I argued last week in the Wall Street Journal that my former employer on the government side, the Federal Reserve, has stopped acting independently from Wall Street. Back in the spring of 2003, though, I was only a couple of years into working at the Fed’s New York branch (the New York Fed, for short)—essentially the U.S. central bank’s operational command center. I was still a relatively green attorney supporting the Fed’s various financial-services businesses. Geithner was even newer to the New York Fed than I was. A career bureaucrat at the U.S. Treasury Department and the International Monetary Fund, he was also new to the world of Wall Street—a highly unusual background for a New York Fed president.
Of all places, I met Geithner on a basketball court. The New York Fed’s gym, at its downtown Manhattan headquarters, wasn’t fancy; imagine the dilapidated space those high-schoolers used in the movie “Hoosiers.” The New York Fed’s staffers, myself included, used it for pickup basketball games twice a week. A few months into his new job, Geithner started showing up at our Monday-night sessions. I was immediately impressed by Geithner’s jump shot. It was incredibly accurate—beautiful to watch. Soon, I became even more impressed by Geithner’s exceptional talent for interacting with all of us—a hodge-podge of New York Fed employees ranging from economists to janitors. During the games, he would often remain quiet, appearing to focus intensely on the action. But just when you wondered if he was annoyed by our persistent smack talk, he would let out a quip or a small personal jibe; inevitably, the rest of us would erupt in laughter.
Apparently, Geithner was getting to know Wall Street in the same amiable way he was getting to know all of us. Geithner’s constant calls and contacts with Wall Street during his time as New York Fed president never would have been obvious to someone like me. I was only a junior Federal Reserve officer. I read about them afterward, in the newspaper, like everyone else. But, relatively soon after Geithner began leading the Fed’s New York branch, I was struck by the way in which he was recruiting Wall Street veterans to fill senior roles. When I’d arrived, the New York Fed had been an institution that almost invariably promoted from within its own ranks. Under Geithner’s leadership, the New York Fed now brought in an executive vice-president from JPMorgan Chase to run its corporate group, along with a general auditor from American Express. Most tellingly, he also hired William Dudley, who had previously worked as the chief economist at Goldman Sachs, to run the Fed’s trading floor. It seemed that Geithner’s relative lack of familiarity with the U.S. banking sector was making him lean on Wall Street veterans to compensate. In other words, Geithner hadn’t come through any revolving door himself, but he was building one at the New York Fed.
My last pickup game with the New York Fed president came sometime in 2007. I know because I left the Fed soon afterward. Frustrated with what I perceived as a progressive loss of independence from Wall Street, I decided to try something new. I took a job at an investment bank.
My decision to go to Wall Street was driven mainly by my disappointment with the Fed, not by a desire for money or prestige. This may sound dubious, but in my new environment, I believe that I remained true to my Fed training. If I was now asked to opine on a thorny accounting issue or a questionable trade, I still approached the issue as I would have done as a central banker. I still believed wholeheartedly in the public-service mission of the Fed. Indeed, when the Fed recruited me back to help during the financial crisis, I returned—only to find myself disillusioned all over again. I went back to Wall Street once more, and then finally decided to take a teaching position at a business school and try to help improve the U.S. financial sector from the outside.
In other words, I’ve been through the revolving door myself many times; the experience has taught me that working both on Wall Street and in Washington doesn’t in itself compromise a person’s independence. And yet, watching Geithner from a distance as he continued to lead the New York Fed and then went on to join the Obama Administration, I maintained my belief that he was deferring too much to Wall Street. I’m not talking about his actions during the Bear Stearns and Lehman Brothers meltdowns in 2008, when Geithner helped orchestrate the central bank’s emergency responses. I believe that the Fed—led by its New York branch—did what was needed to stabilize a collapsing U.S. banking sector.
I’m talking instead about Geithner’s time as Treasury Secretary. For all the hope and change promised by the Obama Administration, Geithner’s approach seemed remarkably similar to that of his Republican predecessor, the former Goldman Sachs C.E.O. Hank Paulson. Sure, there were strategic moments of political theater—like when, in December of 2009, Geithner blasted Wall Street for giving out record bonuses a little more than a year after Lehman Brothers’s bankruptcy, telling Bloomberg TV’s Al Hunt that none of the big U.S. banks “would have survived” without government assistance. But, during his entire tenure in Washington, Geithner never publicly advocated for a truly forceful and clean revamp of Wall Street. A return to Glass-Steagall-style reforms that would have re-imposed clear boundaries on the activities of different types of U.S. banks? Forget about it. Instead, Geithner helped usher through Congress the convoluted and less effective Dodd-Frank legislation, much of which we’re still waiting to see implemented. Not surprisingly, the idea persists in the minds of the American public that Washington still isn’t back on the side of Main Street.
In his 2011 book “Confidence Men: Wall Street, Washington, and the Education of a President,” the journalist Ron Suskind wrote that, in March of 2009, President Obama ordered Geithner to prepare a plan for winding down Citigroup—not only one of the world’s biggest banks but one of its most poorly performing. It’s uncertain whether such a breakup would have been feasible, but, if there was a time for the Treasury Department to consider it, here it was. As the story went, Geithner ignored the order.
The Treasury denied Suskind’s narrative. Nevertheless, given what I’ve seen of Geithner’s approach both inside and outside the Fed, the idea behind it seems plausible: Geithner, once a Wall Street neophyte, had become a Wall Street authority, and used that authority to influence President Obama and other lawmakers to be more accommodating to the big banks.
Which brings me back to the topic of Geithner’s new position at Warburg Pincus. Geithner praised the firm, in its press release, for having “an excellent record of performance, a very compelling global strategy, and an ethical reputation of the highest regard.” According to that press release, Geithner will work “on over-all firm strategy and management, investing and portfolio management, organizational and funding structure, and investor relations.” It is unclear, from the news accounts I have seen, whether Geithner’s role will include communicating—formally or informally—with his former colleagues in government on policy issues affecting private-equity firms. Am I worried about the revolving door between Wall Street and Washington? Deeply. But, when it comes to Geithner specifically, my concern at this point isn’t about how Wall Street may have influenced him in the past. I’m more worried by how Geithner—as a revered government veteran on Wall Street—may influence Washington in the future.
Original Article
Source: newyorker.com
Author: Andrew Huszar
No comments:
Post a Comment