The Challenge of Selecting a New Treasury Secretary

Critics lament that the department is often headed by a Wall Street financier, but the job requires expertise that only insiders tend to possess.

The Trump transition team has yet to announce who will become the next secretary of the treasury, but a few candidates have emerged in the past week, including Representative Jeb Hensarling of Texas, Trump’s campaign finance chair Steven Mnuchin, and the billionaire investor Wilbur Ross. While the potential appointees do have backgrounds in different areas of finance, from investment banking to private equity, they all (save for Hensarling) have extensive experience on Wall Street.

Politico has reported that Trump’s team has narrowed the field to two names: Mnuchin, who is also a former Goldman Sachs banker, and Ross (who is also rumored to be up for the position of commerce secretary). Hensarling, who is currently the chairman of the House Financial Services Committee, seems to have dropped out of the running and Jamie Dimon, who is currently the CEO of JP Morgan Chase, has reportedly declined to be considered, and yet some insist that he is still (secretly) in the runningThe New York Post has also said that Henry Kravis, another billionaire, is on the shortlist.

The rumored favorite is Mnuchin, who now works as a hedge-fund manager. His potential appointment is receiving more scrutiny after two housing advocacy groups filed claims to the Department of Housing and Urban Development calling for an investigation into his former company, OneWest Bank, over allegedly redlining minority home-buyers.

As is almost always the case with the selection of the treasury secretary, the issue of the “revolving door”—the shuffle of financiers between government positions and top jobs in the private sector—bubbles up. The discussion came up when former Treasury Secretary Timothy Geithner took a job at the private equity firm Warburg Pincus after his term (though some argued that it wasn’t a conflict of interest). When Geithner’s successor, Jack Lew, became secretary, he was criticized over his tenure at Citibank—he was COO of a division that bet against the housing market in the crash and received a bonus while the bank was getting bailout money. And though Trump blasted Hillary Clinton for her ties to Wall Street during his presidential campaign, he counts quite a few prominent financiers among his supporters. So in many ways, it’s no surprise that Trump’s shortlist involves some of the top names in finance.

Fears that regulators are too cozy with Wall Street are merited given the scope of the treasury secretary’s role, which depends on being impartial about the financial sector. But sealing off that revolving door would also end one of the proven ways for potential treasury secretaries to gain the necessary financial expertise—not to mention the respect—needed to regulate. “You’d like a secretary of the treasury to have some fairly deep knowledge of the financial markets, which he or she could get as a financial executive or in other ways,” says Alan Blinder, a professor of economics and public policy at Princeton University as well as a former president of the Council of Economic Advisers and a former vice-chairman of the Federal Reserve. “Secondly, a secretary really needs some background and deep knowledge of international economic issues, because those are on his plate every single day. Thirdly, it’s good for him or her to understand the ways of Congress.”

These broad criteria may help explain why historically the position’s appointees have been mixed in terms of professional background: Six of the past 15 Treasury Secretaries came from Wall Street, and two of those—Henry Paulson and Robert Rubin—came from Goldman Sachs. The rest were career politicians, prominent businessmen, and corporate or government lawyers.

The Treasury Department makes a lot of decisions that have potentially huge implications for the U.S. economy, from managing federal finances to collecting taxes to paying all of the country’s bills (which includes managing the public debt), as well as supervising national banks and enforcing federal finance and tax laws. But perhaps the most important job of the treasury secretary is advising and formulating new policies: Paulson engineered the Emergency Economic Stabilization Act (more commonly known as the bailout) of 2008, and Geithner spearheaded the Dodd-Frank banking regulations of 2010.

During Trump’s presidential term, the department will be responsible for managing how the president-elect’s economic policies affect the deficit, and how that in turn will affect the country’s economic growth.“There is a strong reason to believe that there will be fiscal stimulus coming out of the administration—at least a tax cut, a large one, maybe a large infrastructure program, that remains to be seen—but those expectations are already driving up long-term bond rates and the value of the dollar. Either or both of those can be problematic to continued growth,” said Blinder.

Another question is how Trump will handle global trade. While the treasury secretary isn’t singlehandedly responsible for reworking the deals Trump has said he will gut, he or she does have a hand in framing how the country interacts financially with other countries. For instance, Trump’s treasury secretary could officially declare China a currency manipulator, a move that Trump has said he would support, which would have unknown—but potentially damaging—consequences, and would likely require renegotiating the exchange rate. Former Treasury Secretary Larry Summers has previously deemed such a move by the Trump administration a “ludicrous proposal."

The incoming treasury secretary will also have a say in the design of American bills, which are currently set to feature prominent women including Harriet Tubman, Susan B. Anthony, and Eleanor Roosevelt—a development that has generated enthusiasm among the public and Secretary Lew himself.

“The new treasury secretary has complete discretion over design, though it is really up to the Federal Reserve Board to approve the production-ready bills and decide when to issue them into circulation,” said Susan Ades Stone, the executive director of Women on 20s, a nonprofit group which advocates for female faces on currency, in an email. All three bills—$5, $10, and $20—are currently in various stages of production right now and slated to be unveiled in 2020 to coincide with the 100th anniversary of the 19th Amendment, which granted women the right to vote. Stone says that the further along a bill is in the production process, the harder it is for a future secretary to stop the process.

The Trump transition team is expected to announce the administration’s economic positions on Monday, according to Politico.