Tuesday, November 25, 2014

Andrew Ross Sorkin Opines on Elizabeth Warren and Antonio Weiss

In this morning’s New York Times, Andrew Ross Sorkin in his Dealbook column attacks Elizabeth Warren rather viciously for her opposition to President Obama’s nomination of Antonio Weiss for the position of Under Secretary of the Treasury for Domestic Finance (“Senator Elizabeth Warren’s Misplaced Rage at Obama’s Treasury Nominee”). The article is intemperate enough to make one wonder what it is doing on the New York Times’ news pages rather than in its opinion section because it is more advocacy than analysis.
I hasten to say that I have no opinion about whether Antonio Weiss would be a good Treasury Under Secretary having only been aware of him since his nomination was announced. Also, I agree with Mr. Sorkin that having worked for a financial firm should not operate as an immediate disqualification for this Treasury Under Secretary position. I do, though, take issue with the following paragraphs in Mr. Sorkin’s column:

“The role Mr. Weiss has been nominated for is largely responsible for managing the country’s $12.9 trillion debt at a time when the Federal Reserve is ending its stimulus. The job requires deep experience in the capital markets and global relationships. This is not a job for a local lawyer or research group executive.
“To put this in context, according to Politico, if the interest on the securities the Treasury sells was just 20 basis points higher for a year because of uncertainty or mismanagement, it would cost taxpayers $32 billion — more than it would cost to fund the Consumer Financial Protection Bureau for 50 years. The bureau was, of course, inspired by Ms. Warren.”
Bringing up the Consumer Financial Protection Bureau in this context is, of course, a cheap rhetorical trick that says more about Mr. Sorkin than it does Senator Warren, but the real problem with this paragraph is that it makes Treasury debt management seem more difficult than it actually is. Essentially, in its debt management decisions, Treasury needs to be aware of any shortfall between revenues and expenditures, the timing mismatch between when revenues are received and payments need to be made, and the need to refinance maturing debt. This is not that difficult. Usually, Treasury adds or subtracts from its current pattern of security issuance given the short-term forecasts of its cash needs.

In my experience at Treasury, most debt management decisions are not that important unless they come as a surprise to the market. I remember as a new Domestic Finance employee in the early 1980s wondering how Treasury was going to finance the huge increase in deficits that took place at the beginning of President Reagan’s administration. They had jumped from about $50 billion a year to around $200 billion, which were big numbers at the time. My career boss, Frank Cavanaugh, had a simple answer, “more.” He was absolutely right. There were some political appointees at Treasury who wanted to change debt management practices significantly and others who disagreed with the first group; for the most part, Secretary Don Regan did not accept the recommendations for changes.
During the Clinton and George W. Bush administrations, there was a conscious policy to shorten the average maturity of the public debt. The Obama administration has reversed this and has been lengthening the average maturity. While I did not and do not agree with the previous shortening decision, I also do not think it was that significant except for the decision to discontinue issuing 30-year bonds during the Bush administration. The announcement of this decision came as a surprise to the market and was botched in its execution (the news embargo was broken by a consultant who informed a client firm and Treasury posted the information on the web before the embargo expired). The decision itself was wrong and was reversed after the Under Secretary who made the decision, Peter Fisher, left the Treasury. What this episode demonstrates is that Treasury should not try to be too clever and try to outwit the market. As a Treasury Assistant Secretary for Domestic Finance in the George H.W. Bush administration, David Mullins, remarked with respect to Treasury debt management, “it’s tough for an elephant to dance.”

With respect to Mr. Weiss, I would be more concerned about his views on financial market and financial institution regulation, given Treasury’s enhanced role in this area, and also whether he is the sort of person one can trust to deal with a financial market emergency, should that happen. I also would want to have some idea about his management skills and whether he seems to be someone who understands the differences between the public and private sectors and can make the transition without too many problems.  
As for Mr. Sorkin, he may be right that Senator Warren is wrong to oppose Mr. Weiss. The way he makes his argument, though, reinforces the suspicion, which has been prevalent for some time, that he has been at least partially captured by Wall Street ever since he wrote Too Big to Fail. One should listen to people from Wall Street because they know their business, but one should always keep in mind that their expressed views may be colored by their self-interest.

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