"It's Very Complicated"
Tuesday 07 October 2008
Neel Kashkari speaks at the free-market conservative think tank The American Enterprise Institute. (Photo: The Washington Times)
Few people outside Washington have probably ever heard of Neel Kashkari.
But Mr. Kashkari has just been handed one of the biggest jobs on the planet - managing the U.S. government's $700-billion (U.S.) financial rescue package.
Yesterday U.S. Treasury Secretary Henry Paulson appointed him as interim assistant secretary of the Treasury for financial stability, to run the new Office of Financial Stability and administer the government's Troubled Asset Relief Program.
The job would be daunting for someone twice Mr. Kashkari's age or with many times more experience. But the 35-year-old - who came to the Treasury from Goldman Sachs and has been there for just over two years - mainly as an adviser to Mr. Paulson, may have to learn as he goes.
Even before he gets a proper job description, Mr. Kashkari must quickly recruit a team of asset managers to buy billions of dollars worth of distressed mortgage-related assets from banks and brokerage firms.
He also has to decide which assets to buy at what price, and then figure out how long the government should hang on
to them before selling to earn taxpayers a possible profit.
And he has to move quickly because credit markets around the world have seized up, causing problems for companies trying to borrow money.
Throw in unrelenting oversight from meddling politicians, gyrating stock markets, fretful bankers and fears the program will be rife with conflicts of interest and you have a taste of what Mr. Kashkari is in for.
"There's a lot of work, it's very complicated," Anthony Ryan, a fellow Treasury official, told reporters yesterday.
Not everyone thinks Mr. Kashkari has enough experience to handle such a demanding assignment.
"Working at Goldman Sachs doesn't qualify you for doing this job," said Robert Eisenbeis, a former director of research at the Federal Reserve Bank of Atlanta.
Mr. Kashkari, who was not available for comment yesterday, has come a long way in a very short time.
He grew up in Stow, Ohio, a suburb of Akron, and earned a degree in engineering. He spent a few years working on technology for the NASA space program, including helping to develop the James Webb Space Telescope, the replacement for the Hubble telescope. He changed course, took a Masters of Business Administration at the Wharton School in Pennsylvania and joined Goldman Sachs Group Inc. as an investment banker specializing in computer companies that made security software.
While at Wharton, Mr. Kashkari's course work included attending a military training exercise. The students participated in a computer simulation that required them to find food, water and shelter for victims of ethnic cleansing in Bosnia. They were divided into 14 groups representing various entities such as aid workers, NATO and the U.S. Army, and each group had to set up a mock refugee camp.
"We were all taught to play nice," Mr. Kashkari told a reporter at the time. "So who's going to fight in the sandbox?"
Mr. Paulson, also a former Goldman staffer, recruited Mr. Kashkari to the Treasury department in July, 2006. He joined a small group of ex-Goldman investment bankers who became some of Mr. Paulson's closest advisers.
At first Mr. Kashkari's work related mainly to promoting trade ties with India (his parents immigrated from India) and working on energy issues.
However, he quickly changed focus in 2007 when the housing market began to teeter and the credit crunch first began to bite. He became one of Mr. Paulson's leading advisers on mortgage issues and helped develop one of the department's first responses to the crisis, a program called Hope Now.
It encouraged mortgage lenders to rework loans to stem the wave of foreclosures. While the program received heavy criticism, it was hailed by the administration as an important step and it bolstered Mr. Kashkari's reputation internally. He quickly became Mr. Paulson's lead official on housing and he helped draft the rescue package legislation passed by Congress last week.
Mr. Kashkari "has been a very important leader in terms of dealing with many of the challenges that we've been facing in terms of the housing market," Mr. Ryan said yesterday.
His rescue plan was just three-pages long when he first proposed it to politicians a couple of weeks ago. It morphed into a 451-page document, complete with extra spending and oversight measures, by the time politicians passed it into law last Friday.
Treasury officials said yesterday they are putting the program into action.
They hope to hire about two dozen additional staff and as many as 10 financial asset management firms, companies such as BlackRock Inc. and Pacific Investment Management Co. (Pimco), to make the purchases.
One group of managers will deal with purchases of asset-backed securities, such as subprime mortgages and collateralized debt obligations. A second group will handle acquisitions of various loans, such as residential first mortgages and home equity loans. The government hopes to have the managers in place within a month and it has waived some regulations governing the awarding of contracts in order to expedite the hiring process.
The hard part for both groups will be figuring out which assets to buy and at what price. Another key issue will be the inherent conflicts of interest that will arise among the asset managers, since many of the companies will likely be holding troubled assets of their own. The government tried to tackle that issue yesterday by issuing detailed conflict-of-interest guidelines for the office.
Mr. Ryan stressed that the asset purchase process will be transparent and he said the government is well aware of the conflict-of-interest issue. He also said the government might buy shares in some financial firms. "There's a lot of flexibility in the legislation," he told reporters after a speech in New York.
Whatever happens, Mr. Kashkari may not have his job for long. Many expect him to be replaced, along with Mr. Paulson, when the new president takes office in January. And some observers say that will be just as well.
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