Kevin Warsh

Morgan Stanley (1996–2002)

In August 1996, Morgan Stanley hired Warsh as an associate.^[12] He worked on mergers and acquisitions at the firm.^[13] Warsh was later promoted to the vice president and the executive director of investment banking within Morgan Stanley's mergers and acquisitions division.^[14] Warsh worked in Morgan Stanley's headquarters on the morning of the September 11 attacks and claimed to witness the collapse of the World Trade Center. The experience motivated him to leave Morgan Stanley and pursue a government career.^[7]

National Economic Council (2002–2006)

In April 2002,^[15] President George W. Bush named Warsh as a special assistant to the president for economic policy^[16] and the executive secretary of the National Economic Council.^[17] In the former position, he managed domestic finance, capital markets, and banking issues.^[16] Warsh was particularly involved in handling the Bush administration's response to various accounting scandals that emerged in his term,^[18] leading to the Sarbanes–Oxley Act.^[13] His work additionally involved public relations.^[19] Warsh served as the White House liaison to the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and the Securities and Exchange Commission.^[12] That month, Warsh married Jane Lauder, an heiress to the Estée Lauder Companies,^[15] whom he had met at Stanford University.^[7] Warsh was a possible candidate to serve as the chair of the Securities and Exchange Commission to succeed William H. Donaldson^[20] and as the under secretary of the treasury for domestic finance to succeed Brian C. Roseboro.^[21] He helped Ben Bernanke prepare for his confirmation hearing to serve on the Federal Reserve Board of Governors.^[22]

Nomination and confirmation

In July 2005, Bloomberg News reported that the Bush administration was examining appointing Warsh to a vacancy on the Federal Reserve Board of Governors; he had previously been discussed as a possible candidate to serve as the chair of the Securities and Exchange Commission before President George W. Bush nominated Christopher Cox.^[20] The administration sought to complement chairman Ben Bernanke's experience with Warsh's expertise on financial regulations.^[18] On January 27, 2006, President George W. Bush named Warsh and the economist Randall Kroszner as his nominees to serve on the Board of Governors.^[16] Warsh's term, which would have succeeded Bernanke's abrupt tenure,^[23] was set to end in January 2018.^[12] Warsh, who would be the youngest member of the Federal Reserve Board of Governors after his confirmation, received praise and criticism from some economists;^[12] while proponents of his nomination noted that he had practical experience in financial markets,^[12] opponents asserted that he was too young and did not have enough experience.^[13]

Warsh appeared before the Senate Committee on Banking, Housing, and Urban Affairs on February 14, 2006.^[23] Despite his lack of monetary policy experience, Alabama senator Richard Shelby, the committee's chairman, supported Warsh.^[24] He told the committee that a slowing housing market—which had experienced a gradual rise—presented potential complications for the Federal Reserve. Warsh remained open to the possibility of inflation targeting, so long as it did not constrict the Federal Reserve's decision-making on other economic factors.^[23] The Senate Committee on Banking, Housing, and Urban Affairs advanced Warsh and Kroszner's nomination in a 20–0 vote^[7] on February 16.^[25] The following day, the Senate voted to confirm them by voice vote.^[26]

Tenure

Warsh was sworn in on February 24, 2006, by Vice President Dick Cheney at the Eisenhower Executive Office Building.^[27] He became known as a key ally of Bernanke and a conduit for executives in financial markets,^[22] specializing in Wall Street finance.^[28] Warsh expressed concerns about persistent inflation in remarks before the New York Stock Exchange in November, defying figures indicating that price pressures were being eased.^[29] After fears of a worldwide financial crisis mounted in February 2007, he remained optimistic about market liquidity.^[30] Warsh testified before the House Committee on Financial Services in July, stating that the subprime mortgage crisis did not yet present systemic risk.^[28] He was an initial critic of protecting systemically important financial institutions.^[31] Warsh was involved in securing an emergency loan to secure Bear Stearns.^[32]

Warsh was significantly involved in the Federal Reserve's response to the financial crisis. According to David Wessel's In FED We Trust (2010), Warsh was among the "Four Musketeers", a consortium of policymakers at the Federal Reserve who led the central bank through the crisis, including Bernanke; vice chairman Donald Kohn; and Timothy Geithner, the president of the Federal Reserve Bank of New York.^[33] He was an opponent of allowing Freddie Mac and Fannie Mae to acquire additional assets and sought to regulate the entities, leaving open the possibility of acquiring them.^[34] Alongside Geithner, Warsh managed Lehman Brothers's various assets.^[35] Amid concerns involving Wachovia's acquisition of Golden West Financial,^[36] he proposed a merger between Wachovia and Morgan Stanley,^[37] and urged Robert K. Steel, the chief executive of Wachovia, to sell his firm to Goldman Sachs.^[38] Warsh additionally suggested to Gary Cohn, the president of Morgan Stanley, that his firm merge with Citigroup.^[39]

Warsh was additionally involved in the sale of Bear Stearns to JPMorgan Chase, the bankruptcy of Lehman Brothers, and the bailout of American International Group.^[40] Warsh and Geithner negotiated the agreement that converted Morgan Stanley and Goldman Sachs into bank holding corporations.^[41] Emails obtained by congressional investigators indicated that Warsh was sharply critical of Bank of America's decision to attempt to withdraw from acquiring Merrill Lynch & Co..^[42] He pressured the company's board to find a successor to its chief executive, Ken Lewis.^[43] By January 2009, Warsh was among several candidates being considered to succeed Geithner as the president of the Federal Reserve Bank of New York.^[44] He was considered a leading candidate alongside William C. Dudley,^[45] but withdrew himself from consideration that month.^[46] By July, Warsh had widely been expected to leave the Federal Reserve Board of Governors.^[47]

In September 2009, Warsh expressed the hawkish belief that the Federal Reserve should be prepared to raise interest rates, indicating that the central bank was deviating from the gradual interest rate increases championed by chairman Alan Greenspan.^[48] He was critical of purchasing mortgage debt or government bonds^[49] and skeptical of preemptive action to further expand the Federal Reserve's portfolio.^[50] In an opinion article for The Wall Street Journal, Warsh wrote that he had doubts Bernanke's plan to purchase US$600 billion in Treasury securities would improve the U.S. economy, though he voted for it.^[51] On February 10, 2011, Warsh announced that he would resign as a member of the Federal Reserve Board of Governors at the end of March.^[40]

Monetary policy

As a member of the Federal Reserve Board of Governors, during the second presidential term of George W. Bush and the first presidential term of Barack Obama, Warsh was considered hawkish on interest rates, though "he has recently contended" that the Federal Reserve has been "slow to cut" interest rates.^[80] According to The New York Times, Warsh's views on inflation and interest rates are uncertain.^[81] He attributed the inflation surge, which developed during the COVID-19 pandemic, to regulations imposed under President Joe Biden and government spending with high employment.^[82]

Amid the 2008 financial crisis, Warsh argued that the Taylor rule had largely been proved accurate, though he conceded that it failed to predict the crisis.^[83] In September 2012, Warsh claimed that the release of the iPhone 5 would have a greater impact on the economy than the Federal Reserve's efforts at quantitative easing.^[84] In May 2018, Warsh argued that the Federal Reserve should consider using blockchain technology to establish its own cryptocurrency.^[85]

Financial regulations

In May 2006, Warsh stated that the Federal Reserve should intensify efforts to regulate hedge funds.^[86] In February 2010, he called for countries to coordinate on regulatory reform.^[87]

Economic issues

In an essay written alongside former Florida governor Jeb Bush in 2011, Warsh criticized protectionism.^[88]