Bush nominates two finance experts for Fed

By Caren Bohan and Tim Ahmann

WASHINGTON (Reuters) – President George W. Bush nominated
two finance experts, White House aide Kevin Warsh and former
aide Randall Kroszner, for open seats on the U.S. Federal
Reserve board, the White House said on Friday.

Warsh, a former investment banker, has worked on the White
House National Economic Council since 2002, focusing on
domestic finance and capital market issues.

Kroszner, a professor 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.

The Fed’s seven-member, Washington-based Board of Governors
– the nucleus of monetary policy-making — has had two open
seats since Edward Gramlich stepped down in August.

The other seat was vacated last June when Ben Bernanke, who
is now poised to take the helm at the Fed on Wednesday,
departed to serve as a top economic adviser to Bush. Fed
Chairman Alan Greenspan, who has led the central bank since
August 1987, departs on Tuesday.

Before Warsh, 35, joined the White House staff, he was
executive director in Morgan Stanley’s Mergers & Acquisitions
Department. On Wall Street, he served as a strategic adviser to
companies across a range of industries.

At the White House, he has worked on regulatory matters,
including oversight of mortgage market giants Fannie Mae and
Freddie Mac and the accounting and corporate governance reforms
put in place in 2002.

“I think he will bring a lot of experience with the
markets,” said Cesar Conda, a former domestic policy adviser to
Vice President Dick Cheney. “At the White House that was sort
of his key responsibility — to monitor, analyze and interpret
market trends for the president.”

Both Warsh and Kroszner were tapped to fill unexpired
terms. Kroszner’s would expire January 31, 2008, while Warsh’s
would run until January 31, 2018.

If confirmed by the Senate, Warsh would be the youngest Fed
board member in the 92-year history of the central bank.

‘CHICAGO SCHOOL’

During his stint on Bush’s Council of Economic Advisers,
Kroszner helped pull together the economic forecasts that
underlay the administration’s budget projections.

More recently, Kroszner has assembled forecasts at the
University of Chicago. In the most recent forecast released on
December 7, he predicted the U.S. economy would expand 3.5
percent this year, the same as in 2005. Kroszner declined to
comment on the outlook for Fed policy when he released the
forecast.

Warsh is a graduate of Stanford University and has a law
degree from Harvard Law School.

Kroszner, 43, has been a research consultant for the
Federal Reserve Bank of Chicago since 1994 and has also been a
visiting scholar at the Fed board. He has a bachelors’ degree
from Brown University and both a masters’ and a doctorate from
Harvard University.

He is a believer in free markets whose views fit with the
generally conservative “Chicago school” of economics. While his
monetary policy views are not well known, economists said he
would likely be in the mainstream. One University of Chicago
colleague has said Kroszner would be a “sound money guy.”

In a commentary in late 2004, Kroszner noted that the stock
market had its worst performance since the Great Depression
during his Council of Economic Advisers tenure and had taken a
sharp dive around the time he came to Washington to serve an
earlier stint as a council staff economist in 1987.

“So, if you ever see my name in the papers as going back to
D.C., sell and sell short,” he wrote.