Sunday, April 16, 2017

Trump's Potential PEU Fed Vice Chair

Reuter's reported:

The vacant Federal Reserve vice chairman's seat is a key regulatory role Director of the National Economic Council Gary Cohn and his colleagues on the economic team want to fill soon. Cohn has interviewed nearly two dozen candidates and has whittled the list down. Randal Quarles, a veteran of the George W. Bush administration is one of several candidates left, a source familiar with the process said.
In June 2003 Quarles spoke on Iraqi Reconstruction.   Ten years later an analysis of that effort showed:

Iraq Reconstruction Cost U.S. $60 Billion: Left Behind Corruption And Waste
Despite a $60 billion U.S effort to rebuild Iraq, life for most Iraqis has not improved significantly, according to a bitter and regretful retrospective by Iraqi officials and U.S. diplomats, military officers and politicians.
Randall Quarles left President George W. Bush's U.S. Treasury for The Carlyle Group where he served on their financial services team.  Carlyle made a fortune on BankUnited, which it obtained from the FDIC with billions in subsidies.  That sound strikingly familiar to IndyMac and Steven Mnuchin, Trump's current Treasury chief.

The potential Vice Chair of the Federal Reserve served under President George H. W. Bush.

During the Administration of President George H.W. Bush, Mr. Quarles also served at the Treasury; first as Special Assistant to the Secretary for Banking Legislation from 1991 to 1992 and as Deputy Assistant Secretary for Financial Institutions Policy from 1992 to 1993. In those roles, Mr. Quarles was a principal member of the Treasury's effort to design comprehensive reform of the laws governing bank capital markets activities.
Randall Quarles rotated from government to Carlyle, a politically connected private equity underwriter (PEU).  Bank capital markets imploded after Quarles left his Domestic Finance position with the W. Bush administration.  Carlyle's press release on Quarles hiring stated:

"Before joining Carlyle, Mr. Quarles was Under Secretary of the U.S. Treasury, where he led the Department's activities in financial sector and capital markets policy, including coordination of the President's Working Group on Financial Markets, development of administration policy on hedge funds and derivatives, regulatory reform of Fannie Mae and Freddie Mac, and proposing fundamental reform of the U.S. financial regulatory structure."
That's the junk that blew up in 2008.  Candidate Donald Trump wouldn't touch a guy like Quarles.  Will President Trump appoint another PEU to retain a system that rewards those with the most?

Buyout shops have seized on a performance enhancer that artificially jacks up results, according to many industry executives.The practice isn’t illegal, and is largely cosmetic, but it allows private equity firms to goose what’s known as their internal rate of return, or IRR.
Greed requires those with oversight to look the other way.  Quarles played a role in several government performance debacles.  I expect none of this to come up if he is nominated for Fed Vice Chair.

Update 4-17-16:  WSJ reported Quarles will be top financial regulator for Federal Reserve Bank.

Update 4-20-17:  The Intercept found this story.