As the Congress was debating how much power and how many hundreds of billions to the US Treasury, I was pondering who would be in charge of all that come January 20th.
One could look at the photographs of the economic advisers on each side, but I thought I’d try to be slightly systematic and search the web (not a recommended research technique for my students!). Here is the WSJ:
Sen. Barack Obama hasn’t officially accepted the nomination as the Democratic presidential nominee, but already there is chatter about who he may pick as the next secretary of the Treasury if elected.
Receiving the most buzz is Federal Reserve Bank of New York President Timothy Geithner, who has won plaudits from Washington policymakers for his handling of the credit crisis and the collapse of Bear Stearns Cos. earlier this year.
Multiple staff members from the House and Senate have said the chatter surrounding Geithner has become palpable as the election nears and Democrats consider the potential makeup of an Obama cabinet. Geithner’s Wall Street connections and Washington experience — he worked at the Treasury for 13 years beginning in 1988 and rose as high as undersecretary for international affairs from 1999 to 2001 — are seen as working in his favor given that the next Treasury head is likely to still be faced with the ongoing credit crisis and continued housing-market disruption. A New York Fed spokesman declined to comment on the issue.
Also in the mix is Federal Deposit Insurance Corp. Chairman Sheila Bair, who has likewise impressed Democrats — while annoying some of her fellow Republicans — by her aggressive efforts to pressure banks to deal with the record numbers of foreclosures across the nation.
Senate Banking Chairman Christopher Dodd (D., Conn.) said he didn’t want to list off potential Treasury nominees under an Obama presidency but was complimentary of Geithner and Bair. “Geithner’s done a great job, and with the Bear Stearns stuff he was critical,” Dodd said in an interview. “And Sheila has been great, and she’s creative and tough and imaginative.”
The two aren’t alone on the potential list of Treasury nominees if the Democrats take the White House. J.P. Morgan Chase Chairman and Chief Executive James Dimon, who has been an economic adviser to the Obama campaign, is said to be in the mix, as is fellow Obama adviser New Jersey Gov. Jon Corzine, a former member of the U.S. Senate and former chairman and CEO of Goldman Sachs. – Michael R. Crittenden
Kuttner also centers his speculation on Geithner.
Regardless of whether you put much faith in such speculation (especially in the former case speculation from a month ago), I was struck by the lack of similar speculation regarding the choice should John McCain win.
One (old, from April) article cites Phil Gramm; from “Gramm Speaks! The Views of Our Next (Maybe) Treasury Secretary”:
If John McCain is elected the 44th president of the United States, the 75th secretary of the treasury just might be Phil Gramm. The deficit hawk former U.S. senator from Texas is currently a vice chairman of UBS Investment Bank and a top economic adviser to McCain. I recently chatted with Gramm, who has done few interviews since leaving office in 2002. (In an earlier post, I questioned Gramm on whether his efforts to deregulate the financial industry contributed to the current subprime crisis.)
By the way, here is a section out of the previous interview:
On a related point, there has been harping of late on the repeal of Glass-Steagall in 1999. Was that a good idea in retrospect?
I see no evidence whatsoever that the subprime problem was in any way caused by making our financial structure more competitive by allowing banks and securities companies and insurance companies to compete against each other. I have seen no evidence whatsoever to substantiate that claim.
The subprime problem came from an extraordinary run-up in housing values beginning in 2000 as we were in a recession and the Federal Reserve cut interest rates; it was a very unusual recession in that investment had collapsed but home building and consumption were strong, so the monetary policy that was aimed at stimulating the economy [also] stimulated an industry that was in boom condition. Housing prices rose faster than at any time except right after World War II, when wage and price controls came off, and that created this speculative demand.
And secondly, America’s policy to try to encourage home ownership by making down payments lower and lower and lower until they were practically zero in many cases gave the whole thing a hair trigger. None of that has anything to do with banks and securities companies and insurance companies competing with each, nor did it have anything to do with the syndication of mortgages, which were old hat by that point. So I think that what always happens in these cases is that it depends on what your agenda is, as to what you want the cause of the problem to be.
While currently out of sight, he’s not out of contention, as far as I can tell. As an aside, I think Phil Gramm’s biggest role in the current situation is not in Gramm-Leach-Bliley, but rather in this episode discussed by Justin Fox.
I can’t find many other candidates mentioned for the Treasury post, from the Republican side (admittedly in this non-exhaustive survey). This Barron’s article is one of the few exceptions; it identifies a few more candidates:
McCain’s team includes Gerald Parsky of
California’s Aurora Capital, who has been a finalist for the job in the past; Stanford University professor John Taylor, a former
Treasury undersecretary who is an expert in monetary policy and bank regulation; economist Kevin Hassett of the American Enterprise Institute; and former Massachusetts Governor Mitt Romney.
I believe, however, that McCain would go for Peter Wallison, a former Treasury official now at the American Enterprise Institute. Wallison for many years had been a leading critic of mortgage giants Fannie Mae and Freddie Mac, predicting that they would eventually
collapse, at great cost to the American taxpayer.
He gained prominence attacking Congress for the mortgage entities they had created. That earned him some enemies on the Hill and would
likely result in a heated confirmation. But few people understand financial institutions better than Wallison, a banking lawyer by training who taught himself economics.
So from my perspective, when thinking about what should be built into this legislation, think also about who you think will be implementing that legislation, come January 20th.
Update 9/24 07:24am: Brad Setser (in comments below) notes this article, citing additionally, for Obama: Laura Tyson, Larry Summers; for McCain: Robert Zoellick, John Thain.