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Push for Yellen To Lead at Fed Gathers Steam

September 16, 2013 by

Now, awkwardly, it appears that the president may have to circle back to Ms. Yellen after Mr. Summers withdrew from consideration on Sunday, bowing to the determined opposition of at least five Senate Democrats. On Monday, Ms. Yellen became the front-runner by elimination, officials close to the White House said.

Supporters of Mr. Summers, including many of the president’s closest advisers, had raised some concerns about Ms. Yellen in recent months. Perhaps most potently, they said that institutions benefited from fresh leadership and argued that Ms. Yellen’s crucial role in creating the Fed’s current policies could inhibit her ability to make necessary changes.

Some presidential advisers also argued that Mr. Summers brought crisis management experience and a working knowledge of financial markets that Ms. Yellen lacks — although so did Ben S. Bernanke when President George W. Bush selected him as chairman.

There have been tensions between Ms. Yellen and Daniel Tarullo, a Fed governor with close ties to the president’s economic team who has taken a leading role on issues of regulatory policy. Ms. Yellen also clashed with Gene B. Sperling, head of the National Economic Council, when both were advisers to President Clinton in the 1990s.

Nonetheless, the president’s advisers insisted throughout the summer that Mr. Obama was not averse to Ms. Yellen but simply more comfortable with Mr. Summers, a former Treasury secretary to President Bill Clinton who was Mr. Obama’s chief White House economic adviser through the height of the financial crisis and recession in 2009 and 2010. In those years he formed a bond with Mr. Obama and others in the White House despite a tendency toward arrogance.

Stock markets soared on Monday on the withdrawal of Mr. Summers. Many investors regarded him as less committed to the Fed’s monetary stimulus campaign than Ms. Yellen. In trading, the Dow was up 118 points and interest rates down in a show of increased confidence that the Fed would withdraw more slowly from its efforts to stimulate the economy, including bond purchases.

Ms. Yellen’s supporters waited with a mixture of elation and apprehension for the president’s next step. “Janet Yellen, I hope, will make a terrific Federal Reserve chair,” Senator Elizabeth Warren, a Massachusetts Democrat who was one of those warning the White House against a Summers nomination, said on MSBNC. “The president will make his decision, but I hope that happens.”

Administration officials and supporters acknowledged that the president would enrage his party’s base if he were now to reject Ms. Yellen and forfeit the chance to name the first woman to the most influential economic job in the world. On the other hand, with no obvious alternatives, the choice of Ms. Yellen — which months ago might have been celebrated as historic — is likely to be seen as Mr. Obama’s reluctant capitulation to his party’s left wing.

That prospect, and Mr. Obama’s distaste for being pressured into some action, could prompt him to consider other candidates, several former administration officials said.

The president had already interviewed Donald L. Kohn, a former Fed vice chairman, before Ms. Yellen got the job in 2010 on Mr. Obama’s nomination. For years, Mr. Kohn was among the most influential advisers to former Fed chairman Alan Greenspan and thus would have drawn criticism from Democrats, many of whom blame the Greenspan Fed for an antiregulatory stance that encouraged financial excesses that led to crisis.

Annie Lowrey contributed reporting.

Article source: http://www.nytimes.com/2013/09/17/business/front-runner-not-first-pick-for-fed-post.html?partner=rss&emc=rss

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Gay Marriages Get Recognition From the I.R.S.

August 29, 2013 by

It is the broadest federal rule change to come out of the landmark Supreme Court decision in June that struck down the 1996 Defense of Marriage Act, and a sign of how quickly the government is moving to treat gay couples in the same way that it does straight couples.

The June decision found that same-sex couples were entitled to federal benefits, but left open the question of how Washington would actually administer them. The Treasury Department answered some of those questions on Thursday. As of the 2013 tax year, same-sex spouses who are legally married will not be able to file federal tax returns as if either were single. Instead, they must file together as “married filing jointly” or individually as “married filing separately.”

Their address or the location of their wedding does not matter, as long as the marriage is legal: a same-sex couple who marry in Albany, N.Y., and move to Alabama are treated the same as a same-sex couple who marry and live in Massachusetts.

“Today’s ruling provides certainty and clear, coherent tax-filing guidance for all legally married same-sex couples nationwide,” Treasury Secretary Jacob J. Lew said. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

Gay and civil rights groups praised the ruling. “Committed and loving gay and lesbian married couples will now be treated equally under our nation’s federal tax laws, regardless of what state they call home,” said Chad Griffin, the president of the Human Rights Campaign. “These families finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”  

But the Treasury decision could have ramifications for many gay couples’ tax liabilities, said Roberton Williams of the nonpartisan Tax Policy Center in Washington. Couples with similar incomes often pay the “marriage penalty,” with their tax liability as a couple being much higher than it would be if they were single.  

At the same time, same-sex couples will also be able to file amended returns for certain prior tax years, meaning that many couples might be eligible for refunds. Couples do not have to file amended returns if they do not want to, a senior Treasury official said, meaning that couples who might pay the marriage penalty would not owe back taxes.

But the ruling creates complications for same-sex couples who live in any of the 37 states that do not recognize their marriages. Previously, such couples filed federal and state tax returns as individuals. Now, they will have to file their federal returns as other married couples do, but may be required to file their state returns as individuals.

“There’s going to be a cumbersome workaround,” said Nanette Lee Miller of Marcum L.L.P., a public accounting firm. She sees it as a paperwork bother more than a financial issue.

States might also respond to the federal ruling with changes of their own. “Most state income tax regimes begin with federal taxable income as the starting point,” Marvin Kirsner, a tax lawyer at Greenberg Traurig, said in an e-mail. “These state taxing authorities will have to figure out how to deal with a same-sex married couple who file a joint income tax return for federal tax purposes.” He added,

“We will need to see guidance from each nonrecognition state to see how this will be handled.”

The rule change is likely to provide a small increase for federal revenue, as more same-sex couples pay the marriage penalty, Mr. Williams said, describing it as a “rounding error.” But it would be partly offset by new federal spending on benefits for same-sex spouses.

The ruling applies to all legal marriages made in the United States or foreign countries. But it does not extend to civil unions, registered domestic partnerships or other legal relationships, the Treasury said.

The Treasury ruling is one of many that are starting to emerge from all corners of the federal government as Washington changes regulations to conform with the Supreme Court decision.

Separately, the Health and Human Services Department said Thursday that Medicare would extend certain key benefits to same-sex spouses, “clarifying that all beneficiaries in private Medicare plans have access to equal coverage when it comes to care in a nursing home where their spouse lives.” 

But federal agencies are not moving in lock step. Instead, they are creating a patchwork of regulations affecting gay and lesbian couples — and may be raising questions about discrimination and fairness in the way that federal benefits are distributed.

Medicare and Treasury officials have said they would use a “place of celebration” standard for determining whether gay couples are eligible for benefits. That means same-sex couples would receive benefits as long as they are legally married, regardless of where they live.

But the Social Security Administration is now using a “place of residence” standard in determining spousal benefits, and a gay couple in Alabama might not receive the same benefits as a gay couple in New York until final determinations are made or Congress acts. The Obama administration has pushed federal agencies to ensure the Supreme Court’s ruling is carried out quickly and smoothly.

“It would be nice if they were consistent,” Ms. Miller said. Creating federal regulations is a process and could change, she said.

Tara Siegel Bernard contributed reporting from New York.

Article source: http://www.nytimes.com/2013/08/30/us/politics/irs-to-recognize-all-gay-marriages-regardless-of-state.html?partner=rss&emc=rss

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Under Obama, Little Progress on High-Level Jobs for Women

August 26, 2013 by

The White House has taken steps to even its gender balance in recent months with high-profile nominations like Samantha Power as ambassador to the United Nations and Susan E. Rice as national security adviser. But by most measures of gender diversity, including the proportion of women at cabinet level, the executive branch looks little different from 20 years ago, even as the House of Representatives, the Senate and corporate America have placed significantly more women in senior roles.

“There’s room for improvement, and we’ve seen some missed opportunities,” said Debbie Walsh, the director for the Center for American Women and Politics at Rutgers University. “We’re all watching the Fed to see what will happen there.”

Mr. Obama is choosing from a small pool of candidates for the Federal Reserve position — probably the most important economic appointment he will make in his second term. The finalists include Ms. Yellen, the Fed’s current vice chairwoman and a former Clinton administration official. The favored candidate among several top Obama aides is Lawrence H. Summers, the former Treasury secretary and Obama economic adviser.

Over all, Mr. Obama has named 13 women to cabinet-level positions, matching the historic high achieved by the Clinton administration. Mr. Obama has also put a record number of women in judicial slots, including two on the Supreme Court. Women make up about 42 percent of confirmed judges appointed by Mr. Obama, compared with 22 percent appointed by George W. Bush and 29 percent by Bill Clinton.

Yet the ratio of men to women in the administration is where it was two decades ago, if not a little more heavily male. The Obama administration has a smaller proportion of women in top positions than the Clinton administration did in its second term, for instance. Women hold about 35 percent of cabinet-level posts, compared with 41 percent for Mr. Clinton and 24 percent for Mr. Bush at similar points in their presidencies.

“The president’s commitment to diversity is second to none, and his track record speaks to it,” Alyssa Mastromonaco, the deputy chief of staff, said in an e-mail message. “This is a man who has appointed women as national security adviser, as White House counsel, as budget director and to lead the task of implementing our single most important domestic policy accomplishment,” namely Mr. Obama’s health care law. “This president has single-handedly increased the diversity of our courts, and he will continue to select from a field of highly qualified and diverse candidates for all federal posts.”

The Fed opening has stoked an unusually lively public debate, including questions about whether the Obama administration’s economic team is too insulated and too much of a “boy’s club,” in the words of some critics. “All else equal, I would not lightly dismiss the opportunity to break a glass ceiling,” said Jared Bernstein, a former Obama economic adviser and now at the Center on Budget and Policy Priorities, who lauded both Mr. Summers and Ms. Yellen on their merits.

Criticism became louder earlier this year after prominent office holders like then-Secretary of State Hillary Rodham Clinton and Labor Secretary Hilda Solis left the administration. Slots at the departments of State, Defense and the Treasury that many liberals had hoped would go to female candidates ended up being filled by men.

Mr. Obama himself responded to the criticism. “I would just suggest that everybody kind of wait until they’ve seen all my appointments, who is in the White House staff and who is in my cabinet, before they rush to judgment,” Mr. Obama said at a news conference in January as he was starting his second term. “Until you’ve seen what my overall team looks like, it’s premature to assume that somehow we’re going backwards. We’re not going backwards, we’re going forward.”

Since those remarks, he has named a series of women to top posts, including for interior secretary, commerce secretary, budget director and director of the Environmental Protection Agency.

But speaking privately, some administration officials have said that imbalance has resonated within the building and caused the White House to put a priority on considering female candidates earlier this year.

As of June 2012, 43 percent of Mr. Obama’s appointees had been women, according to a New York Times analysis of federal employment data. That is about the same proportion as in the Clinton administration, and up from the roughly one-third appointed by George W. Bush.

The largest gains in the number of women in the executive branch occurred in the Clinton administration. In no administration before his did women hold more than 18 percent of cabinet-level jobs; in his second term, the share exceeded 40 percent. At that level, women held a substantially larger share of senior roles in the executive branch than they did in Congress or in corporate America. During Mr. Clinton’s presidency, no more than nine women were ever serving in the Senate, whereas 20 do today.

The share of women holding board seats on Fortune 500 companies has also risen over the last two decades, to 16.6 percent last year from 9.6 percent in 1995, according to Catalyst. The executive branch continues to have a larger share of women in senior roles than Congress or corporate America, but it has also changed less since the 1990s.

Several White House officials bristled at the suggestion that gender would play any role in the Federal Reserve decision, and at the notion of any sort of institutional bias within the White House, which has approximately half male and half female employees.

A former Obama and Clinton administration official said that concerns about gender had perhaps been more prominent in Washington in the 1990s. The Clinton administration had an overt and open policy of trying to make the administration “look like America.” The Obama administration makes a priority of naming women to high-ranking positions, but the goal is not as pressing, the official said.

Another former Obama administration official, speaking on the condition of anonymity, suggested that Mr. Obama might feel inoculated against criticism were he to name Mr. Summers or another man for the Federal Reserve position because of his recent record in promoting women.

Other experts argued that the administration should be judged not just on its appointment record but on its broader record.

“It’s important to look at the bigger picture,” said Victoria A. Budson, the executive director of the women and public policy program at the Harvard Kennedy School of Government. “It’s not so much about how many women, but are women represented, are the policies helping women?”

Article source: http://www.nytimes.com/2013/08/27/us/politics/under-obama-little-progress-on-high-level-jobs-for-women.html?partner=rss&emc=rss

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In Tug of War Over New Fed Leader, Some Gender Undertones

July 25, 2013 by Leave a Comment

Janet L. Yellen, the Fed’s vice chairwoman, is one of three female friends, all former or current professors at the University of California, Berkeley, who have broken into the male-dominated business of advising presidents on economic policy. Her career has been intertwined with those of Christina D. Romer, who led Mr. Obama’s Council of Economic Advisers at the beginning of his first term, and Laura D’Andrea Tyson, who held the same job under President Clinton and later served as the director of the White House economic policy committee. But no woman has climbed to the very top of the hierarchy to serve as Fed chairwoman or Treasury secretary.

Ms. Yellen’s chief rival for Mr. Bernanke’s job, Lawrence H. Summers, is a member of a close-knit group of men, protégés of the former Treasury Secretary Robert E. Rubin, who have dominated economic policy-making in both the Clinton and the Obama administrations. Those men, including the former Treasury Secretary Timothy F. Geithner and Gene B. Sperling, the president’s chief economic policy adviser, are said to be quietly pressing Mr. Obama to nominate Mr. Summers.

The choice of a Fed chair is perhaps the single most important economic policy decision that Mr. Obama will make in his second term. Mr. Bernanke’s successor must lead the Fed’s fractious policy-making committee in deciding how much longer and how much harder it should push to stimulate growth and seek to drive down the unemployment rate.

Ms. Yellen’s selection would be a vote for continuity: she is an architect of the Fed’s stimulus campaign and shares with Mr. Bernanke a low-key, collaborative style. Mr. Summers, by contrast, has said that he doubts the effectiveness of some of the Fed’s efforts, and his self-assured leadership style has more in common with past chairmen like Alan Greenspan and Paul A. Volcker.

But the choice also is roiling Washington because it is reviving longstanding and sensitive questions about the insularity of the Obama White House and the dearth of women in its top economic policy positions. Even as three different women have served as secretary of state under various presidents and growing numbers have taken other high-ranking government jobs, there has been little diversity among Mr. Obama’s top economic advisers.

“Are we moving forward? It’s hard to see it,” said Ms. Romer, herself a late addition to Mr. Obama’s original economic team, chosen partly because the president wanted a woman.

She said she viewed the choice of the next leader of the Fed as a test of the administration’s commitment to inclusiveness. “Within the administration there have been many successful women,” she said. “There are lots of areas where women are front and center, where women are succeeding and doing very well. Economic policy is one where they’re not.”

Supporters of Mr. Summers dismiss the idea that gender is a factor in the decision. They say that they simply regard him as the best person for the job. They point to the fact that he has served in both of the other top economic policy positions — as Treasury secretary in the Clinton administration and as chief economic policy adviser to Mr. Obama — which makes him a known quantity who has demonstrated an ability to respond effectively to financial crises.

Ms. Yellen was widely seen as the front-runner to succeed Mr. Bernanke, but that appears to have reflected an absence of information about the views of Mr. Obama and his closest advisers. As word circulated in recent days that the president was seriously considering Mr. Summers, Ms. Yellen’s supporters have rushed forward to bolster her candidacy.

“It would be great to have a woman, the first woman chairman of the Fed, no question about it,” Representative Nancy Pelosi of California, the House minority leader, told Bloomberg Television on Thursday. “She’s extremely talented. It’s not just that she’s a woman.”

Ms. Pelosi said that she also thought Mr. Summers was a qualified candidate.

On Thursday, Senate Democrats were rallying support for Ms. Yellen, with about a third of the 54 members of the caucus signing a letter backing her candidacy.

Jackie Calmes and Jeremy W. Peters contributed reporting.

Article source: http://www.nytimes.com/2013/07/26/business/in-tug-of-war-over-new-fed-leader-some-gender-undertones.html?partner=rss&emc=rss

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Britain to Fight Euro Zone Transaction Tax Plan in Court

April 19, 2013 by Leave a Comment

Britain was concerned that the planned tax would affect transactions carried out beyond the borders of countries that sign up for it, Chancellor George Osborne said on Friday.

“We’re not against financial transaction taxes in principle … but we are concerned about the extra-territorial aspects of the (European) Commission’s proposal,” he said on the sidelines of meetings of finance leaders at the International Monetary Fund.

The British government filed the challenge at the European Court of Justice on Thursday, the deadline for challenging the Commission’s proposal, a Treasury official said.

U.S. Treasury Secretary Jack Lew has voiced opposition to the planned tax, which would affect banks on Wall Street and other financial centres around the world.

The 11 euro zone countries intend to introduce the tax on stock, bond and derivatives transactions next January, raising up to 35 billion euros a year.

There are provisions to ensure the levy is applied no matter where securities from the 11 states are traded, though it is unclear how and by whom the tax would be collected, especially in non-participating countries.

Brussels said it was confident the plan was on sound legal ground. “It was based on careful analysis to ensure that all the conditions for enhanced cooperation, set out in the (European) Treaties, were met,” said Algirdas Semeta, the European commissioner in charge of tax policy.

Under the EU’s rules, enhanced cooperation requires a minimum of nine countries to cooperate on legislation using a process, as long as a majority of the EU’s 27 countries give their permission.

Germany has argued that banks, hedge funds and high-frequency traders should pay for a financial crisis that began in mid-2007 and spread across the world, forcing euro zone countries to bail out peers such as Portugal and Greece.

The British Treasury official said the government hoped it could resolve its differences over the planned tax through negotiation.

He said Thursday’s challenge kept London’s legal options open while the transaction tax takes clearer shape in the year ahead.

A pan-EU proposal for the tax failed due to opposition from Britain, home to the City of London and Europe’s largest financial services industry, as well as other member states including Sweden.

Parliamentarians have criticized the government and the financial sector for not doing enough to stop the tax, saying Britain should go to court to halt the plans.

A trade group representing banks, brokerages and other market-related sectors slammed the planned change.

“This is a tax that will damage markets beyond the 11 states that are considering it, across Europe and also internationally,” said Simon Lewis, chief executive, the Association for Financial Markets in Europe.

“It will act as a brake on economic recovery by increasing costs to investors.”

(Reporting by William Schomberg; Editing by Andrea Ricci and Chizu Nomiyama)

Article source: http://www.nytimes.com/reuters/2013/04/19/business/19reuters-g20-eurozone-britain.html?partner=rss&emc=rss

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Off the Shelf: Bretton Woods Monetary Agreement, Examined in a New Book

March 3, 2013 by Leave a Comment

Representatives of some 44 nations gathered in July 1944 at Bretton Woods, a resort spot in New Hampshire, to hammer out a world monetary system, replacing the gold standard that had failed so woefully. But only two nations mattered: Britain and the United States.

In “The Battle of Bretton Woods” (Princeton University Press, $29.95), Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, describes that effort from its roots and projects its effect on today’s conflicts among the dollar, the euro and the Chinese renminbi. Although America’s global dominance has long since melted away, no substitute is yet strong enough to shove the dollar aside, in part because of Bretton Woods.

Britain entered the conference exhausted and broke, crippled by the war. It desperately needed flexible exchange rates to rekindle its vital exports to pay for the imports it required to live. It clung to a privileged access to trading with its empire, one-fourth of the Earth’s land and people.

America was unscathed at home and far stronger in 1945 than in 1941. Owner of the bulk of the world’s gold bullion, a stunning 20,000 metric tons, the United States wanted to emerge from World War II with fixed conversion rates assured by a dollar tied to gold. And it went without saying that it was bent on becoming the globe’s financial capital.

Representing America at Bretton Woods was Harry Dexter White, an economics professor who had joined the Treasury as an adviser in 1934. By dint of intellect and hard work, he became grudgingly accepted as its ranking expert on international finance. He labored as the brains buttressing the Treasury Secretary, Henry Morgenthau, who described himself as “just a farmer,” albeit a close gentleman-farmer friend of Franklin D. Roosevelt. Morgenthau presided at Bretton Woods but White ran the show.

Dr. Steil presents evidence that White was also an informant for the Soviet Union, a starry-eyed admirer of what he saw as its remarkable economic success. For years, Dr. Steil says, White provided documents to the Soviets and favored their side in policy debates. In 1948, White fended off the House Un-American Activities Committee, denying that he was a Communist. A more adverse light was shed on his activities when wartime codes were broken years after his death. Dr. Steil is more convinced of the espionage claims surrounding White than some historians who see his actions as more innocent. There is no sign that his interest in the Soviets affected his work at Bretton Woods.

Taking Britain’s part at the 1944 conference was the celebrated John Maynard Keynes, who knew full well that war had reduced Britain to a hapless debtor, obliged to accept whatever the United States offered. The book confirms that Keynes was an intellectual giant with flawless intuition for finance, but it also exposes his caustic criticisms of lesser men and his tin ear for workaday diplomacy. The Americans considered him too bright for his britches and bottled him up at every opportunity.

White had prepared so well that the actual conference was well-orchestrated, everything the Americans wanted. “Now the advantage is ours here, and I personally think we should take it,” Morgenthau said to White, who fully agreed. As White said, “If the advantage was theirs, they would take it.”

The Americans wanted free trade and open markets; they feared postwar inflation. Bretton Woods helped by providing for stable but convertible currencies, tied within limits to the dollar and ultimately to gold. It also created the International Monetary Fund, a money pool from which nations with trade deficits could borrow to satisfy international accounts. And it set up what became the World Bank, initially focused on rebuilding Europe, and later on the developing world. Britain lost out on looser exchange rates, and its imperial trade preferences were doomed.

On item after item, Keynes found a stone wall. What Dr. Steil calls his “most tangible legacy” from Bretton Woods was pathetic. Norway moved to abolish the Bank for International Settlements for cooperating with the Nazis, a motion that Keynes vehemently opposed. The delegates eventually agreed that the bank would be “liquidated at the earliest possible moment.” The bank is still in business today.

Keynes ended up having to play an impossible hand. In 1945, he was left to sell Parliament on accepting arrangements that he had exhausted himself resisting. Four months later, he was dead. History later vindicated his advocacy of flexible exchange rates. The Bretton Woods system, not fully in effect till 1961, died only a decade later when President Richard M. Nixon ended the gold standard. The United States was running such large international deficits, paying out so many dollars, that not even Fort Knox had enough gold.

“The Battle of Bretton Woods” should become the gold standard on its topic. The details are addictive. But be warned: the book is dense. Every skirmish, every exchange — and the book gets into hundreds of thems — was presumably meaningful to the participants. But while some episodes mattered much, many did not. The author is no Robert Caro, who in his multivolume biography of Lyndon B. Johnson delves into minute details but also explains their larger significance.

Perhaps that is what is missing here — an unmistakable voice, a sense that this rich history is told by one mind. Mr. Caro is known for working on his own, with the assistance of his wife. In his acknowledgments, Dr. Steil thanks 10 research assistants and an advisory panel of 18 luminaries. The book sometimes reads like a succession of brilliant but loosely connected graduate seminar papers — an assemblage, a very fine one, but an assemblage nevertheless.

Article source: http://www.nytimes.com/2013/03/03/business/bretton-woods-monetary-agreement-examined-in-a-new-book.html?partner=rss&emc=rss

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Treasury Will Not Mint $1 Trillion Coin to Raise Debt Ceiling

January 12, 2013 by Leave a Comment

WASHINGTON — The Treasury Department said Saturday that it will not mint a trillion-dollar platinum coin to head off an imminent battle with Congress over raising the government’s borrowing limit.

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” Anthony Coley, a Treasury spokesman, said in a written statement.

The Obama administration has indicated that the only way for the country to avoid a cash-management crisis as soon as next month is for Congress to raise the “debt ceiling,” which is the statutory limit on government borrowing. The cap is $16.4 trillion.

“There are only two options to deal with the debt limit: Congress can pay its bills, or it can fail to act and put the nation into default,” Jay Carney, the White House press secretary, said in a statement. “Congress needs to do its job.”

In recent weeks, some Republicans have indicated that they would not agree to raise the debt limit unless Democrats agreed to make cuts to entitlement programs like Social Security.

The White House has said it would not negotiate spending cuts in exchange for Congressional authority to borrow more, and it has insisted that Congress raise the ceiling as a matter of course, to cover expenses already authorized by Congress. In broader fiscal negotiations, it has said it would not agree to spending cuts without commensurate tax increases.

The idea of minting a trillion-dollar coin drew wide if puzzling attention recently after some bloggers and economic commentators had suggested it as an alternative to involving Congress.

By virtue of an obscure law meant to apply to commemorative coins, the Treasury secretary could order the production of a high-denomination platinum coin and deposit it at the Federal Reserve, where it would count as a government asset and give the country more breathing room under its debt ceiling. Once Congress raised the debt ceiling, the Treasury secretary could then order the coin destroyed.

Mr. Carney, the press secretary, fielded questions about the theoretical tactic at a news conference last week. But the idea is now formally off the table.

The White House has also rejected the idea that it could mount a challenge to the debt ceiling itself, on the strength of the Fourteenth Amendment to the Constitution, which holds that the “validity of the public debt” of the United States “shall not be questioned.”

The Washington Post earlier published a report that the Obama administration had rejected the platinum-coin idea.

Article source: http://www.nytimes.com/2013/01/13/us/politics/treasury-will-not-mint-1-trillion-coin-to-raise-debt-ceiling.html?partner=rss&emc=rss

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Obama Plans to Name Jacob J. Lew as Treasury Secretary, Officials Say

January 9, 2013 by Leave a Comment

If confirmed by the Senate, Mr. Lew, 57, would be Mr. Obama’s second Treasury secretary, replacing Timothy F. Geithner, the last remaining principal on Mr. Obama’s original economic team, at the head of that team.

While Mr. Lew has much less experience than Mr. Geithner in international economics and financial markets, he would come to the job with far more expertise in fiscal policy and in dealing with Congress than Mr. Geithner did when he became secretary at the start of Mr. Obama’s term. That shift in skills reflects the changed demands of the times, as emphasis has shifted from the global recession and financial crisis of the president’s first years to the continuing budget fights with Republicans in Congress to stabilize the growth of federal debt.

The partisan tension over the budget between Mr. Obama and Republicans suggests that Mr. Lew will face a grilling by Senate Republicans in confirmation hearings. But despite weeks of speculation that Mr. Lew would be named Treasury secretary, Republicans have not signaled that they plan to mount the kind of opposition they raised to Mr. Obama’s potential nomination of Susan E. Rice, the ambassador to the United Nations, for secretary of state, and Chuck Hagel as secretary of defense; the president named Mr. Hagel on Monday, and eventually settled on Senator John F. Kerry, Democrat of Massachusetts, for secretary of state.

Mr. Lew’s departure would create an important vacancy for what would be Mr. Obama’s fifth White House chief of staff, a turnover rate that is in contrast with the stability at Mr. Geithner’s Treasury. The leading candidate is said to be Denis McDonough, currently the deputy national security adviser in the White House.

Mr. Lew had a brief turn in the financial industry before joining the Obama administration four years ago, working at the financial giant Citicorp, first as managing director of Citi Global Wealth Management and then as chief operating officer of Citigroup Alternative Investments.

His first job with Mr. Obama was at the State Department, where Mr. Lew was the deputy secretary responsible for managing day-to-day operations of the department and its international economic policy. Secretary of State Hillary Rodham Clinton protested to Mr. Obama when the president in 2010 tapped Mr. Lew to replace Peter R. Orszag as budget director.

It was Mr. Lew’s second stint heading the Office of Management and Budget. He previously served in President Bill Clinton’s second term, helping to negotiate a bipartisan budget deal with Congressional Republicans that led to four years of budget surpluses. In the 1980s, Mr. Lew was a senior aide to House Speaker Thomas P. O’Neill, a Democrat, also advising in budget negotiations with President Ronald Reagan.

He has been deeply involved in the deficit negotiations over the last two years. And, if he were quickly confirmed, as Treasury secretary his first test could come as soon as next month, when analysts expect a fight over raising the debt ceiling, which is the legal limit on the amount that the government can borrow.

Republican leaders have said they would refuse to raise the ceiling unless Mr. Obama agrees to equal spending cuts, particularly in entitlement programs like Medicare and Social Security. Mr. Obama has said that he will not negotiate over the ceiling, with the country’s full faith and credit at stake.

With battle lines already drawn, the country is expected to run out of room under the ceiling sometime between mid-February and March. At that point, Congress would need to raise the borrowing limit, or the country would start defaulting on obligated payments, like those promised to seniors, doctors, contractors and bondholders.

Mr. Lew’s role as an Obama negotiator in 2011 did not endear him to Republicans, in particular House Speaker John A. Boehner, and he took a lower-profile role in the most recent negotiations at year-end. The White House was eager to avoid controversy given the likelihood of Mr. Lew’s nomination to Treasury. Instead Mr. Geithner and Rob Nabors, the director of legislative affairs, were lead negotiators.

Mr. Lew, a native of New York, is known for his low-key, professorial style and organizational skills. While he was a favorite of Mr. Obama and other staff members as chief of staff, Mr. Lew made it known that he did not want to continue in that post for a second term.

Article source: http://www.nytimes.com/2013/01/10/us/politics/obama-to-name-jacob-j-lew-as-treasury-secretary.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: U.S. and Britain Take Cooperative Approach on ‘Too Big to Fail’

December 11, 2012 by Leave a Comment

A Lehman Brothers employee exits the firm's London offices in 2008.Andy Rain/European Pressphoto AgencyA Lehman Brothers employee exits the firm’s London offices in 2008.

It is one of the thorniest problems hanging over the financial system: how should authorities deal with the collapse of a sprawling global bank to protect the financial system at large?

In an attempt to find ways to address this problem, regulators in the United States and Britain said on Monday that they were cooperating on measures that would be used to seize an ailing financial company that does a lot of business abroad.

The intent is to avoid the problems that occurred when Lehman Brothers failed in 2008. The unwinding of Lehman was complicated by the fact that it had substantial operations in London that were subject to British law. The same problem could recur because most of the largest American and British banks have major subsidiaries in each other’s countries.

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In a new joint paper, the Bank of England and the Federal Deposit Insurance Corporation laid out their preferred strategy for handling such bank crashes.

“It’s great that these two organizations are pushing forward on it,” said Phillip L. Swagel, a professor at the University of Maryland’s School of Public Policy, who was assistant secretary for economic policy under Treasury Secretary Henry M. Paulson Jr. “If they do get it right, then, yes, ‘too big to fail’ has ended.”

“Too big to fail” is the label for the problem that confronts governments when a large bank is on its last legs. Officials want to avoid a future large taxpayer bailout of the bank, but letting it collapse could cause a run on the financial system. In 2008, Lehman was allowed to fail but American International Group was saved because its collapse was seen as too much for the system to bear.

Since the crisis, legislators in the United States and Britain have passed laws intended to give regulators ways to avoid either outcome. In essence, they aim to take control of the sick bank and keep it operating while inflicting losses on its shareholders and, if necessary, its creditors.

The paper from the Bank of England and the F.D.I.C. focused on one way to accomplish this. The relevant regulator would take control of the bank’s parent company, then embark on a restructuring. By saying they are focusing on the parent company, regulators hope to shape expectations in the market and minimize destabilizing uncertainty when a bank implodes. This approach, “will give greater predictability for market participants about how resolution authorities may approach a resolution,” the regulators wrote.

The strategy then aims to put a seized bank back on its feet. In most cases, the bank would be insolvent, meaning that losses had eaten all its equity. To right the bank, the regulator would take the parent company’s debt and turn it into enough equity to support the bank’s operations in the future.

But questions surround the strategy. The paper is little more than a commitment to cooperate. In other words, it does not give either regulator the power to reach into a foreign jurisdiction to restructure a bank. Some of the jurisdictional problems that hampered the Lehman bankruptcy could therefore recur.

Some analysts doubt regulators would use the tools in the heat of a crisis. Fearing financial instability, officials may balk at doing anything to harm the interests of creditors and opt for some form of bailout instead. “It’s about the courage to use those tools in the face of a panic,” said Mark A. Calabria, director of financial regulation studies at the Cato Institute.

Whether bank parent companies have the financial resources to contribute meaningfully to balance sheet repairs is also a question. JPMorgan Chase’s parent company, for instance, has $116 billion of long-term debt, which is 5 percent of the overall bank’s $2.3 trillion in assets. At Goldman Sachs, the percentage is much higher at 14 percent.

Regulators would have to decide on the appropriate amount of parent company debt. As a result, they might press some banks to strengthen the financial standing of their parent companies.

But banks may resist, saying that action would make it harder for them to produce reasonable returns. “They need to consider the burdens that would be placed on banks’ ability to provide credit for the global economy,” said David Schraa, regulatory counsel for the Institute of International Finance, an industry group.

Skeptics also say the measures laid out Monday may not be able to cope with the collapse of several large global banks at once. “The big problems we’ve seen are almost always systemic,” said Simon Johnson, professor at the MIT Sloan School of Management. “So, does it solve the core of the too-big-too-fail problem? No.”

Still, the American-British cooperation could, in theory, cover a large majority of foreign business done in the country’s banks. The five biggest American banks on average did 88 percent of their foreign activity in Britain, according to an F.D.I.C. presentation in July. “By and large, the same is true for U.K. companies,” Michael H. Krimminger, a partner with Cleary Gottlieb Steen Hamilton, wrote by e-mail. “This approach would have been invaluable in 2008,” said Mr. Krimminger, whose previous job was general counsel at the F.D.I.C.

Article source: http://dealbook.nytimes.com/2012/12/10/a-cooperative-approach-on-too-big-to-fail-banks/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Ex-Regulator Has Harsh Words for Bankers and Geithner

September 25, 2012 by Leave a Comment

Sheila Bair has written a book about her time as chairwoman of the F.D.I.C.Chip Somodevilla/Getty ImagesSheila Bair has written a book about her time as chairwoman of the F.D.I.C.

Sheila C. Bair, who tormented Wall Street and its Washington allies as a banking regulator, is taking a fresh swipe at her foes in retelling the dark days of the financial crisis.

In a book to be released on Tuesday, the former chairwoman of the Federal Deposit Insurance Corporation takes aim at the bankers she blamed for the crisis. She also criticized fellow regulators, including current Treasury Secretary Timothy F. Geithner, for their response to the problems.

Ms. Bair painted Mr. Geithner, the former head of the Federal Reserve Bank of New York, as an apologist for Wall Street, opposing some postcrisis reforms. She questioned whether his effort to inject billions of dollars into nine big banks masked a rescue intended solely for Citigroup, a theory that other government officials have rejected.

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“Participating in these programs was the most distasteful thing I have ever done in public life,” said Ms. Bair, in the book, “Bull By the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.”

People close to Mr. Geithner note that he issued early warnings about Wall Street risk-taking and championed a regulatory crackdown on big banks.

Lee Sachs, a former top Treasury Department official, said on Monday that Mr. Geithner never acted to protect Citigroup or any single institution, but rather the entire system. In 2004, the New York Fed under Mr. Geithner ordered Citigroup to pay $70 million for consumer lending violations.

“If anything, he was quite focused on the pain the country was suffering,” Mr. Sachs said.

Another government official who attended some of the meetings with Ms. Bair and Mr. Geithner said she was overstating the animus. A Treasury Department spokeswoman declined to comment on Ms. Bair’s attacks because officials had not read the book.

In a statement, a Citigroup spokeswoman defended the bank, whose bailout earned a profit for taxpayers. “Since Vikram Pandit became C.E.O. during the financial crisis, Citi has executed a strategy based on returning to the basics of banking and building a culture of responsible finance. It is a simpler, smaller, safer and stronger institution than it was five years ago and this record speaks for itself.”

Drawn from personal e-mails and notes, Ms. Bair’s book joins the growing collection of financial crisis histories. While the book contributes a few revelations to the annals of Wall Street, Ms. Bair mostly notably highlights the challenge of being the only woman in the room. At crucial times during the crisis, she said, Mr. Geithner and other top regulators kept her in the dark.

“Maybe the boys didn’t want Sheila Bair playing in their sandbox,” she wrote.

A Kansas native, Ms. Bair portrayed herself as a lifelong Republican with a populist streak. She was among the first regulators to sound the alarms about the subprime mortgage bubble. When the crisis emerged, she pushed for banks to replenish their capital cushions.

Ms. Bair, who is now senior adviser to the Pew Charitable Trusts, spent much of the book criticizing the go-go attitude that fueled the crisis. She also delivered blistering assessments of several crisis-era chiefs. She said, for example, that the deal-making skills of Kenneth D. Lewis, then Bank of America’s chief, “were clearly wanting.”

But she saved the sharpest critique for Mr. Geithner, calling him the “bailouter in chief.”

When the F.D.I.C. was negotiating the contours of a plan to guarantee bank debt, she said that Mr. Geithner pushed the agency to charge banks only a “minimal” fee in return for the government support. Mr. Geithner and other regulators argued that it was counterproductive to assign hefty costs at a time when the industry needed saving.

“Geithner just couldn’t see things from my point of view,” Ms. Bair wrote.

Over her five-year tenure, Ms. Bair struggled to break into the clubby nature of high finance, detailing in the book how Mr. Geithner and others shut her out of major decisions. The F.D.I.C., for example, was not involved in picking which banks would receive the first round of bailout funds. One regulator circulated an e-mail questioning “the audacity of that woman.”

Much of the book is devoted to the regulators’ dealings with just one company, Citigroup, which received more government support than any other bank. Ms. Bair fleshed out her frustrations with Mr. Geithner and his desire, in her eyes, to treat a dysfunctional bank with kid gloves.

She even suggested that the industrywide bailouts were meant mainly to help Citigroup. Other commercial banks were in considerably better shape, she noted, and beleaguered investment banks like Morgan Stanley had secured private investments.

“How much of the decision-making was being driven through the prism of the special needs of that one, politically connected institution?” Ms. Bair wrote.

Other players in the crisis will most likely criticize her concerns as reductive, especially in light of major problems at Bank of America, which required two bailouts. While other banks were healthier than Citi, regulators opted for an across-the-board plan to instill confidence in the industry and the economy.

Even so, Ms. Bair laid out new details in the book suggesting that regulators went further than previously thought to protect Citigroup.

Early on in the crisis, she said, Mr. Geithner wanted Ms. Bair’s agency to financially support Citigroup’s planned $1-a-share acquisition of Wachovia. In turn, the F.D.I.C. would receive $12 billion in preferred stock and warrants.

Mr. Geithner and Citigroup held private talks about the deal without telling Ms. Bair, according to her account. Regulators then planned to allow Citigroup to count the stock as capital, a boost to the bank’s “sagging capital ratios.”

When Wells Fargo swooped in with a higher offer that required no government backing, Ms. Bair indicated her support for the new deal. Mr. Geithner, she said, was “apoplectic” and wanted the F.D.I.C. to stand behind Citigroup, which then raised its bid. The Fed ultimately approved the Wells Fargo deal and Citigroup required two infusions of government capital.

As Citi continued to suffer in 2009, Ms. Bair pressed for the bank to put its troubled assets into a “bad bank” supported by private money. Ms. Bair said she received no support from other regulators, who feared it would unnerve the markets.

In the book, Ms. Bair also scrutinized Mr. Geithner’s approach to reforming Wall Street. Detailing new elements of the debate over the Dodd-Frank act, she argued that Mr. Geithner worked with Republican lawmakers to “water down” new regulations like the so-called Volcker Rule. Other people close to the Dodd-Frank debate recall that Mr. Geithner supported the rule but agreed to exemptions to secure Republican votes.

When Ms. Bair and other officials mentioned to lawmakers their concerns about a draft version of the legislation, she said Mr. Geithner summoned regulators to deliver an “expletive-laced tongue lashing.”

For her part, Ms. Bair acknowledged her own temper flare-ups. When preparing for Congressional testimony one night, she recalled having stomped out of the room in a fit of exhaustion. Ms. Bair, who received a security detail after threats on her safety, also lashed out at journalists who she felt were unfair, underscoring her sensitivity to the glare of the spotlight.

“I get cranky when sleep-deprived,” she wrote.

Bull by the Horns Chapter 1 (PDF)

Bull by the Horns Chapter 1 (Text)

Article source: http://dealbook.nytimes.com/2012/09/24/ex-regulator-has-harsh-words-for-bankers-and-geithner/?partner=rss&emc=rss

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