Wall Street keen for a
fellow traveler at Treasury
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[November 19, 2016]
By Dan Burns and Jennifer Ablan
NEW
YORK (Reuters) - With President-elect Donald Trump promising to spend as
much as half a trillion dollars on infrastructure and slash taxes –
initiatives that could add dramatically to the U.S. debt and balloon the
budget deficit - Wall Street is far more focused on who will next head
the U.S. Treasury than it was in the previous selection process under
President Barack Obama.
Unlike current Secretary Jacob Lew, who assumed the role in early 2013
with little fanfare and has operated largely in the background, the next
Treasury chief is expected to be a featured player in articulating and
executing the Trump administration's economic policies and initiatives.
"You need somebody who has the experience and the knowledge and
understands the gravity of the position," said Richard Bernstein, chief
executive of Richard Bernstein Advisors LLC, an asset management firm.
"It's a huge position. It has implications not only for the U.S. economy
but also the global economy."
Among a handful of possible contenders, former Goldman Sachs <GS.N>
banker and Hollywood movie financier Steven Mnuchin, who served as
Trump's campaign finance chairman, is seen as front runner.
"He knows financial markets very well," said Joachim Fels, a managing
director and global economic advisor at Pimco. "I think it's interesting
that he also has experience outside of financial institutions, the movie
industry."
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Others in the mix, according to published reports, include JP Morgan
Chase & Co. <JPM.N> Chief Executive Jamie Dimon and U.S. Rep. Jeb
Hensarling of Texas.
Both Mnuchin and, in particular, Dimon, who heads the largest U.S. bank
and the biggest bond dealer, are seen well equipped to manage the
relationship between Washington and the banks that facilitate the
trillions of dollars of borrowing required of the next administration.
Under Obama, the U.S. debt has nearly doubled to $19.6 trillion from
about $10.7 trillion. Under Trump's stimulus proposals, that could grow
quickly, as would the federal budget deficit, which has actually shrunk
by about two thirds during Obama's tenure.
"It's very likely that we get rising fiscal deficits, at least
initially," Pimco's Fels said. "I think this administration, like all
administrations, will need the bond community."
Hensarling, who was just elected to an eighth term in his district east
of Dallas, would not have such deep Wall Street ties. A noted deficit
hawk and a critic of the wave of financial regulation enacted after the
2008 financial crisis, his private-sector experience has not been in
finance. In fact, most of his interaction with Wall Street has come
through his role as chairman of the House Financial Services Committee.
CLEAR ON POLICY
The last Wall Street insider to serve in the post was Henry Paulson, a
former head of Goldman Sachs who was appointed by George W. Bush in 2006
and whose term was dominated by navigating through the financial crisis.
He was succeeded in 2009 by Timothy Geithner, who moved into the post
from running the Federal Reserve Bank of New York and worked extensively
with Paulson during the crisis. Wall Street is keen to avoid an
appointment that resembles either of Paulson's two immediate
predecessors, John Snow and Paul O'Neill.
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![](../images/111916pics/busine69.jpg)
JP Morgan Chase and Company CEO Jamie Dimon answers a question at
the U.S. Senate Banking, Housing and Urban Affairs Committee hearing
on Capitol Hill in Washington DC, June 13, 2012. REUTERS/Larry
Downing/File Photo
![](http://archives.lincolndailynews.com/2016/Nov/19/images/ads/current/christian_village_lda_CHRISTMAS_2016.png)
The two Bush appointees ran large industrial corporations before taking
over Treasury and lacked deep experience in financial markets. Snow was
CEO of railroad CSX Inc. <CSX.N> and O'Neill ran aluminum producer Alcoa
Inc. <AA.N>.
Both are viewed to have struggled to enunciate the Bush administration's
policy preferences on issues key to investors, such as the strength of
the dollar, the world's main reserve currency. "You go back to Bush with
his Treasury secretaries," said Gregory Peters, senior investment
officer at Prudential Fixed Income, said Tuesday at the Reuters Global
Investment Outlook Summit in New York. "The markets hated them."
"O'Neill every other week had a different dollar policy," Peters
recalled.
One relationship important to Wall Street is how the Treasury secretary
interacts with and accepts advice from the Treasury Borrowing Advisory
Committee, or TBAC. The panel of executives from Wall Street’s biggest
bond dealers and fixed-income investment managers meets with Treasury
four times a year to advise on the scope and make up of the hundreds of
billions of dollars in Treasury bonds, notes and bills issued by the
U.S. government each year.
It was on TBAC's recommendation, for instance, that the Treasury opted
to issue more long-term debt in recent years and to introduce new
securities, such as floating rate notes, to diversify the pool of
potential Treasury buyers. "Although these may sound like mundane,
technical policy considerations, the U.S. Treasury market is the most
important market in the world," former TBAC chairman Matthew Zames wrote
to Lew in his departure letter earlier this year. "Its orderly operation
is critical for financial markets to operate and investors rely on U.S.
government securities as a safe haven in during uncertain times," wrote
Zames, who is chief operating officer at JP Morgan. "Even small changes
in rates can result in significant direct costs or savings to taxpayers,
and changes in Treasury yields can also influence rates on other
financial instruments, impacting investors and consumers around the
world."
(Additional reporting by Richard Leong; Writing by Dan Burns; editing by
Diane Craft)
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