The new president of the Federal Reserve Bank of Minneapolis will be Neel Kashkari, an engineer-turned-banker who gained a national profile managing the government’s rescue of the banking system during the 2008 financial crisis.
Kashkari shot to prominence in late ’08 when, as a young, little-known Treasury Department staffer, he became the face of a bailout that was maligned for its cost and structure — but that ultimately worked.
He won respect from politicians of all stripes as he endured hours of grilling on Capitol Hill in the fractious early stages of the bailout. After leaving government in 2009, Kashkari returned to finance and, last year, tried his hand at politics, running unsuccessfully for governor of California.
On Jan. 1, he will succeed Minneapolis Fed President Narayana Kocherlakota, an economic theorist who is the most vocal proponent of low interest rates in the Federal Reserve system. Kocherlakota, who has led the Minneapolis Fed since 2009 and decided not to seek a second five-year term, will return to academia.
In the role, Kashkari will serve on the Fed’s rate-setting Open Market Committee, though not in a voting capacity until 2017. He also will oversee 1,100 employees in Minneapolis and Helena, Mont., who administer bank regulations and payments, provide economic research and boost development in Minnesota and the five other states of the Fed’s Ninth District.
“There are world-class people here, and if I’m able to tap into their best ideas and focus on issues that are important to the district and important to the country, I think we can make a big, big difference,” Kashkari said in an interview with the Star Tribune.
The appointment of the 42-year-old Ohio native is a departure for the Minneapolis Fed, which has been run by academic economists since 1985. Randy Hogan, the chief executive of Pentair PLC and chairman of the Minneapolis Fed’s board of directors, said Kashkari will bring a fresh eye as the central bank system grapples with the end of the ultra-low interest rate era that started in the 2008 crisis, as well as broad changes in the way payments work and currencies are understood.
“There are an enormous number of very talented economists setting policy,” Hogan said. “Diversity of thought is much more powerful than anything else when you have a team. Bring diversity of thought to a set of challenges, and you will get better thinking, you will get better ideas. And I think the system will benefit from Neel’s diverse sets of experiences.”
Deep faith in public policy
In the interview, Kashkari said he has deep faith in public policy and the Minneapolis Fed’s tradition of top-flight economic policy research attracted him to the job, which he first heard about from an executive search firm in June.
“If you want to help 1,000 people, donate to a charity. That’s really, really important,” he said. “If you want to help a million people, or 10 million people or 100 million people, the only way you can do that is by improving public policy.”
Kashkari said he also believes the Ninth District — which includes Montana, North Dakota, South Dakota, Minnesota and parts of Wisconsin and Michigan — is a good proxy for the nation as a whole because of its economic diversity.
“In many ways, what happens in this district represents the country because so many different major sectors are represented,” he said. “The chance to work on issues that are both local and national at the same time is very appealing.”
He said it is “premature” for him to describe a stance on monetary policy. “I want to get to know the staff, hear their ideas, work with them, before I even formalize my own views,” Kashkari said.
In 2000, when he was in his late 20s, Kashkari left a job as an aerospace engineer working on satellites to go to business school. He hoped to land at a Silicon Valley start-up. Instead, in 2002, he took a job at Goldman Sachs in San Francisco advising tech companies. He was exploring ways to get into public service in 2006, when President George W. Bush tapped Goldman’s then-CEO, Henry Paulson, as treasury secretary. Kashkari asked Paulson, whom he had met once, if he could go along. “I basically cold-called him,” he said.
Paulson vetted Kashkari with some of his superiors, then hired him as an aide. When the subprime mortgage crisis started bubbling to the surface in 2007, Paulson asked Kashkari to lead the department’s work on the housing market. And when the financial system nearly collapsed in late 2008, Paulson asked Kashkari to oversee the unprecedented bailout of banks called the Troubled Asset Relief Program, or TARP.
The program expanded to include the auto industry, the government-backed mortgage agencies and others. When it was done, the government dispensed less than the $700 billion Paulson initially expected and it recovered more than it paid out. Kashkari in retrospect considers TARP a success. “In a moment of extraordinary crisis, our political system worked brilliantly, and I would challenge any other country in the world, their political systems, to match that performance,” he said.
Former Rep. Dennis Kucinich, D-Ohio, a fierce critic of the Fed system, the Bush administration’s economic policies and the bailout, said in an interview that he came to respect Kashkari. “If you were looking for someone who understood the present monetary system, and its relationship to banking and the market and the overall economy, he’s a master mechanic.”
Six months after leaving government, Kashkari took a job managing stock funds at Pacific Investment Management Co., or PIMCO, an investment firm best known for its bond operation.
Last year, he ran for governor of California as a socially moderate Republican and spent $3.1 million of his own money on the campaign. During the race, he spent a week in Fresno as a homeless person, trying to find work, food and a place to live.
Someone with that sort of perspective is welcome to the Twin Cities, which has some of the worst racial and economic disparities in the nation, said Anthony Newby, director of Neighborhoods Organizing for Change in north Minneapolis.
“It’s important that the new Fed president understands not only the vitality this region is known for, but also the racial and economic divides,” Newby said.
Asked whether he can bring that freewheeling style to his new job, Kashkari said he would likely have to “button up a little bit.” He added, “I’m probably not going to be tweeting FOMC meetings.”
Presidents of the 12 regional Fed banks are appointed by three members of their boards of directors, subject to the approval of the Federal Reserve Board of Governors in Washington. The Minneapolis Fed’s board chose a search firm in April and over the summer looked at some 75 prospects, interviewed finalists in September, and forwarded Kashkari to the Board of Governors for approval in October. He was approved Oct. 22.
“Neel to me, just based on the way he handled such difficult issues during that time, is someone who should be in the public sector,” said Sen. Bob Corker, R-Tenn., who worked with Kashkari during the financial crisis. “This is something very significantly good for the Federal Reserve system.”