The White House is floating, ever so gently, the notion that they are open to nominations for the position of “Tim Geithner’s Successor.”
It’s not clear if they mean this job is likely to be advertised formally sometime in 2012 or 20 minutes after the November midterms. Nor is it obvious if this is a real request for proposals – it could be just an effort to make critics “put up or shut up.”
Fortunately, there is an entirely plausible successor already in waiting, ready now or whenever the president finally realizes the need to fundamentally change banking policy.
Tom Hoenig, president of the Kansas City Fed, is best known for three things.
- He’s currently the only senior Fed official who has been outspoken (or even spoken out) against banks that are undoubtedly Too Big To Fail (TBTF). Hoenig has been a beacon of clarity on this issue over the past year. Compared with central bank officials – and almost everyone else – Hoenig stands out as a model of straight thinking and a proponent of tough action. With his disarming but no nonsense approach, he is the perfect person to take on the likes of Lloyd Blankfein (Goldman Sachs) and Vikram Pandit (Citigroup) both in the corridors of power and in the nitty gritty of their rather sordid business models. Hoenig is a career bank supervisor and nobody’s fool. Blankfein and Pandit are just two more guys who run banks that have gone bad. You know how that movie ends.
- Hoenig, who sits on the Federal Open Market Committee, is also an inflation hawk – at least by today’s standards. This makes some would be supporters – including fans of his attitude on TBTF – rather wary of advancing his name (e.g., as chairman of the Fed Board). This hesitation is understandable although likely mistaken; you don’t keep the federal funds rate essentially zero for long when nominal GDP is growing at more than a 6 percent annual rate. In any case, the issue is irrelevant for the Treasury job. The Treasury Secretary’s responsibility in a modern administration is to run financial sector policy, meaning bailouts and how to avoid them. Peter Orszag has the budget and Ben Bernanke (gulp) holds the monetary tiller. What we desperately need is someone who can sort out our largest banks.
- Tom Hoenig is almost certainly a Republican, although – as head of a regional reserve bank – the full range of his views, outside of banking and money, are not widely known. Paul Krugman reasonably points out that if he (Krugman) were nominated for the Fed (or Treasury or anything else), this would likely run into trouble in the Senate. Hoenig is a completely different kettle of fish, appealing to sensible Democrats and Republicans – yes, there are a few – who increasingly worry about massive banks and their electoral implications. And while financial sector policy is job one, serious efforts to address the budget – led by people of all ilk with a strong grip on economic realities – also lie in our future. Either that or the republic will perish. Not a tough choice in the end, but it does need to involve at least a few Republicans.
There will be objections to be sure.
- He’s just a regional Fed governor. True, but so was Tim Geithner.
- He’ll be captured by Big Finance, just as Geithner was. Spend some time with Tom Hoenig before you jump to this conclusion.
- The market will react negatively, because it will sense the era of unlimited bailouts is drawing to a close. Sure, but that’s the point.
- He’s a Republican. See point 3 above, and remember that President Obama offered Senator Judd Gregg (R., New Hampshire) the position of Commerce Secretary at the beginning of his administration.
There’s also the question of whether Tom Hoenig would take the job. He doesn’t seek it and no doubt doesn’t need the hassle and the heartache.
So it would be a question of how he is asked and what powers he is given. With the right job description and enough protection from the very top, Hoenig is not the kind of person who shrinks from the opportunity to help his country back onto safer ground.
He’s not a politician and he’s not a banker. But he knows the politics of central banking and what bankers – of any size and kind – get up to.
Joe Kennedy, first head of the SEC, was by all accounts a poacher turned gamekeeper. Tim Geithner sees himself as a gamekeeper, but he is undone by the belief that the principal poachers are decent and honorable folk who mean no ill.
Tom Hoenig is just a plain spoken old-fashioned gamekeeper. Not many of them are left, but you only need one.
By Simon Johnson