Hoenig For Treasury Secretary

Monday evening, economist Simon Johnson wrote a blog post indicating that the Obama administration is quietly soliciting suggestions for a replacement for Treasury Secretary Tim Geithner. Johnson has stepped up to the plate to offer a suggestion: Kansas City Federal Reserve President Tom Hoenig. From the little I know about Hoenig, I would second that nomination.

First, I should say that I'm not entirely convinced that the Obama administration would toss out Geithner. He hasn't really done anything to be a clear candidate for firing. But then, I guess you could argue that's because he hasn't really done anything at all. The Treasury's mortgage modification program hasn't had particularly significant success, but it hasn't made things worse either (as far as I can tell). Its public-private investment fund intending to buy up banks' toxic assets also hasn't really gotten off the ground. The stress tests actually did a pretty good job at stabilizing the market, but at the likely cost of giving the impression that the big banks would be backstopped by the government, if necessary. And Geithner pretty much just let the Paulson bailouts run their course.

So Geithner didn't really screw anything up, but he also hasn't impressed anyone I've talked to. And he definitely hasn't taken a very hard line with Wall Street. After all, the President announced his toughest proposal thus far to reform Wall Street -- the Volcker Plan -- with the former the Federal Reserve Chairman at his side, not Geithner. But as I said before, I'd be pretty surprised to see Obama replace Geithner in the near term. But that doesn't mean he couldn't be a casualty if and when the Republicans massacre the Democrats in midterm elections this November. Geithner could be one of the fall men that Obama uses to indicate that his administration will seek a new direction going forward.

If Obama does choose to replace Geithner, who should he choose? He certainly can't pick a former Wall Street banker. In fact, he probably wants to avoid anyone with any ties whatsoever to Wall Street. Even Geithner's relationship posed problems, despite the fact that he never worked for a bank, but worked with the big ones regularly as New York Fed President. So his economic advisor Larry Summers is also probably out. Volcker might have been an interesting choice, but I can't see him nominating an 83-year-old to that high-stress post after November. Then, there are more prominent economists like Paul Krugman. But with greater Republican control over the confirmation process after November, Obama would be wise to pick a lesser-known name that they would have a harder time finding ways to criticize.

That leaves someone like Hoenig. By no means am I an expert on Hoenig, but I have observed a thing or two about him. I actually first heard him speak last year when I attended a Joint Economic Committee hearing where he testified about the Too Big To Fail problem. He took a no nonsense, practical approach to the problem. He didn't appear opposed to the idea of breaking up big banks. He seemed very committed to ensuring that failure was possible and the bailouts stop. He's also no pawn of the big banks, but a champion of smaller, regional banks. After all, Kansas City is a long way from Wall Street.

Interestingly, Republicans might not have too much trouble confirming Hoenig. Johnson speculates that Hoenig is probably a Republican himself. He's also an inflation hawk. I noted last week that he, bizarrely, was the lone dissenter on the Federal Reserve Board who thought it might be a good idea to raise interest rates. While Republicans might like that, it probably won't come into play as Treasury Secretary, since he'd have no direct effect on interest rates in the post. Though, it might indicate that he's more likely to also be a deficit hawk than other potential Obama nominees.

Indeed, it's possible that Hoenig could pose a more difficult sell to Democrats than Republicans. Though, if they reject a Treasury Secretary chosen specifically because he'd be tough on Wall Street, then that probably won't look good to their constituents. So you'd likely have enough Democrats to go along with it if Republicans are on board.