Lee Sachs, a counselor to Treasury Secretary Timothy F. Geithner, plans to step down this year as the banking crisis wanes and the Obama administration winds down its emergency programs.
As an adviser on domestic finance, Sachs helped conduct stress tests on the biggest banks and reshape the $700 billion bailout. He also helped manage trillions of dollars in additional government borrowing and advised Geithner on the market implications of issues from the Greek budget crisis to housing finance.
Sachs says he’s leaving now that markets have stabilized and Geithner has had time to set up a permanent team. “I came back down here to help the president and secretary to design and execute their response to the financial crisis,” he said in an interview. “The financial system is in a much stronger position today than it was a year ago.”
His departure comes as the crisis-response team he established becomes a permanent part of the Treasury Department. A former senior managing director at Bear Stearns Cos., the New York-based investment bank bought by JPMorgan Chase & Co. in 2008, Sachs will be one of the most senior of Geithner’s advisers to step down.
“I am likely going to head back to the private sector at some point in the next couple of months,” said Sachs, 46. He says he’ll take some time off before deciding on his next move, to recover from “running 100 miles-an-hour around the clock to stabilize the financial system” alongside regulators and White House officials.
Sperling May Follow
Another Geithner counselor, Gene Sperling, may also be leaving the Treasury soon. Sperling is under consideration for the post of deputy director of the Office of Management and Budget, according to a person familiar with the matter.
Geithner, 48, yesterday credited Sachs with showing “great judgment and skill in helping the president navigate the greatest financial crisis since the Great Depression.”
One of Sachs’ legacies will be the Office of Capital Markets and Housing Finance, successor to an informal crisis- response team he helped establish in the Treasury’s domestic finance division. Led by Matthew Kabaker, a former executive at Blackstone Group LP, the unit fulfilled one of Geithner’s goals at the start of the new administration.
“In transition, we recognized that the Treasury Department did not have a staff capability to deal with capital markets and finance-related issues,” Sachs said. “We need this team.”
The Treasury is moving into a long-term planning phase after 18 months of primarily managing the aftermath of the financial crisis. Priorities this year include pressing for an overhaul of financial regulation and starting to design plans for the future structures of mortgage finance companies Fannie Mae and Freddie Mac to bring to Congress in 2011.
Since taking office, the Obama administration has tried to change the $700 billion Troubled Asset Relief Program from a bank rescue into a financial-stability plan. TARP, enacted in October 2008, expires in October.
Geithner’s department last year set up the Public-Private Investment Program with the goal of removing as much as $1 trillion in troubled assets from bank balance sheets. The program has moved forward on a much smaller scale, committing as much as $30 billion in government money for participating funds.
The Treasury also held several additional rounds of capital injections for small banks. Those programs drew few applicants, as banks feared customers and investors would shun firms that accepted money from the TARP.
Other regulators say Sachs’ strength has been his ability to understand the government’s role in the crisis, which allowed him to start work immediately after the 2008 presidential election. He was already known on Wall Street and in Washington from his early career, which spanned 13 years at Bear Stearns followed by a tour in the Clinton administration under former secretaries Robert Rubin and Lawrence Summers.
“When he called me in November, right away we were communicating, I knew I could trust him, I knew I was working with somebody who knew what they were talking about,” Federal Reserve Vice Chairman Donald Kohn said in an interview. “He’s really knowledgeable about financial markets and financial institutions. He’s seen that world from both sides.”
Kohn, who will step down in June after a 40-year central bank career, described Sachs as “even-tempered,” with a sense of “quiet authority creditreport.” He says they worked closely together when Sachs served in the Clinton administration and spoke daily, sometimes more often, during the height of the financial crisis.
“I have found him an important ally for the Federal Reserve,” Kohn said. “He was very sensitive to the issue of Federal Reserve independence.”
One example of Sachs’ influence came when regulators were debating how big banks should repay capital injections they received in 2008 at the height of the crisis. Sachs advised regulators on how quickly banks could be expected to raise private capital, as well as how markets might react.
Sachs forged ties to his current boss during the Clinton administration, when Geithner worked in the Treasury’s international affairs division. With Sachs in domestic finance, the two worked on debt crises in Russia and Asia, while also competing on the tennis court and in triathlons.
Geithner is faster. “I think he called me from home as I was crossing the finish line,” Sachs said of one shared racing experience.
Wall Street Resume
Critics said Sachs’ financial-market experience isn’t an automatic advantage. His ties to Rubin, who hired Sachs in 1998, could be seen as a liability after the country’s biggest banks required bailouts, said William Black, a law professor at the University of Missouri-Kansas City.
“‘Market experience’ from individuals that screwed up the markets is an interesting concept,” said Black, who served as a federal bank regulator during the savings-and-loan crisis of the late 1980s and early 1990s.
The post-crisis stigma attached to Wall Street resumes accompanied Sachs to the Obama administration: Since joining the team in late 2008, he was never nominated for a Treasury position that required Senate confirmation.
Instead, Sachs was one several counselors serving Geithner in the first months of the administration, when the Treasury Department had no Senate-confirmed senior officials other than the secretary. Congress has since confirmed Deputy Secretary Neal Wolin and a number of assistant secretaries, without approving the administration’s picks to lead the Treasury’s international affairs and domestic finance divisions.
As a result, nominees Jeffrey Goldstein and Lael Brainard have been serving alongside Sachs, Jake Siewert and Gene Sperling as counselors, while the Senate weighs their nominations. Goldstein, a former private equity executive, has been tapped as the undersecretary of domestic finance. Brainard, who served as Clinton’s deputy director of the White House National Economic Council, has been nominated as the undersecretary for international affairs.
The lack of Senate-confirmed Treasury officials came as the White House fended off criticism from lawmakers including Senator Maria Cantwell, a Democrat from Washington state who has repeatedly faulted Obama administration proposals as being too soft on the financial industry without doing enough to close regulatory loopholes.
In the Clinton administration, market experience was viewed as an asset and not a handicap. Gary Gensler, chairman of the Commodity Futures Trading Commission and Clinton-era Treasury official, said he remembers being “delighted that somebody of Lee Sachs’ caliber and values was willing to join the team.”
After Clinton left office, Sachs was a partner at New York- based Mariner Investment Group, which owned a stake in at least one company that specialized in collateralized debt obligations — a type of investment that fueled the crisis.
Before joining President Barack Obama’s transition team after the 2008 election, Sachs earned more than $3 million in salary and partnership income at Mariner in 2008, according to his financial-disclosure forms.
In the 1980s and 1990s, Sachs rose to head of global capital markets and the board of directors at Bear Stearns after graduating from Ohio’s Denison College. Sachs is married to Whitney Sachs, a former attorney, and they have two 14-year-old daughters.
“You can work for the secretary of the Treasury of the United States,” said Michael Berman, president of the Duberstein Group, a Sachs family friend who helped him link up with Rubin’s Treasury. “But when it comes right down to it, the twins are in charge.”