After Geithner: Who's Up Next As Treasury Chief?
Business + Economy

After Geithner: Who's Up Next As Treasury Chief?

Reuters/Molly Riley

Wanted for the Treasury Department: a new boss who can fix trillion-dollar-plus budget deficits, overhaul the tax system and spur a reluctant Europe into fixing its debt crisis. It's a tall order, especially when the new Treasury chief also must deal with a fractious Congress, and all for a salary lower than that paid to many junior Wall Street bankers.

Economists, investors and veterans of past administrations are appraising potential successors to Treasury Secretary Timothy Geithner, either in a new Obama administration, if President Barack Obama is re-elected, or under Mitt Romney. Geithner has made it clear that he is leaving the post he has held since January 2009 even if Obama, a Democrat, beats Romney, the presumptive Republican presidential nominee, in the November 6 election.

Lots of names are making the rounds. Among Democrats, they include finance leaders like Larry Fink of asset management firm BlackRock and politically connected Washington insiders like fiscal expert Erskine Bowles. If the White House goes to the Republicans, Glenn Hubbard, a top Romney adviser, is considered a front-runner, as is Robert Zoellick, the outgoing World Bank chief who boasts Wall Street experience and a contact list that spans the globe.

With new partisan showdowns likely to flare up next year over taxes, spending cuts and the nation's debt limit, interest in the next Treasury boss is even greater than usual given the high economic stakes. "The next Treasury secretary is probably going to hold the most important job next to the president," said Sung Won Sohn, an economics professor at California State University Channel Islands.

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The problems at home in finding ways to scale back U.S. debt are huge. But Geithner's successor also will need a deft hand on the international front as Europe's debt problems simmer. Geithner has struggled to find a balance between helping Europe find a fix while not being too bossy. The next Treasury chief will face the same dilemma. Relations with China, the biggest U.S. creditor and an increasingly high-end manufacturing rival, will be another prime concern.

Romney's deep knowledge of markets honed during his years at private equity firm Bain Capital certainly has shaped his view about who would be best to lead Treasury. Romney may have come across candidates in the business world who struck him as perfect for the job, but they may not be widely known to Wall Street or Washington insiders. Stature is a must. Many analysts think a post-election lame-duck Congress will provide only a temporary fix to a potentially catastrophic situation looming at year's end. If Congress does not act, income tax cuts put in place under President George W. Bush are due to end for millions of Americans while automatic federal spending cuts would go into effect as mandated under last year's deal to raise the U.S. debt limit.

There is a premium on negotiating skills to help avoid an economic calamity. And whoever is selected may face a grinding Senate confirmation process.

The combination of tax increases and spending cuts could tip the economy back into recession. Democrats and Republicans want to avoid a train wreck but cannot agree on how to do it, whether through a combination of tax hikes and spending cuts, as Democrats propose, or spending cuts alone, as Republicans favor.

Geithner's successor likely will have to confront the issue even if Congress finds a short-term fix. That puts a premium on negotiating skills to help avoid an economic calamity. Whoever is selected may face a grinding Senate confirmation process. A well-known, accomplished candidate might fare better; but even then, there could be a surprise. Geithner's Senate confirmation hearing was at risk of derailment over his past failure to pay some taxes. He paid up all his tax liabilities after the Obama administration had signaled its intent to nominate him as Treasury secretary and admitted to some "careless" and "avoidable" errors.

Hubbard, dean of the business school at Columbia University in New York, is widely seen as the front-runner for the Treasury Department should Romney win the White House. A budget expert who also advised Romney during his 2008 presidential run, Hubbard led Bush's Council of Economic Advisers, crafted the 2003 Bush tax cuts, and was a senior Treasury Department official in the early 1990s.

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On the Democratic side, things are less clear. Fink, chief executive at BlackRock, the world's biggest money manager, has expressed interest in the job to Wall Street colleagues, according to sources with close ties to the financial industry. Sources on Wall Street, one of whom worked at BlackRock and another who knows Fink personally, said they were aware of the interest in Fink as a potential candidate but could not offer an assessment of how seriously he wants the job. Fink's involvement in money management is a plus. It is a relatively staid part of finance that was untainted by the 2008 bailout of banks that remains unpopular with many voters.

Contrast that with the nosedive in chances for JPMorgan Chase & Co chief executive Jamie Dimon, who had been seen as at least a long-shot Democratic Treasury candidate until JPMorgan's admission this month of huge trading losses. Bush found Treasury secretaries in the business arena.

Paul O'Neill, a former chief executive of industrial giant Alcoa, led Treasury until he was replaced by John Snow of rail carrier CSX Corp. In 2006 ahead of the financial crisis, Bush turned to Goldman Sachs chief Henry Paulson to run Treasury and he played a lead role in crafting the U.S. crisis response. People who spoke with Reuters, including former Bush administration officials and political observers with ties to both parties, said it is still early to identify a pick and noted that Dimon's case shows how swiftly fortunes can change.

Bowles was singled out by these sources as a highly credible contender for the job if Obama wins a second term. Cutting the U.S. budget deficit is vitally important and Bowles elevated his profile as co-chairman of a bipartisan commission in 2010 on how to deal with the issue. The commission's proposed spending cuts and tax increases failed in Congress but remain influential in the budget debate.

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Bowles, White House chief of staff from 1996-98 under Democratic President Bill Clinton, would bring instant credibility. Analysts see him in the mold of past Republican Treasury secretaries like James Baker, a trusted presidential adviser and confidant, as opposed to Geithner, considered more of a technocrat. Bowles also has Wall Street experience. He worked for Morgan Stanley, co-founded Carousel Capital and served as a partner at private equity firm Forstmann Little & Co.

"It would be hard to imagine someone who doesn't have credibility with business groups in that seat," said Lewis Alexander, chief U.S. economist for global investment bank Nomura in New York and a former counselor to Geithner. "I am not making predictions but someone like Erskine Bowles meets that criteria."

Another possibility on the Democratic side, cited by analysts in Washington as well as by a former New York Federal Reserve Bank official, is Daniel Tarullo, a current member of the U.S. Federal Reserve's Board of Governors. Tarullo served on the National Economic Council and National Security Council under Clinton and had a turn at the State Department. Some analysts question whether he has the needed stature but said he might be a contender for a senior job in the department short of the secretary position.

Investment banker Roger Altman, a co-founder of successful investment firm Evercore Partners, was mentioned by sources as a credible prospect for Obama, albeit one so closely identified with his firm that it might be hard for him to unwind from it to take a political job. Altman resigned as deputy Treasury secretary in 1994 after lawmakers challenged his testimony to Congress during hearings into Bill and Hillary Clinton's Whitewater real estate dealings, a major political controversy at the time. That did him no lasting harm, though, and he is widely respected for his Washington and Wall Street experience and political savvy. Nonetheless, it is the type of issue that could be raised during any confirmation hearings and might be enough to give Altman pause about having to go over the matter again.

Among Republicans, John Taylor, a former Treasury undersecretary for Bush, is considered a possibility but may be more interested in the top job at the Fed if the central bank's chairman, Ben Bernanke, moves on in 2014 as many expect.  Former associates say Taylor has become even more conservative since leaving Washington and returning to Stanford University. He is one of the most vocal critics of the Fed's aggressive easing of monetary policy and challenges the effectiveness of stimulus spending to boost the economy.

Zoellick, whose term as World Bank president expires in June, might prefer running U.S. diplomacy to overseeing the nation's troubled finances. "He'd be a terrific Treasury secretary, but the fact is that he's as well-rounded as anyone out there for that or for (secretary of) state," said a veteran of both the White House and the Treasury Department who spoke on condition of anonymity.

Zoellick has done a stint at Goldman Sachs, a mixed blessing because many politicians associate the company with the loose Wall Street practices that contributed to the financial crisis. He was executive vice president from 1993-97 of Fannie Mae, the housing finance giant seized by the government in 2008 when the crisis was raging. Zoellick also has broad experience as a former U.S. trade representative and deputy secretary of state.

Former Fed Governor Kevin Warsh, only 42 years old but with a resume as a central banker and an aide to Bush, is seen as a possibility by some former officials. Warsh professes little interest in returning to public life. His service at the U.S. central bank at key points during the 2007-2009 financial crisis earned him recognition as a capable manager. He helped broker the sale of Bear Stearns to JPMorgan Chase and was involved with the bailout of American International Group. "Even if he was seen as too young for the top job, he could come in as a deputy to a more political person and move up later," a former Bush administration official said.

Christopher Probyn, chief economist for State Street Global Advisors in Boston, said top candidates for the job will find the serious nature of the problems ahead to be attractive. But it will be hard to overcome the bitter partisanship that already is making finding solutions so difficult, Probyn added. "You have a chance to really and truly be in the middle of important things and to make a difference in the outcomes," Probyn said. "But you also have a risk of finding yourself on a burning deck."