Wall St keen for a fel­low trav­eler at US Trea­sury

Kuwait Times - - BUSINESS -

With Pres­i­dent-elect Don­ald Trump promis­ing to spend as much as half a tril­lion dol­lars on in­fras­truc­ture and slash taxes - ini­tia­tives that could add dra­mat­i­cally to the US debt and bal­loon the bud­get deficit - Wall Street is far more fo­cused on who will next head the US Trea­sury than it was in the pre­vi­ous se­lec­tion process un­der Pres­i­dent Barack Obama.

Un­like cur­rent Sec­re­tary Ja­cob Lew, who as­sumed the role in early 2013 with lit­tle fan­fare and has op­er­ated largely in the back­ground, the next Trea­sury chief is ex­pected to be a fea­tured player in ar­tic­u­lat­ing and ex­e­cut­ing the Trump ad­min­is­tra­tion’s eco­nomic poli­cies and ini­tia­tives.

“You need some­body who has the ex­pe­ri­ence and the knowl­edge and un­der­stands the grav­ity of the po­si­tion,” said Richard Bernstein, chief ex­ec­u­tive of Richard Bernstein Ad­vi­sors LLC, an as­set man­age­ment firm. “It’s a huge po­si­tion. It has im­pli­ca­tions not only for the US econ­omy but also the global econ­omy.” Among a hand­ful of pos­si­ble con­tenders, for­mer Gold­man Sachs banker and Hol­ly­wood movie fi­nancier Steven Mnuchin, who served as Trump’s cam­paign fi­nance chair­man, is seen as front run­ner.

“He knows fi­nan­cial markets very well,” said Joachim Fels, a man­ag­ing di­rec­tor and global eco­nomic ad­vi­sor at Pimco. “I think it’s in­ter­est­ing that he also has ex­pe­ri­ence out­side of fi­nan­cial in­sti­tu­tions, the movie in­dus­try.” Oth­ers in the mix, ac­cord­ing to pub­lished re­ports, in­clude JP Mor­gan Chase & Co. Chief Ex­ec­u­tive Jamie Di­mon and US Rep Jeb Hen­sar­ling of Texas.

Both Mnuchin and, in par­tic­u­lar, Di­mon, who heads the largest US bank and the biggest bond dealer, are seen well equipped to man­age the re­la­tion­ship be­tween Wash­ing­ton and the banks that fa­cil­i­tate the tril­lions of dol­lars of bor­row­ing re­quired of the next ad­min­is­tra­tion. Un­der Obama, the US debt has nearly dou­bled to $19.6 tril­lion from about $10.7 tril­lion. Un­der Trump’s stim­u­lus pro­pos­als, that could grow quickly, as would the fed­eral bud­get deficit, which has ac­tu­ally shrunk by about two thirds dur­ing Obama’s ten­ure. “It’s very likely that we get ris­ing fis­cal deficits, at least ini­tially,” Pimco’s Fels said. “I think this ad­min­is­tra­tion, like all ad­min­is­tra­tions, will need the bond com­mu­nity.” Hen­sar­ling, who was just elected to an eighth term in his dis­trict east of Dal­las, would not have such deep Wall Street ties. A noted deficit hawk and a critic of the wave of fi­nan­cial reg­u­la­tion en­acted af­ter the 2008 fi­nan­cial cri­sis, his pri­vate-sec­tor ex­pe­ri­ence has not been in fi­nance. In fact, most of his in­ter­ac­tion with Wall Street has come through his role as chair­man of the House Fi­nan­cial Ser­vices Com­mit­tee.


The last Wall Street in­sider to serve in the post was Henry Paul­son, a for­mer head of Gold­man Sachs who was ap­pointed by Ge­orge W. Bush in 2006 and whose term was dom­i­nated by nav­i­gat­ing through the fi­nan­cial cri­sis. He was suc­ceeded in 2009 by Ti­mothy Gei­th­ner, who moved into the post from run­ning the Fed­eral Re­serve Bank of New York and worked ex­ten­sively with Paul­son dur­ing the cri­sis. Wall Street is keen to avoid an ap­point­ment that re­sem­bles ei­ther of Paul­son’s two im­me­di­ate pre­de­ces­sors, John Snow and Paul O’Neill.

The two Bush ap­pointees ran large in­dus­trial cor­po­ra­tions be­fore tak­ing over Trea­sury and lacked deep ex­pe­ri­ence in fi­nan­cial markets. Snow was CEO of rail­road CSX Inc. and O’Neill ran alu­minum pro­ducer Al­coa Inc.. Both are viewed to have strug­gled to enun­ci­ate the Bush ad­min­is­tra­tion’s pol­icy pref­er­ences on is­sues key to in­vestors, such as the strength of the dol­lar, the world’s main re­serve cur­rency. — Reuters

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