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Robert Kuttner

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Filling Geithner's (Small) Shoes

Posted: 09/23/2012 10:21 pm

Timothy Geithner has said that he'll step down as Treasury Secretary at the end of Obama's first term. Assuming that Mitt Romney keeps self-destructing and Obama wins a second term, who should succeed him?

Just as Obama's choice in 2008 of an economic team led by Larry Summers and Tim Geithner told you a lot about what kind of president he'd be (and not be), Obama will signal a lot in his selection of Geithner's replacement.

In an economic crisis, the treasury secretary (tied with the Fed chairman) becomes the most important domestic public official after the president. Two huge and interconnected issues will face the next secretary: what to do about the still dysfunctional and largely unreformed banking system; and how to deal with the elite clamor for deficit reduction uber alles.

Obama, by rejecting the counsel of officials such as Paul Volcker and Sheila Bair, has already made clear that he is not interested in a drastic reform of the financial system. Dodd-Frank keeps getting nibbled to death by financial industry success in watering down its impact via weakened regulations.

On the deficit-reduction front, Obama has tacked back and forth, sometimes emphasizing the need for jobs and recovery now and deficit reduction when strong growth returns; and other times he has veered in the direction of the Bowles-Simpson austerity crusade, a demon partly of Obama's own making.

Ideally, a treasury secretary would be tougher than Geithner in following through on financial reform, and would emphasize jobs and recovery over premature economic contraction via deficit reduction. Are there any plausible candidates who meet those criteria?

Alas, the likely list ranges from "could be worse" to dismal to too-progressive to be appointed. For starters, conventional wisdom holds that a treasury secretary needs to be credible to financial markets. This usually dictates someone who comes from Wall Street. Geithner came from the New York Fed, which is close to a wholly owned subsidiary. Others who know enough to do the job are either regulators or other career public officials, turncoats who spent time on Wall Street, academics with practical knowledge, central bankers, and other business CEOs.

Here are some people who might be taken seriously. I hope my comments don't spoil it for the relative good guys.

Erskine Bowles. Says he doesn't want the job, but the austerity crowd really wants him. As a Wall Street guy (Morgan Stanley board) and supreme deficit hawk, he would be a disaster. He has been publicly critical of Obama lately for not being willing to cut entitlements enough. One hopes that kills his nomination. No stars (minus stars, actually).

Peter Orszag. Former close Bob Rubin protégé, former head of both the Congressional Budget Office and the Office of Management and Budget. Now a senior exec at Citigroup. Very close to the Pete Peterson/austerity lobby gang. Was a popular OMB director, is close to Obama, politically skilled and technically brilliant. Would be seen as a shrewd pick, because of both Administration and now Wall Street experience. Would likely push for a deficit-cutting grand bargain that included needless cuts in Social Security and Medicare. Would also be a pussycat on financial regulation. More of a danger than Bowles because more plausible to the West Wing, Wall Street would applaud (bringing joy to the confidence fairy), and confirmation would be a slam dunk. Zero stars.

Jack Lew. White House Chief of Staff. Served as OMB director both under Clinton and Obama. Negotiated the 1997 Balanced Budget Act. Pretty much like Orszag ideologically, and ran an "alternative investments" proprietary trading group at -- where else? -- Citigroup. Zero stars.

Bill Daley. The former White House chief of staff and financial fixer would be a total disaster, both on regulatory and on austerity grounds. But in some quarters, appointing a corporate type would be seen as clever. If not Daley, watch out for somebody like him. Zero stars.

For instance, Larry Fink of BlackRock is said to want the job. The Treasury retained BlackRock to help clean up after the financial collapse, a splendid example of the incestuous relations between the Treasury and Wall Street. Knows the territory and is not a crook, but do we really want another Wall Street man? One star.

Lael Brainard. Undersecretary of the treasury for international affairs. Has been very active in trying to get the Europeans not to drag the world into a worse depression (with little success). Knows the pitfalls of too much austerity. Halfway decent on bank regulation. Yet another Clinton alum. Senior woman at the Treasury. Two stars.

Gene Sperling. Head of the National Economic Council, a job with less clout than when Bob Rubin under Clinton and then Larry Summers under Obama held it (the post was created for Rubin.) Sperling is in the "we could do a lot worse" category on both financial regulation and jobs versus deficit reduction. He is said to want the job. His critics say he doesn't quite have the chops with Wall Street to be treasury secretary, which may be a plus. Two and a half stars. Okay, Gene, three stars.

Michael Barr. Served as assistant treasury secretary for financial institutions under Geithner during the first two years of the crisis. Drafted a lot of Treasury's version of Dodd-Frank. Another veteran of the Rubin/Summers Treasury, but a somewhat tougher bank regulator than your average senior Treasury official. Rhodes Scholar. As a relative progressive, better on jobs versus deficit-reduction than the austerity crowd. Now back teaching at the University of Michigan Law School. A long shot because of lack of direct Wall Street experience and relative pro-regulation stance. Three stars.

Laura Tyson. Was quite progressive as a Berkeley econ professor, and rather brave as chair of Clinton's council of economic advisers. Tyson became a Rubin ally and his successor as head of the national economic council. Then as a B-school dean became a board member of several corporations including Morgan Stanley, along with Erskine Bowles. Still, her impulses on deficits and jobs are better than the austerity claque, which she has avoided; and despite recent Wall Street experience, she'd be better than most likely nominees on financial regulation. Effective inside player. Three stars.

Daniel Tarullo. Obama's first nominee to the Federal Reserve, former senior economic adviser early in the 2008 campaign until big-footed by Summers. Quiet power player, good on financial regulation. Unknown quantity on deficit politics but not a known hawk. Served at both the Clinton National Security Council and the National Economic Council, and as assistant secretary for economic affairs. Credible. Never worked directly on Wall Street, and was a law professor for much of his career. Wrote a scholarly book that is a scathing critique of international banking standards. Four stars.

Gary Gensler. Head of the Commodity Futures Trading Commission. Yet another alum of Goldman Sachs and the Rubin Treasury. However, Gensler got somewhat radicalized after the crash, and has turned out to be one of the most public-minded regulators. Thanks to his experience as a trader at Goldman (where he was the youngest partner in the firm's history), knows a lot about the games derivatives traders play. A nemesis of Geithner on derivatives regulation. Wall Street would not be happy. Perhaps too progressive to be nominated. Unknown quality on austerity. Not personally close to Obama, in contrast to Orszag, Lew, and Sperling. Ironically, the fact that he once worked at Goldman probably counts against him. Four stars.

Ben Bernanke. He has been surprisingly good at using aggressive monetary policy in a prolonged slump and at not joining the deficit-hawk camp. He has even spoken out against the risks of fiscal contraction, and is the first Fed chairman since FDR's chairman, Marriner Eccles, to talk about the risks of protracted unemployment as well as the risks of inflation. So-so on financial regulation, but surprisingly good on more aggressive measures to deal with the housing and mortgage mess. Would be seen as a smart appointment, but probably better to leave him at the Fed. There is no obvious successor who'd be as good. Four stars.

Janet Yellen. Vice Chair of the Fed. A solid mainstream and rather progressive academic economist, Yellen encourages Bernanke's efforts to give priority to jobs and recovery rather than obsessing about inflation. Served as Clinton's chair of the council of economic advisers in the late 1990s. Then served as President of the Fed bank of San Francisco. No Wall Street experience. As treasury secretary, would work well with Bernanke. Decent on regulation, and better than your average bear on jobs versus austerity. Four stars.

Sheila Bair. She should have gotten the Treasury job the first time around. Great public servant. But she's just written a tell-all memoir, Bull by the Horns, (which you should read)http://www.amazon.com/Bull-Horns-Fighting-Street-Itself/dp/1451672489. The subtitle says it all: "Fighting to Save Main Street from Wall Street and Wall Street from Itself." So her prospects have just descended from slim to none. Also, while she is terrific on financial regulation and on breaking up the big banks, she's something of a monetary conservative and would be more of a budget hawk. Not gonna happen. Four stars.

Martin Gruenberg. Chair of the FDIC. One of the most resolute and quietly effective progressives to serve in a senior financial regulatory post. Was Sen. Paul Sarbanes' chief of staff before being named to the FDIC. Wrote most of Sarbanes-Oxley. Though he has never worked on Wall Street, knows the financial industry and its tricks intimately because the FDIC is the agency that picks up the pieces after a bank goes bust. As a progressive, would be good on deficit versus jobs. For all these reasons, the longest of long shots--unless Obama wants to have a very different second term vis-a-vis Wall Street. Five stars.

Sarah Bloom Raskin. Most progressive of the current Federal Reserve board of governors, specialist on housing and consumer issues. Former exceptionally effective Maryland state banking commissioner. Very knowledgeable and effective inside the Fed. No direct Wall Street experience, but did work for a blue chip financial consulting group. Five stars.

If Obama were FDR, he'd appoint Raskin or Gruenberg. (As the proverb says, if my grandmother had wheels she'd be a bicycle.) Then again, they'd be filibustered.

Barney Frank, James Galbraith, Damon Silvers, Joseph Stiglitz, Brooksley Born, Phil Angelides. Heh-heh-heh-heh-heh.

This is a key appointment, folks. Should not be left to the usual suspects. Progressive community should be paying attention, big time.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.

 
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