By William D. Cohan | 2012-12-18 | NEWSPAPER EDITION
ONE of the more amusing parlor games played after a US presidential election is figuring out who will get what important position in the next administration.
Will Obama finally banish the Wall Street cronies from the US Securities and Exchange Commission and nominate someone as chairman who has a track record of rooting out bad behavior on Wall Street? Will Jack Lew, Obama's chief of staff, slide over to Treasury to replace Timothy Geithner, or will Obama make the bolder, wiser move and select Erskine Bowles, one of the architects of a smart budget-deficit-reduction plan?
We may have to await the new year or an agreement over the looming US$600 billion in spending cuts and tax increases to hear Obama's choices for these plum positions.
Most of those candidates are doing their best impersonations of General William Tecumseh Sherman - "If drafted, I will not run; if nominated, I will not accept; if elected, I will not serve" - lest they seem overly eager. The latest Shermanesque statement came from Jamie Dimon, the chairman and chief executive officer of JPMorgan Chase & Co, at the New York Times's Dealbook conference on Dec. 12. Asked about serving as Treasury secretary, Dimon said, "I don't believe I'm suited to it" and added that "I don't believe a Wall Street CEO could get confirmed." Of course, he is suited to it and, based upon his handling of the US Congress during the "London Whale" hearings last summer, Dimon would get confirmed in a nanosecond.
Another important position in Washington that stands to be filled early in Obama's second term is the one currently held by Ben Bernanke, the chairman of the US Federal Reserve. Bernanke's second, probably final, four-year term ends on Jan. 31, 2014. Obama will have to make the nomination of a new Fed chairman a high priority soon after his Cabinet is assembled.
The usual list of highly qualified candidates to replace Bernanke - including Lawrence Summers, the former Treasury secretary and Harvard University president; Janet Yellen, a current vice chairman of the Fed; and Alan Krueger, the precocious chairman of the White House Council of Economic Advisers - misses the person who probably wants it the most and continues to have Obama's ear on a regular basis: Geithner.
While many people assume that Geithner worked at Goldman Sachs Group Inc before he became Treasury secretary in 2009, actually he was president of the Federal Reserve Bank of New York from 2003 to 2009, the critical years leading up to and including the financial crisis. He has never worked on Wall Street. By design, the New York Fed has traditionally been the most powerful of the Federal Reserve banks, because of its proximity to the powerful Wall Street banks that it regulates. And Geithner played a major role, along with Bernanke and then Treasury Secretary Henry Paulson, in the bailouts of Bear Stearns Cos, Merrill Lynch, American International Group Inc and in the decision to allow Lehman Brothers Holdings Inc to go bankrupt.
Although Geithner failed to pull the punch bowl away just as the party was getting started - which is what William McChesney Martin, the long-serving Federal Reserve chairman, said was the chief responsibility of a Fed governor in order to avoid the kind of financial crisis we experienced on Geithner's watch - he does possess a keen understanding of what went wrong.
"As is often the case during periods of rapid change, more significant concentrations of risk were present than was apparent at the time," Geithner told the Council on Foreign Relations on March 6, 2008, just days before the bailout of Bear Stearns. "Banks and investment banks sold insurance against what seemed like low probability events, but did so at what even at the time seemed like low prices. And on the assets they retained, these institutions purchased insurance from financial guarantors and other firms that were exposed to the same risks."