kassebaum (R.-Kan.), the first woman to be elected senator in her own right, and Elizabeth Dole, the first woman secretary of transportation and as such, the first to head a branch of the military (the U.S. Coast Guard).
Well, we've come a long way baby, with 98 women in Congress, including 20 female senators. Three women serve on the Supreme Court, and four serve in the President's cabinet. Yet, there is one segment of our federal government that has yet to break the glass ceiling. It is the segment most directly involved in overseeing the nation's financial markets and the big financial institutions that dominate them. The Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the two big bank regulators -- the New York Federal Reserve Bank and the Office of the Comptroller of the Currency -- have never had females at their helms.
The big banks care deeply about who holds these four jobs because these regulators can have a major impact on their businesses. Could there be some correlation between the exclusively of the male CEO suites of big Wall Street financial Institutions and the just-as-exclusively male marbled offices of big bank regulators? Testosterone-laden Wall Street usually feels more comfortable dealing with guys than gals, and over history this has been reflected in the gender of these agencies' leadership.
That could change if the heir apparent to succeed Ben Bernanke as Chair of the Federal Reserve Board, Janet Yellen, is nominated for the job by President Obama. Certainly, there is no better qualified candidate to fill Bernanke's shoes when he steps down in January. A noted economist, Yellen headed the Council of Economic Advisors for two years; led the San Francisco Federal Reserve Bank for six years; and has served ably as Bernanke's Vice Chairman since 2010. Unlike Larry Summers, Tim Geithner, and other Bob Rubin minions frequently mentioned in the financial press as potential Bernanke successors, she was not part of the deregulatory cabal that got us into the 2008 financial crisis. In fact, she had a solid record as a bank regulator at the San Francisco Fed and was one of the few in the Fed system to sound the alarm on the risks of subprime mortgages in 2007.
So why isn't she a shoo-in? The "whispering" campaign against her among industry types has been deafening. "Doesn't understand markets." Translation: She may not bail us out if we get into trouble again. "Not assertive enough." Translation: She won't stand up for us against the populists who want more regulation. "Lacks gravitas." Translation: She doesn't show up very often in the financial media. (Rest assured that if she were more vocal, they would accuse her of not being a "team player.") Perhaps the silliest argument of the "not-Yellen" crowd is that this well-qualified woman can't be elevated because no other Fed Vice-Chair has ever been promoted to Chairman. It's simply not done. Come again?
The one issue about Yellen that does have legitimacy is her dovish stance on monetary policy. Regrettably, she has been a strong advocate of the Fed's unprecedented bond buying and zero interest rate policies (ZIRP). Anyone who reads my columns knows that I have been a staunch critic of the Fed's aggressive market interventions, which have gone on for far too long. They have punished savers, created new sources of financial instability, worsened income inequality, and allowed our elective officials to feast on cheap debt while shirking their responsibility to develop coherent fiscal policies. (But let me tell you how I really feel.)
At the same time, I have no doubt that Bernanke and Yellen have pursued these policies, however misguided, out of their concern for the real economy and their fear that Main Street would be even worse off without the Fed's actions. That said, the Senate's role in reviewing nominations is to advise and consent (emphasis on consent), not to second guess the policy positions of the President's nominees. While a confirmation hearing can be an appropriate forum to spotlight the unconventional monetary actions pursued by the Fed, at the end of the day, the decision to confirm should be about the qualifications of the nominee. The President, after all, won the election.
As the economy and employment picture have continued to improve, albeit modestly, Yellen may be moderating her easy-money stance. In any event, who better to lead us out of the world according to ZIRP than one of the people who guided us into it? What's more, her detractors should understand that if the President wants her as the next Fed Chairman, he has a lot of leverage. The Fed's authorizing statute automatically makes her -- the Vice-Chair -- the Chairman once Bernanke's term ends in January, whether the Senate confirms her for the job or not.
Instead of resisting Yellen's nomination, those wanting greater policy balance at the Fed should focus on who will fill the Vice-Chair vacancy -- which opens up if Yellen gets the top job -- as well as the vacancy created by Governor Betsy Duke's recent resignation. The country would be well served by filling these openings with people who are a bit more hawkish when setting the Fed's priorities.
Indeed, just as Yellen was drawn from the ranks of Federal Reserve Bank Presidents, other current and former bank heads like Tom Hoenig, Esther George, and Jeff Lacker would be excellent choices to provide such balance. In addition, Jeremy Stein has demonstrated, perhaps more than any other governor, an appreciation of the risks to financial stability created by the Fed's printing press and would also be an excellent candidate to succeed Yellen as Vice-Chair.
Yellen is clearly the most qualified successor to follow Ben Bernanke. There is no reason to pass her over for less-qualified males. Yellen already has a "Y" in her name; she doesn't need one in her chromosomes.