What kind of skills might be essential for someone to be head of a Federal Reserve Regional Bank? If your response is a basic knowledge of monetary policy and a deep understanding of financial markets you are mistaken: The answer is, apparently, experience at Goldman Sachs. The appointment of former Goldman Sachs vice president and Treasury official Neel Kashkari to be president of the Minneapolis Federal Reserve Bank means that the last three central bank presidents have come from Goldman.
I’ve never worked for an investment bank so perhaps I’m being unfair, but the day-to-day activities of most people at Goldman have relatively little to do with central bank operations. A regional Central Bank president has two main tasks: to run a bureaucracy tasked with monitoring the region’s economy and its member banks, and to serve on the Federal Open Market Committee, which helps determine the Fed’s monetary policy.
Kashkari has no managerial experience to speak of and no training or experience relevant to monetary policy, so there must be something else that qualifies him. The New York Times noted with approval that he was the “runner up” in the California gubernatorial race in 2014, an exceedingly nice way to describe a hopeless campaign that did eight points worse than the last Republican who ran for the seat. Other commentators have complimented him on his performance running equities at PIMCO, but the size of his fund never reached one percent of PIMCO’s holdings, he didn’t beat the market in his tenure, (in 2012 it finished in the bottom decile of such funds) and the company has since closed down most of its equity holdings.
Kashkari became a household name thanks to the prominent role he played in the 2008 financial crisis, in which he helped his mentor, Treasury Secretary Hank Paulson, conceive of and then administer TARP—the Troubled Asset Relief Program. He participated in some intense and important negotiations, which no doubt educated him on the workings of Congress and Treasury, but none of that is relevant to being a Fed regional bank president. And if we do have another financial crisis, no one’s going to be looking to the Minneapolis Fed for guidance unless it closely resembles the last one—which it won’t.
Here’s how the appointment of regional Fed Bank presidents used to work, before we just started asking Goldman Sachs vice presidents to grace us with their service. In 2008 the St. Louis Fed found itself in need of a president at a time when financial markets were going down the tubes. In a pinch, they actually hired one of their senior economists, Jim Bullard, to run things. Bullard didn’t have much managerial experience either but he had spent the previous 20 years of his life thinking about monetary policy—especially what the Fed can do when it pushes interest rates to zero and the economy is still in need of stimulus—and he was considered one of the profession’s experts in this area. In short order he came to play an outsized role in devising the quantitative easing that the Fed embraced a few months later, and he continues to play an important role in formulating monetary policy.
Some have suggested he might be a good successor to Janet Yellen, but that’s not likely to happen: A few people have pointed out that his Ph.D. is from Indiana University, which is apparently insufficient for such a post. Maybe he can just do a stint on the trading desk at Goldman if he ever decides to go for the job.
