Vacancies in top economic policy jobs can be harmful, Geithner says

The federal government faces huge gaps of leadership in economic and financial policymaking, with about a dozen senior positions vacant or staffed by temporary caretakers, at a time of economic duress and efforts to write hundreds of new financial regulations.

The void atop much of the government’s financial machinery was underscored Monday when Nobel laureate Peter Diamond withdrew his nomination to serve on the Federal Reserve. The Massachusetts Institute of Technology professor blamed Republicans for blocking his nomination, saying they failed to understand the centrality of unemployment in the Fed’s thinking. Diamond won his Nobel in part for his work on joblessness.

Diamond’s nomination, which was originally made in April 2010, had become a symbol of the government’s near-paralysis at nominating and confirming nominees to fill vacancies in the upper echelons of the Treasury Department, Federal Reserve and financial regulators.

The gaps are particularly striking, given the nation’s sluggish economic recovery, persistent unemployment and a vast effort involving numerous agencies to write rules required by last year’s sweeping overhaul of financial regulations.

And a new gap will soon be created as Austan Goolsbee, chairman of the White House Council of Economic Advisers, has decided to return this fall to his position as a professor at the University of Chicago.

Treasury Secretary Timothy F. Geithner warned Monday that a failure by the Senate to confirm nominees to run federal regulators would be especially harmful because the agencies are trying to write hundreds of new financial rules.

“They will make it less likely that there will be enough capable people in the regulatory bodies to bring the care and judgment necessary for the new rules to work,” Geithner said. “They will create the conditions again for a situation in which the weak and poorly managed risk bringing down the financial system again.”

The list of positions for which Obama has not made nominations or Republicans have blocked or vowed to block nominees runs long.

Key housing positions are vacant. Earlier this year Republicans blocked Obama’s nominee to head the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The Federal Housing Administration, which oversees loans to first-time home buyers, needs a new commissioner.

Republicans have vowed to block the appointment of Obama’s new nominee to lead the Commerce Department, John Bryson, over disagreements on trade policy and of Harvard Law School professor Elizabeth Warren to serve as head of the new Consumer Financial Protection Bureau, which many Republicans oppose.

“We remain disappointed that nominees are falling victim to partisan obstructionism or even just languishing in Congress,” said White House spokeswoman Amy Brundage. “We believe we need strong, well-qualified individuals to be leading the agencies and look forward to swift confirmations of those already nominated and additional nominees in short order.”

Obama has temporarily named Warren as an adviser who is helping start up the agency before it officially becomes an independent bureau in late July. He is under pressure from liberal groups to name an official chairman of the agency, which will exist as an independent unit within the Federal Reserve, or use an upcoming recess to appoint Warren.

Obama has not yet nominated new officials to lead the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, two major banking regulators. The White House says nominees for these two agencies are coming soon.

“I look back on my last five years and all the tough decisions I had to make, and if I’d been in an acting capacity, it would have been very inhibiting to me in making some of the tough decisions I had to do,” FDIC Chairwoman Sheila C. Bair, who is stepping down early next month, said in testimony last month.

The Treasury Department lacks the officials who oversee financial institutions, economic policy, and tax policy, though a nomination has been made for economic policy.

With Diamond’s withdrawal, the Fed is in need of new governors to fill two of its seven seats and a vice chairman to supervise the banking industry.

Some liberal commentators have said that leaving the positions vacant has been a missed opportunity for the Obama administration to put in place Fed officials who would favor a policy more supportive of economic growth and less worried about the threat of inflation.

“We are deeply disappointed that this candidate, who had initially seen bipartisan support, fell victim to partisan obstructionism at this important time for our economic recovery,” said White House press secretary Jay Carney.

“It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate,” said Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking Committee, who blocked Diamond’s nomination. “It would be my hope that the president will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda.”

Zachary A. Goldfarb is policy editor at The Washington Post.
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