A Former First Lady & A Guy Named Tim

With his announcement of the national security team yesterday, President-elect Barack Obama materially completed his cabinet and White House staff. There are of course more appointments to be made, and some of those are promised to be Republicans, but the major positions of the new Administration are now mostly known. You’ve seen it written in many other places already, but it bears repeating that this is a demonstrably pragmatic-looking Administration, at least in terms of its top personnel, though the “centrist” label is far better-deserved for the cabinet secretaries (whose independent power has gotten out of whack under Bush-II anyway), than for the actual White House staff, from whom the policy initiatives are supposed to flow. A run-down of exactly what we know and what we may expect is in order at this point:

By far the biggest appointments announced so far are on the domestic policy side Timothy Geithner for Secretary of the Treasury, and, on the foreign policy side, Hillary Clinton for Secretary of State. The Clinton appointment has of course roadblocked the recent coverage of the transition–dripping as it is with Shakespearean pathos and the veiled prospects of poor message discipline, in-fighting, leaks, and even the chance of fresh new scandals.

With this selection, Mr. Obama demonstrates once again that he is willing to take calculated risks on the political side of the ledger if the end result is to channel the productive energy of a one-time rival in his favor. And if you hesitate to agree that this can be a very, very favorable strategy indeed, just go back and look at some of the things that were being written in late July about Joe Biden. Indeed the best part of the decision, from Obama’s standpoint, is that whatever drama emerges from this move will redound to Clinton’s detriment rather than his own. Obama’s credential as a disciplined manager who evokes strong loyalty and all but leak-proof message control is permanently punched–while the reputation brought to the situation on the same scores by the Clintons is…well…not quite as distinguished. If Mr. Obama finds himself in the worst-case scenario of having to fire Mrs. Clinton, few will remember back to these past days and weeks as an invitation to question his judgment in picking for the job.

But if the Clinton appointment is the one garnering all the news, the Geithner appointment is surely the one that tells us considerably more about just what sort of Administration the new team promises to be. Geithner is neither a liberal firebrand nor a Chicago-style political crony (the two things we were promised by the radical right to expect from Obama’s inner circle). What he is, instead, is a uniquely qualified individual with a full resume aimed specifically at the job. As President of the New York branch of the United States Federal Reserve, Mr. Geithner’s current position straddles the fence between the regulatory function of the Fed (all district banks regulate the banking activity in their districts) and the monetary policy side (since the New York bank, in particular, enjoys permanent standing on the Federal Open Market Committee, where the money supply is raised or lowered by simple majority vote).

The most visible of the Treasury Secretary’s jobs in the next Administration will be to account for the bailout money that has been shoveled willy-nilly at the financial sector over the past few weeks and to more prudently spend whatever of that money is left (which won’t be much). But the ongoing job of the Treasury Secretary–to raise the necessary bond revenue from deficit spending–is likely to become a significant challenge in the next four years, as both the Social Security Trust and the government of the Peoples’ Republic of China find it increasingly difficult to purchase new bonds at the daily Treasury auction. Once this simmering crisis erupts onto the scene, perhaps within the first two years of the incoming government, Geithner’s track-record as a cool head on the FOMC, and his proven credential as a provocative, outside-the-box thinker will serve us all, regardless of party affiliation. It promises to be a very difficult assignment, and essentially no one is as qualified to fulfill it right now.

There is at all events a desperate need for a fresh look at the question of regulatory oversight of the financial markets, and on this front as well, Mr. Geithner scores high marks for taking just the sort of pragmatic, centrist approach to such questions that the Obama appointments are receiving so much attention for in general. Clearly, the Bush/Paulson approach has left the nation’s financial system in tatters–but it’s not obvious to even some of the most liberal thinkers on the subject that a return to the days of Glass-Steagall wouldn’t exacerbate the problem by serving as a disincentive to capital. It’s a poignant thought to consider for the pro-regulation crowd that many of the best-performing securities during the current bear market would have been illegal before Glass-Steagall was repealed. However one looks at it, the Geithner nomination is a laudable, perhaps even brilliant decision. Call it two for two, if you must, though there have certainly been others outside the scope of this particular column.

Oh, and there’s one last major element of aplomb to Mr. Obama’s galaxy of selections made thusfar: Geithner, who might otherwise have had one of the most visible (and probably controversial) tenures in the history of the Treasury, doesn’t like publicity. He’s a wonk, just as all the district bank presidents in the Federal Reserve system are wonks. So how does a President who wants the most effective performance from such a key player do his part to help ensure that’s exactly what he gets? How about by nominating an ambitious, headline-hungry formal rival for Secretary of State?

Treasury Secretary Candidates

As President-Elect Obama begins to piece together his administration, the most prominent post will likely be his choice for Treasury Secretary. Given the importance of the Secretary in shaping the course of the Economic Stabilization Act funds ($450 billion left if you are counting), we wanted to run down the most likely candidates:

Larry Summers

A leading Harvard economist, Summer won the John Bates Clark Medal for his research and served as Bill Clinton’s Secretary as well as heading up Harvard during a five year tenure. As a close Obama advisor well respected in academia and the financial sector, Summers is a strong candidate. Drawbacks include the “gender science” controversy that led him to resign from his administrative post at Harvard, as well as his close ties to hedge fund DE Shaw.

Timothy Geithner

Header of the New York Fed as well as Vice Chair of the Federal Open Market Committee which sets interest rates, Geitner has a background in international affairs, earning a graduate degree from SAIS and serving in a variety of positions from Under Secretary at the State Department to the Council of Foreign Relations and the IMF, as well as playing a crucial role in helping to orchestrate recent financial market interventions.

Paul Volker

Part of the “old guard”, Volker is seen as a stable pick who served as Federal Reserve Chairman in the 1980s under Presidents Carter and Reagan, where he helped “tame” inflation and earned respect on both sides of the aisle.

Robert Rubin

Currently a Director at Citigroup, Rubin served as Treasury Secretary in the Clinton Administration and is credited with helping shape “Rubinomics” policies that fostered economic growth and balanced deregulation.

Laura Tyson

A Berkeley economist, Tyson served as Chair of Bill Clinton’s Council of Academic Advisers as well as Dean of the London Business School and a member of the Council on Foreign Relations.

Jon Corzine

Currently serving as Governor of New Jersey, Corzine has a deep background in financial markets stemming from his work as a partner at Goldman Sachs.

Obama Meets the Press

Flanked by a cadre of men (and two women), Senator President-elect Obama held his first press conference since Tuesday’s election. The press conference was held in downtown Chicago, only a few blocks from where I work. However, as expected, I wasn’t allowed in the building. We assume most North American readers were probably at work when this presser occurred, so we’ll share the video for everyone to see:

There is nothing too unexpected here. President-elect Obama was calm and collected as always. He’ll have to be considering the mess he is inheriting. His Treasury Secretary selection remains the topic du jour. Former Secretary and king of controversy Larry Summers and New York Fed President Timothy Geithner are both apparently in the running. Former Fed Chair Paul Volcker’s name has been mentioned as well, but he’s about 95 years old.