What would it mean to have Stanley Fischer as vice-chairman of the Federal Reserve? More hawkish or more dovish? Is it a bold move or a safe pick? Will he, to paraphrase Obi-Wan Kenobi, “bring balance to the force” by acting as a bridge between Janet Yellen and the hawkish wing, which becomes more prominent on the FOMC in 2014?
The man looks like a middle-of-the-road pragmatist, with plenty of experience at the central bank level as well as in the private sector. He has called QE “dangerous but necessary” and seems to be more willing to discuss the unintended consequences of zero interest rates and a bloating of the Fed’s balance sheet. That alone makes him OK in my book.
He also has shown an ability to make hard, or at least aggressive choices. In his last job, as head of the Bank of Israel, Fischer moved to raise interest rates as soon as the nation emerged from recession, though the rest of the world was still floundering.
That being said, I have a big problem with the notion of Fischer as the number two person at the Fed – his 2002-05 tenure as vice-chairman of Citigroup.
Citigroup, to me, represents everything that went wrong before and during the financial crisis. It was the Citi-Travelers merger that hammered the final nail in the coffin of Glass-Steagall. The company was built on debt, and continued to leverage up during Fischer’s tenure. When the crisis hit (granted, after he left the firm), Citi’s reported leverage ratio of 56, already among the highest in the industry, was rumored to be as much as four times higher due to its treatment of certain intangible assets as Tier 1 capital.
Exactly how leveraged the firm was by the end is a subject of debate, but I remember a Reuters story that estimated it to be 280-1. Yikes! (As an aside, for readers interested in more information on the Citigroup implosion and the back-room regulatory response, I invite you to check out “Bull by the Horns,” former FDIC chair Sheila Bair’s book from last year).
On paper, Fischer looks to be a solid pick with a solid resume. However, I am troubled by this one aspect of his past. I would want to know what he knew and when he knew it, preferably with backup documentation. Yes; I realize that is a pipe dream. Anything on which he elaborates will weaken his chances, as he will either be viewed as an oblivious executive or a dastardly gambler of other people’s money.
My guess is he will keep quiet about his tenure at Citi, get the job as the Fed’s number two, and go on to become an effective regulator. But I will always wonder.