- 20 сентября 2017, 12:06
- POLITICO. Top Stories
With Gary Cohn’s chances of becoming chairman of the Federal Reserve diminished, another former banker is waiting in the wings for the coveted post: Kevin Warsh.
A veteran of both the central bank and Wall Street, Warsh is already high on the White House’s list of possible successors to Fed Chair Janet Yellen. But he has an enviable reference: his billionaire father-in-law, who met Donald Trump in college and is a confidant to this day.
Warsh is married to the granddaughter of cosmetics magnate Estée Lauder, putting businessman Ronald Lauder in his corner. Though the president has provided few clear signals on whom he will pick for the world’s most important economic job, that family tie is a durable association with Trump that no other contender can claim.
“Anytime someone has a connection to someone who’s powerful or famous, it matters immensely to Donald Trump,” Trump biographer Tim O’Brien said.
If Warsh is nominated, “I can’t imagine that would come to pass without Trump having some sort of a conversation with Lauder,” O'Brien said.
Warsh’s odds of taking over the Fed seemed to brighten after Cohn, the director of the National Economic Council, publicly criticized Trump’s response to violence in Charlottesville, Virginia. That angered the president, though Cohn, a former Goldman Sachs president, could re-emerge as time passes.
It is also possible that Yellen, a Democrat appointed by President Barack Obama, will be renominated. But her views on regulating banks diverge considerably from those of Trump, who once vowed to do “a big number” on post-financial crisis rules. And Senate Republicans have no love for her.
Meanwhile, Trump’s fondness for bankers could put other veterans of finance in play, such as former U.S. Bancorp CEO Richard Davis or onetime BB&T CEO John Allison. But Warsh’s family connections are the subject of persistent chatter in the Fed race.
Ronald Lauder, Estée Lauder's younger son, has known Trump for five decades, ever since they attended the Wharton School of the University of Pennsylvania. The two have since run in similar circles, both in New York and in Palm Beach, Florida, where they have homes. Trump even launched a cologne in 2004 called “Donald Trump, the Fragrance” in partnership with Estée Lauder.
Lauder, a former ambassador to Austria with a Forbes-estimated net worth of $3.5 billion, has spoken regularly with the president since Trump took office. According to a person familiar with the conversations, they mostly discuss Middle East issues; Lauder is president of the World Jewish Congress.
Warsh and Lauder declined to comment for this article.
In addition to convenient family links, Warsh has other qualities that Trump admires. Charming and well-connected, the 47-year-old former banker looks the part of a polished executive, an important consideration for the president.
“I do think at the end of the day he relies first and foremost on his own gut when he meets people,” O’Brien said of Trump.
And Warsh isn’t a formally trained economist, a group with whom Trump doesn’t normally associate. (Warsh has a law degree from Harvard.) He has already established a relationship with the White House, having been a member of Trump’s Strategic & Policy Forum before that panel was disbanded in the wake of the president’s comments about Charlottesville.
In his role as a visiting fellow at Stanford University’s Hoover Institution, Warsh wrote a paper with a group that included two other Fed chair hopefuls — Stanford economist John Taylor and Columbia University economist Glenn Hubbard — defending Trump’s goal of sustained 3 percent annual GDP growth.
But he is also a Washington insider and avowed free trader who has criticized the central bank’s loose monetary policy, facts that could work against him with the president.
Regardless of whom Trump taps to be the next chair, the president’s penchant for loyalty will cause nervousness among the Fed’s defenders, many of whom bristle at the steady criticism of the central bank from Congress.
“The Fed in my view has not stood up for itself in this regard well enough, and I would hate to see its independence deteriorate further,” said Charles Plosser, a former president of the Philadelphia Fed. “I don’t know what role a chair will play in that ... but I do suspect that being too political may not help.”
Warsh started his political career during President George W. Bush’s administration, after seven years at Morgan Stanley, where he was vice president and executive director in the investment bank’s mergers and acquisitions department. He was hired in 2002 as an economic policy adviser in Bush’s White House, two months before marrying Jane Lauder.
After four years, Bush tapped him for a slot on the Fed’s board, making him — at 35 — the youngest governor in the central bank’s history.
At the Fed, he was part of the inner circle of then-Chairman Ben Bernanke, who in his book “The Courage to Act” described Warsh as one of his most frequent companions in meetings and on conference calls during the financial crisis. He also worked as a go-between for CEOs and the Fed board.
“We worked very, very closely during the crisis, when he and I and Chairman Bernanke were kind of a triumvirate,” former Fed Vice Chairman Don Kohn said in an interview. “He really was an important liaison between the Federal Reserve Board and the financial markets, helping us understand and shape our response to the financial crisis.”
But later in his career at the Fed, Warsh began pushing back on Bernanke’s decision to continue massive purchases of Treasury bonds and bundled mortgages to push down long-term interest rates. In one instance, he voted with the chairman on a second round of asset purchases — and then wrote an op-ed the next week expressing reservations about the policy. A few months later, he resigned from the central bank.
Bernanke said in his book that he held no grudges against Warsh, adding that his former colleague had voiced reservations even before the vote.
“[D]espite hearing from a few [Fed] colleagues who were piqued at Warsh’s op-ed, I was comfortable with it,” Bernanke wrote. “I never questioned Kevin’s loyalty or sincerity. He had always participated candidly and constructively, as a team player, in our deliberations.”
When Timothy Geithner was tapped by President Barack Obama as Treasury secretary in late 2008, Warsh made an unsuccessful bid to replace him as head of the New York Fed. He lost out to Bill Dudley, a longtime veteran of the reserve bank who ran its markets desk during the crisis.
Warsh has continued to be a consistent critic of Fed policy. He has complained about too much uniformity of thought within the agency. And he regularly advocates reform, including more transparency and a clearer direction, but with a level of vagueness that makes him widely palatable among Republicans.
“The Fed should straighten itself from its defensive crouch,” Warsh said in a speech in May. “And it should resist the reflexive response that any proposed changes in governance are a threat to the institution’s independence.”
Multiple former Fed officials said that while they respect Warsh’s intelligence and the indispensable role he played during the financial crisis, he isn’t steeped in the details of monetary policy. They and other observers disagree about whether his lack of a Ph.D. in economics will be a significant problem.
Kohn argued that it shouldn't be a prerequisite to leading the central bank. Other former colleagues agreed.
“He’s pretty creative, and … he’s not tied to any models,” said Nellie Liang, a onetime Fed staffer who worked closely with Warsh. “That lets him ask questions in a different way or propose things in a different way that sometimes is useful.”
But others worried that having a Fed chair who knows less about monetary policy than other board members could undercut his authority. The last central bank chief without a Ph.D. in economics was Paul Volcker, though he had a master's degree in economics.
Warsh’s experience at Morgan Stanley, however, gives him practical experience in financial markets.
Jordan Haedtler of the progressive group Fed Up, which advocates lower interest rates and more diversity at the central bank, doesn’t see Warsh’s Wall Street ties as a positive.
“He was tasked by Bernanke with being the emissary to his former employer and other major Wall Street firms, so his independence from the financial sector is just as questionable as the Trump administration as a whole,” he said.
Haedtler also argued that Warsh was “spectacularly wrong during the lead-up to the crisis, during the crisis and following the crisis.” He cited a March 2007 speech in which Warsh praised the proliferation of new financial instruments, one of the major factors leading to the crisis.
Meanwhile, it’s unclear how Warsh will get around areas where he disagrees with Trump, such as trade.
In his very first meeting of the Fed’s top policymaking body in 2006, Warsh warned that “creeping protectionism may become stronger,” adding that “the Federal Reserve has a possible role in trying to moderate some of that discussion,” according to a transcript.
His views on monetary policy might also be inconsistent with those of Trump. Warsh was an early voice calling for tighter economic conditions following the crisis — in contrast to Yellen’s Fed, which has kept interest rates low and the central bank’s asset holdings large to stimulate growth.
Still, he is often credited with understanding the politics surrounding monetary policy decisions. And unlike some of his fellow candidates, he doesn’t believe in pegging interest rate policy to formulaic rules.
His regulatory views also seem in line with those ofother Trump appointees. In an April 2012 speech, he called for greater market discipline and simplification of post-crisis rules.
“The paradigm that leaves the overwhelming burden of prudential supervision on the judgments of regulators and supervisors alone is bound to disappoint,” he said.
Ben White and Josh Dawsey contributed to this report.