Jack Lew Called Policy Wonk Who Learns Fast
President Barack Obama broke the mold on Thursday by choosing a budget wonk to serve as U.S. Treasury secretary, leaving gaps on the international and financial side that could make for a rocky transition.
Jack Lew, Obama’s chief of staff, was chosen to lead the Treasury Department as the White House heads into another round of difficult talks with Congress on how to put the nation on a sound fiscal path.
By tapping a two-time White House budget director, Obama signaled the importance he places on the ongoing budget battles.
If the Senate confirms Lew, as widely expected, the budget expert’s most pressing task will be to ensure that Congress raises the nation’s debt ceiling in time for the United States to avoid a damaging default and credit-rating downgrades.
In selecting a Washington insider, Obama has potentially left the Treasury Department with holes in crucial areas: financial markets, regulation and international economics.
Obama’s outgoing Treasury secretary, Timothy Geithner, was previously president of the New York Federal Reserve Bank, where part of his job was to liaise with Wall Street and regulate big banks. He also had held top positions in President Bill Clinton’s Treasury Department and at the International Monetary Fund.
Geithner’s immediate predecessor, former Goldman Sachs CEO Hank Paulson, was also deeply steeped in the ways of Wall Street, as was Geithner’s boss during the Clinton administration, then-Treasury Secretary Robert Rubin.
“Jack Lew is by all accounts highly qualified to be secretary of the Treasury,” said Dennis Kelleher, the chief executive of the left-leaning group Better Markets, which supports tougher financial regulation.
“The one area of concern is whether or not he is sufficiently committed to quickly and thoroughly implementing financial reform and re-regulating Wall Street.”
Bankers and other financial services executives privately expressed concern that Lew lacked financial markets experience, even though he worked on Wall Street for two years. Sheila Bair, a former bank regulator, told CNBC television on Wednesday that “someone with a little broader perspective would be good.”
Lew, who is known as a strong administrator, admitted his financial experience was scant when he was vetted by the Senate to serve as a State Department deputy secretary and then as Obama’s budget chief.
At a Senate Budget Committee hearing in September 2010, he was pressed by Senator Bernie Sanders for his views on whether deregulation contributed significantly to the 2007-2009 financial crisis.
“I don’t consider myself an expert in some of these aspects of the financial industry,” Lew responded. “My experience with the financial industry has been as a manager, not as an investment adviser.”
“I don’t personally know the extent to which deregulation drove it, but I don’t believe that deregulation was the, you know, proximate cause,” he added.
Those comments upset Sanders, a political independent who supports tougher regulation. Sanders voted against Lew’s selection as budget chief, and on Thursday said he was prepared to vote against him again.
While Lew is expected to win confirmation, he could face a fair amount of opposition from a combination of left-leaning, pro-regulation lawmakers like Sanders and Republicans who have clashed with the nominee in past budget talks.
During his time on Wall Street, Lew was the chief operating officer of Citigroup’s global wealth management division. He later became COO for Citi Alternative Investments, a largely administrative role that was apart from investment decisions that portfolio managers would have made.
“I found that things he was responsible for doing worked better after he joined,” said Todd Thomson, who headed Citigroup’s wealth management unit in 2006 and hired Lew. “He’s very good at working across an organization, and bringing people together to resolve issues.”
Lew joined Citi on the recommendation of former Treasury Secretary Robert Rubin, who was then chairman of Citigroup’s executive committee. Rubin knew Lew from their time together in the Clinton administration.
Outside of Washington policy circles, Lew is little known. A number of financial officials in Asia and Europe drew a blank when asked by Reuters for their appraisal.
“People in the know should know a person who has served as OMB (Office of Management and Budget) chief. To me he is a total stranger,” said one official of a Group of 20 nation.
As Treasury secretary, Lew will not only have to represent the United States on the global stage, but he will have to deal with a host of tricky international economic problems from the challenges presented by China’s growing economic clout to Europe’s debt crisis.
One euro zone official involved in fighting the region’s debt problems said he was encouraged by Obama’s pick.
“The sign it sends is that (the United States) will be serious about the deficit and fiscal policy since (Lew) is an experienced fiscal policy specialist,” the official said.
If confirmed, Lew would come to the Treasury Department at a critical time for regulation. The Treasury secretary is essentially a regulator-in-chief who chairs the relatively new Financial Stability Oversight Council, a panel comprised of the country’s top banking and market regulators.
As chairman, he would have the authority to veto any FSOC initiative, even if all of the other members disagree.
The council is currently receiving comments on a controversial framework that proposes stringent new regulations on money market funds. It is also close to imposing additional rules on a handful of large, complex financial institutions meant to ensure they never threaten the stability of the financial system.
Both initiatives could be put on hold as Lew gets up to speed, or a top deputy could be required to play a bigger role.
The 57-year old Lew is considered a quick study.
He was a rising star when he served as a top policy adviser to then-House of Representatives Speaker Tip O’Neill in the 1980s, a Democrat who worked with Republican President Ronald Reagan to reform the tax code and put the Social Security retirement program on more solid footing.
Former Securities and Exchange Commission Chairman Arthur Levitt said Lew could handle any issue and that his lack of regulatory experience was not a problem.
Levitt said Lew was a strong defender of the SEC when Republicans once threatened to cut the agency’s budget over rules Levitt pushed to reduce auditor conflicts of interest. “I would say Jack Lew is probably a better person from an investor’s point of view than anyone I could think of,” he said.
The Chamber of Commerce, the country’s biggest business lobby, and other influential trade and lobby groups also said Lew has the skills for the top U.S. economic post.
Lew’s selection could put pressure on the Obama administration to find a deputy with business and financial experience to help round out Lew’s deep knowledge of Congress and the budget. Current Treasury No. 2 Neal Wolin is expected to depart once he assures a smooth transition is in place.
“It’s important (Lew) has people around him who understand the markets,” said Tom Quaadman, a vice president with the Chamber. “So I think it will be more telling, to a degree, who he brings with him into the department itself.”