The first step we'll take to understanding potential banking regulation this semester will be to get to know the people involved--the major players who we'll see on TV or hear on the radio, whose names are mentioned along with various plans, organizations, or other important individuals. We'll begin with four people whose names have been in the air since the Obama administration came to office in January of 2009. Even though some hail from academia and others from top banks, in reality, they are all just men in fancy suits.
We'll go alphabetically...
1. Ben Bernanke: Chairman of the Federal Reserve
The unassuming man from South Carolina spent much of his career teaching at Princeton University after receiving degrees from Harvard and M.I.T., where he had particular interest in the Great Depression. It was only in 2005 that he became involved in politics, when George W. Bush tapped him to become part of his Council of Economic Advisors. He spent a year there before being nominated and confirmed as the successor to Alan Greenspan as Chairman of the Federal Reserve. If he only knew what he was getting into...
In 2007, when credit was beginning to tighten, Bernanke oversaw several large interest rate cuts. But only in 2008 did the credit crisis boil over, leading to the now infamous acquisition of Bear Stearns, a private investment bank, by JPMorgan Chase; the collapse of Lehmann Brothers; and the beginning of the bailouts. Bernanke is said to have helped coordinate the takeover of Bear Stearns, and has already taken much heat for advocating the bailout of the American International Group. During his tenure as Chairman of the Fed, he has overseen massive increases in the entity's power, utilizing billions of dollars of its funds to shore up unstable financial institutions. (See a very good bio of Bernanke HERE on nytimes.com)
2. Timothy Geithner: Secretary of the Treasury
When Tim Geithner's name was leaked as the nominee for the position of Secretary of the Treasury, stocks rose 300 points. That, in itself, should be an indication of his history with the financial industry. He is not a bank insider, per se, but his long career has included several decades of close work with the financial institutions that have borne much of the blame for the current recession. He first joined the Treasury department in 1988 as a low-level employee, and gradually worked his way upwards. During the Clinton administration, he was named under secretary of international affairs. On his way to becoming president of New York Federal Reserve in 2003, he spent some time as the director of the International Monetary Fund. Before being nominated to his current position, he worked closely with Hank Paulson, his predecessor, and Ben Bernanke, in order to stabilize a rapidly deteriorating economy. Much experience indeed...
As Secretary of the Treasury, Geithner has resisted some of the administration's vocal left-wing members. He has remained true to (or erred on, depending on how you see it) the side of handing banks large amounts of capital to open credit markets and cleanse balance sheets of toxic financial instruments. For that stance, he has faced considerable criticism from both sides of the aisle. But when A.I.G. announced it would be awarding generous bonuses in March 2009, Geithner really took heat. How did he not know about them? lawmakers asked, and why can't he stop them? Since, Geithner has been part of the Obama plan to limit the intricate financial activities of banks. Nonetheless, in recent weeks, several lawmakers have called for his resignation. (Read more on Geithner HERE).
3. Larry Summers: Director, National Economic Council
The former president of Harvard University, chief economist at the World Bank, and Treasury Secretary under President Clinton is known for his dogmatic emphasis on debate and discussion. He is President Obama's closest economic advisor, and controls what appears in each day's economic briefings.
In spite of his personal connection to high finance (he is said to have earned over $5 million while consulting--one day per week for two years--for one of the world's largest hedge funds, D. E. Shaw & Co.) he has recently shown himself allied more with President Obama's progressive political advisors than with his moderate cabinet members. Whether that means he will throw himself behind proposed regulations to reign some of Wall Street's most lucrative financial institutions, we don't currently know. However, his reputation does suggest he is "more sympathetic to the concerns of investment bankers (see the nytimes.com article on Volcker).
(More on Summers HERE).
4. Paul Volcker: Chair, President's Economic Recovery Advisory Board
Paul Volcker's reputation precedes him by miles. His career spans the the entire second half of the twentieth century, and includes tenures with the New York Fed, Chase Manhattan bank, the Treasury Department, Princeton University, the Federal Reserve, and his current position with the Obama administration. As chairman of the Federal Reserve in the 70s and 80s, he was at first criticized for pushing aggressive interest rate increases, which attempted to fend off the inflation caused by negative oil supply shocks in 1973 and 1978. In retrospect, however, he has been lauded for those tactics, and for laying the groundwork for subsequent economic growth.
Volcker is viewed by many as an opposing voice to those of Tim Geithner and Larry Summers. "The Volcker rule," or a ban on big bank's proprietary trading, stands as part of a greater progressive plan to stabilize and regulate the financial industry. Moreover, it has been said that Volcker and Summers do not get along. But while while Summer's has the advantage of leading a specific chain of command (and having the sole economic office in the West Wing), Volcker's role affords him greater freedom to voice his opinions. Whether Volcker's more aggressive plan prevails over or submits to the more conservative options is yet to be seen. (Read more on Volcker HERE).
(Credit for the material in this post is due to the New York Times online, Bloomberg News, and the New York Fed website).
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