A former Goldman Sachs executive just got named to an important job in the Federal Reserve system and if you think that’s a problem then you just may be an anti-Semite. Or maybe it’s that you don’t appreciate diversity.
I’ve got no idea what communications operative decided to run with this inane spin (in my experience they’re nearly all dumb enough to do such a thing) but it has the potential to torpedo Steven Kaplan’s nomination.
The issue is simple: it’s hard not to look at the events surrounding the 2008 financial market meltdown and ascribe some portion of blame to Goldman Sachs, the 800 pound gorilla on Wall Street. As Michael Lewis’ book The Big Short made plain, its bankers were selling mortgage-backed securities they were fairly certain would crater, while also allowing other customers to bet on precisely that outcome.
When the bottom fell out of the market, Goldman Sachs emerged more or less unscathed despite its exposure–largely thanks to a massive government bailout of AIG, which had sold them “insurance” on billions of dollars of their investments that turned out to be worthless, a fact that would have become evident had Goldman’s alleged geniuses given it even a cursory thought. But they didn’t, in part because they knew that they were too important (or politically plugged in) to fail. Having a Goldman alum running the Treasury helped assuage any fears.
In the aftermath of the Great Recession, not a few people are rightly suspicious of the sort of self-dealing that occurred in the crisis and are wary of allowing more foxes in the financial regulatory hen house. The days where a Goldman Sachs banker practices his version of noblesse oblige by volunteering for government service after making his millions seemed at an end.
Until yesterday, that is, when the Federal Reserve bank of Dallas appointed Kaplan to be its next president. It’s an important job: it will make him a regular voting member of the Federal Open Market Committee, which meets six times a year to help decide monetary policy. Normally these positions go to economists who spent their career thinking about monetary policy. Reaching into the ranks of Wall Street isn’t all that common.
The people at the Dallas Fed apparently recognized there was an incipient PR problem with this appointment and came up with two approaches–both of which happen to be asinine and offensive.
The first objection, floated in John Hilsenrath’s piece in the Wall Street Journal Tuesday, was that Goldman Sachs was started by Jews at a time when they couldn’t be hired by other white-shoe investment banks, and while those days are long past it still has a fair number of Jews working there. Therefore, opposing the appointment of one of its employees for a high-level job makes one an anti-Semite.
The other spin is even better: Since most of the Federal Reserve bank presidents happen to be Ph.D. economists, the appointment of Mr. Kaplan—a white, extremely wealthy, east coast man—represents diversity.
The notion that we need non-economists to be represented in the central bank hierarchy makes about as much sense as saying we need a couple of arsonists to work at the local fire department.
Spending a career selling bonds and structuring deals may very well impart a modicum of knowledge about financial markets, but why this is manifestly different or better than what a Federal Reserve economist learns in his career is beyond me. And why the potential gain from this so-called diversity would outweigh the perception of regulatory self-dealing is left unsaid, most likely because even the best spin-meister can’t muster a coherent argument to that effect.
These laughably inept arguments tell us two things: First, that whoever engineered Kaplan’s appointment recognize that they have a gigantic optics problem at hand, and—second—that they have nothing in the hopper to counter this.
I’ve always thought that this notion that appointees to a government post had to avoid even the appearance of impropriety was a tad disingenuous, and that they deserve the benefit of the doubt. But a pre-emptive volley as manifestly offensive as this needs to be met with a vigorous push-back, if only to ensure that no one tries such a preposterous approach again. Mr. Kaplan’s entire career not only merits as thorough an examination as we give cabinet appointees, but it would also be worthwhile to have a spirited discussion as to who should be a Federal Reserve Bank president and whether there is a need for people who aren’t trained as economists and who hail from the ranks of those regulated by the Fed. And while we’re at it, rehashing Goldman’s actions during the financial collapse could be worthwhile as well.
Of course, coming from a publication as rife with anti-Semitism as THE WEEKLY STANDARD, maybe this objection doesn’t mean too much.
Ike Brannon is the president of Capital Policy Analytics.
