From Faltering Fannie to Treasury's Bailout, Allison Answers the Call of Crisis
Saturday, May 23, 2009
Financial crises always seem to find Herbert M. Allison Jr.
Eleven years ago, as a top executive at investment bank Merrill Lynch, Allison was at the center of a storm over Long-Term Capital Management, a hedge fund whose collapse threatened the financial system. In 2008, the Bush administration called on him to lead Fannie Mae after the government seized the firm in the hopes of keeping the company, and the nation's home-loan market, alive.
Now, Allison is facing the biggest crisis of them all.
In coming weeks, Allison, 65, is slated to take over the Treasury Department's bailout operations at a critical moment in the government's efforts to stabilize the financial system. If confirmed by the Senate, as expected, he would step in at a time when the program's reputation has suffered among lawmakers in Washington as well as among Wall Street executives wary of the limits that come with federal aid.
Under Allison's watch, the Treasury will attempt to launch a $1 trillion program to buy toxic assets off the books of banks. Eventually, he is expected to coordinate the government's exit from its many investments in the financial sector.
It has not been easy for Treasury Secretary Timothy F. Geithner to find someone to take the job. Several candidates have turned it down after realizing it would require a grueling schedule and no small amount of political fortitude. Neel Kashkari, the last person to hold the post as assistant secretary for financial stability, was regularly skewered by lawmakers angry over the government's efforts to bail out Wall Street bankers.
In Allison, 30 years older than Kashkari, the Treasury gains a veteran with experience bridging the worlds of Wall Street and Washington. He already appears intent on strengthening coordination between the Office of Financial Stability and other parts of the Treasury Department and administration.
Aside from running the 133-person financial rescue operation, located a few blocks from the Treasury building, Allison is a counselor to Geithner, which gives him a broader role within the department.
"His understanding of the markets and finance is extraordinary," said Ken Wilson, a former top adviser to then Treasury Secretary Henry M. Paulson and Goldman Sachs banker. "The fact that he is willing to step in with the [bailout], with all the issues around it, shows how dedicated he is."
After retiring from his job as chairman and chief executive of TIAA-CREF, the investment manager for retirement savings of people working in the non-profit sector, such as professors and hospital workers, Allison was recruited back into action by the government. He was sitting with his family on a veranda in the Virgin Islands when he got an urgent call from Paulson.
The government was planning to take over Fannie Mae and Freddie Mac. Would he be willing to take charge of one of them? Allison said yes. He arrived the next day at the Treasury Department for meetings -- in his tropical attire.
At Fannie, Allison took over a deeply demoralized company losing billions of dollars. He made his priorities clear: The company would do whatever it could to help the government carry out its goal of reviving the financial sector and bolstering the housing market -- even if it cost Fannie, backed by taxpayers, money.