November 6, 2005
White House looks to round out Fed board
By Tim Ahmann and Caren Bohan
WASHINGTON (Reuters) - The White House is looking to
complement Federal Reserve chairman-nominee Ben Bernanke's
academic expertise in monetary policy by filling other open Fed
board seats with candidates with a grounding in financial
markets and regulatory issues, Republican sources said.
White House aide Kevin Warsh and former administration
officials Randall Kroszner and Richard Clarida are among those
in the running for two open seats on the Fed's Board of
Governors, according to sources inside and close to the White
The nomination last month of Bernanke to succeed Fed
Chairman Alan Greenspan when he steps down in late January
received wide applause in financial markets.
Bernanke's vast expertise in monetary policy and his past
experience as a Fed governor were seen as strong credentials,
but some say his lack of hands-on Wall Street experience is a
gap that may need to be filled elsewhere on the Fed board.
Some economists said Bernanke, former chairman of Princeton
University's economics department, may have a tendency based on
his academic background to rely too heavily on economic models
as he monitors the economy's crosscurrents.
His skills as a crisis manager are sure to be put to the
test as well.
"Those with an academic approach bring really quite a keen
mind to the party but not necessarily an awareness of the
reality of the markets and economic activity," said Allen Sinai
of Decision Economics.
Bernanke spent nearly three years at the Fed before moving
into his current job as chairman of the White House Council of
Economic Advisers in June. Before that he had taught at
Princeton and Stanford universities after receiving his PhD in
economics in 1979.
Former Fed Governor Lyle Gramley said he does not view
Bernanke as a "rigid academic," saying that at the Fed the
former professor had a reputation as someone who listened to
colleagues and was not bound by preconceived views.
Gramley said it would be useful to have some Wall Street
experience on the board, but that it was crucial "whoever they
pick has a considerable degree of background and expertise on
Sources said the White House wanted to tap someone for the
top slot before honing in on who should fill the two other
seats already open. This was so they could determine what areas
might need to be shored up at the Fed, while giving the nominee
for the chairmanship a chance to have some input.
MIX AND MATCH
Kroszner, who teaches at the University of Chicago,
specializes in international finance and financial regulatory
issues. He served as a member of Bush's Council of Economic
Advisers from November 2001 to July 2003.
Warsh, a former Wall Street lawyer, is an expert on
financial regulatory matters, including oversight of mortgage
market giants Fannie Mae and Freddie Mac.
As an aide on the White House National Economic Council, he
played an active role for the administration as Congress worked
to revamp corporate accounting rules in the wake of scandals in
Warsh is currently helping the White House shepherd
Bernanke's nomination through the Senate.
Clarida, who worked in the U.S. Treasury from February 2002
to May 2003, is on the faculty of Columbia University but is on
leave working as the chief economic strategist of the Clinton
Group, a New York hedge fund.
At the CEA, Kroszner took the lead in formulating the
economic forecasts that underlay the Bush administration's
budget projections. He has also examined international
financial crises and sovereign debt defaults.
"There's a good case to be made for having Wall Street
experience," said David Hale, global economist with Hale
Advisors LLC in Chicago.
He said Clarida's work with the Clinton Group hedge fund
gave him valuable market experience. He also said Kroszner
would bring useful expertise to the board.