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Written by Brad Zigler
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Thursday, 01 January 2009 00:00 |
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Mom Vets Treasury Secretary
Time for a return to old-fashioned sensibilities
My mother was frugal. Let me rephrase that: My mother was a pinchpenny. She was quick to admonish me, for example, on those rare occasions when I attempted to edit the contents of my closet. "Oh, keep that," she'd say, upon regarding an item past its sartorial sell-by date. "It'll come back in style."
Truly, some things do come back into style. Sears, for example, recently announced the reinstitution of its venerable layaway plan, nearly two decades after it was scuttled. Mom would applaud this. Layaway plans made good sense to her because they dovetailed with two of her basic financial tenets: 1) "Money doesn't grow on trees," and 2) "If you don't charge it, you won't have to pay interest on it."
We're now slogging through an economic mire brought about by cheap money, too-cute financial engineering and irresponsible lending. Mom wouldn't have approved of the practices of so many now-troubled financial institutions, much less the borrowing habits of their recently foreclosed customers.
As of this writing, President-elect Obama is shortening his short list of candidates for cabinet officers and agency heads. Among the worthies being considered for keeper of the country's pocket change are former Treasury Secretary and Harvard University President Lawrence Summers, New York Federal Reserve Bank President Timothy Geithner and former Federal Reserve Chairman Paul Volcker.
Now, I know the vetting protocols of the incoming administration are more rigorous than ever before, but I wonder if these characters would pass Mom's smell test for down-home financial probity.
True, Larry Summers has worn the treasury secretary mantle before. He was, in fact, downright popular in his three-year stint during the Clinton administration, though he really didn't have his heart, or perhaps more appropriately, his wallet in it. Summers parlayed his gummint tenure into a more lucrative stint in Cambridge. It's Summers' deregulatory proclivities and his unfortunate belief in gender-based differential calculus that would really put the kibosh on his prospects, in Mom's view. My math-teacher wife isn't enamored of him either.
I know of no Geithner gaffes, but the banker's brokering of Bear Stearns to JPMorgan Chase—based on the notion that some financial institutions are too big to fail—would certainly have earned Mom's opprobrium. I can hear her now: "Don't get too big for your britches or your bridge loans."
That leaves ole Paul Volcker. Now, Volcker's the kind of fellow Mom would appreciate. That Volcker decried the excesses of subprime lending as the foundation for "the mother of all crises" was, in his own way, an homage to Moms.
As Fed chair, Volcker's prescription for the bitter medicine of tight money and high interest rates broke the inflation fever of the early '80s. Mom would certainly agree with the notion that one should starve a fever (of cash).
To ensure the tidying up of the mess wrought by deregulatory excess, the treasury secretary-designate—be it Volcker or someone else—should be vetted for his/her appreciation of simple and honest (aka Mom's) financial principles. In other words, the appointee should 1) always opt for layaway in lieu of credit card purchases, and 2) in confirmation hearings, be able to demonstrate command of key regulatory postures, such as:
- "Everybody else may be trying to do it, but you're not going to." (Subtext: "Just because Citi once played with credit-enhanced inverse floaters doesn't mean we're going to let you do so now.")
- "You must think rules are made to be broken." (Subtext: "We didn't publish these regulations in the Federal Register in the hope of making The New York Times best-seller list. They're not works of fiction.")
- "You can't make a silk purse out of a sow's ear." (Subtext: "Once a crappy asset, always a crappy asset, no matter how much you try to reengineer it.")
More than anything, though, our new treasury head needs to be able to forcefully tell bankers, without need of subtext:
- "Go ahead; be a big wheel. Just remember that little dogs often piddle on big wheels."
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