President Barack Obama is expected to name longtime Washington insider Jacob “Jack” Lew on Thursday as his next treasury secretary, a pivotal post as negotiations commence over raising the nation’s debt ceiling and staving off controversial scheduled cuts in federal spending.
Lew, the White House chief of staff and a former budget director for Obama and President Bill Clinton, would replace Treasury Secretary Timothy Geithner, the last remaining member of Obama’s original economic team, who wants to step down.
The move fills out the top tier of Obama’s administration for the coming second term as several members of the administration move on. While Attorney General Eric Holder plans to remain, Obama has nominated Sen. John Kerry, D-Mass., to replace Secretary of State Hillary Clinton; former Republican Sen. Chuck Hagel of Nebraska to replace Leon Panetta as secretary of defense; and counterterrorism adviser John Brennan to replace CIA Director David Petraeus, who resigned last year after admitting an extramarital affair.
Obama also must fill other positions. Labor Secretary Hilda Solis announced her resignation Wednesday. Environmental Protection Agency Administrator Lisa Jackson has resigned. And Lew’s move opens the key job of White House chief of staff.
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So far, Obama has nominated four white men to top posts since his re-election. Aides urged voters to wait to see his full slate of nominations and appointments to judge his commitment to diversity.
In Lew, Obama is seeking a secretary who lacks the luster of a Wall Street CEO or the gravitas of a renowned economic forecaster. But he would get a trusted confidant who has the president’s ear and one with extensive experience in the federal budget, perhaps the most serious flashpoint now in the government, with Obama engaged in repeated battles with the Republican House of Representatives over taxes and spending.
Lew, so far has not drawn any of the partisan fire that instantly greeted early reports of Obama’s plans to nominate United Nations Ambassador Susan Rice to be secretary of state or Hagel to be secretary of defense. That could suggest he’d win relatively easy confirmation in the Senate, which earlier confirmed his appointment to the lower profile post of deputy secretary of state. Quick confirmation would put him in place in time for what are expected to be acrimonious months ahead.
He’d immediately step into the fray. The United States on Dec. 31 hit its $16.4 trillion debt limit, and the Treasury Department has undertaken what are called “emergency measures” to keep paying the bills it owes to creditors. These measures, however, may run out as early as Feb. 15, raising the potential of a partial default on some U.S. debt, which could disrupt global financial markets.
Lew is a longtime Washington insider, working in the 1970s for legendary House Speaker Thomas “Tip” O’Neill, and is a veteran of decades of budget negotiations. He also served as deputy secretary of state for management and resources.
As a Washington insider, Lew is unusual when seen against past secretaries.
Geithner ran the Federal Reserve Bank of New York. George W. Bush had former Goldman Sachs chief Henry Paulson and high profile CEOs in the post. President Bill Clinton’s treasury secretaries included an esteemed senator, Texas Democrat Lloyd Bentsen, and then-Citibank chief Robert Rubin.
The lack of significant experience in the financial sector could make Lew a risky pick should financial markets go haywire as they did in 2007 and 2008. As treasury secretary, Lew would serve as chairman of the Financial Stability Oversight Council, created as a council of regulators during the broad revamp of financial regulation in 2010 in order to probe for threats to the U.S. financial system.
Obama’s choice of a man with little experience in finance or on the world stage may simply reflect that the “bigger challenges are at home” for the U.S. economy, said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.
Geithner headed the Federal Reserve Bank of New York at the start of the financial crisis and was involved in key decisions that brought financial markets back from an abyss. Although he never worked on Wall Street, Geithner was a top regulator who maintained contact with the captains of global finance.
Lew worked from 2006 to 2009 at Citigroup, working in wealth management and later heading an alternative investment division. He was there long enough to collect a controversial bonus as financial markets were near collapse.
When Lew was tapped to head the White House Office of Management and Budget, conservative groups criticized him for receiving a $900,000 bonus in 2009 at a time when taxpayer money was being used to help keep Citigroup afloat. Lew defended the payment, in a letter to Iowa Republican Sen. Charles Grassley, noting he was a management executive, not an investment adviser who speculated with client money.
In financial circles, say experts, most don’t know him.
“Since Mr. Lew will represent the president and his views, we do not expect a major philosophical shift at Treasury. However, we note two important points: his experience is strongest regarding the federal budget, but not as strong in terms of financial regulation,” Brian Gardner, head of Washington research for investment bank Keefe, Bruyette and Woods, wrote in an analysis of Obama’s pick.
Separate from negotiations on debt, deficit and raising more tax revenue, Lew would face numerous challenges on the global stage.
His two predecessors worked diligently to forge relationships with top finance officials in China, meeting regularly with their counterparts. Lew has no such profile on the global stage, at a time when China is preparing to hand power to a new leader in the spring who could rule for a decade.
And Lew would have to get up to speed quickly about ongoing global negotiations designed to ensure that there are common standards for global finance instead of the race to the bottom that occurred in the last decade that resulted in a worldwide crisis. While these global standards are desired, they carry the risk of reducing the competitiveness of the world’s deepest financial system.
Among the names that were thought to have been under consideration were former Clinton chief of staff Erskine Bowles, Larry Fink, the founder of BlackRock, the world’s largest money manager, and American Express CEO Kenneth Chenault, who would have been a high-profile African-American pick and who was also reportedly approached about becoming commerce secretary.