Commentary: Filling The Void

Commentary: Filling The Void

01/11/2013 BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

President Obama opened a big hole in his White House by tapping Jack Lew to replace Timothy Geithner as Secretary of the Treasury, leaving empty—for the moment—the role of chief of staff.

The president eschewed the progressive choice of  New York Times columnist and Nobel economic laureate Paul Krugman to replace Geithner with yet another in-house appointee. Lew himself, in addition to swapping desks to become (assuming Senate confirmation) Treasury Secretary, had been switched from head of the Office of Management and Budget to the chief of staff role.

It’s not the first time the president has looked to change nameplates of those who already worked for him: Think Leon Panetta moving from the CIA to Defense or even David Petraeus moving from the military (yes, the military works for the president) to CIA.

Strong managers, according to Harvard Business School theory, can move from one discipline to another without specific expertise, and Harvard Law alum Obama apparently picked up something beyond a law degree while in Cambridge.

That’s not to say Lew doesn’t have the background to handle Treasury. In addition to his two government jobs for the president, he was COO for Citigroup from 2006 to 2009. While working in the White House, he was integral to the 2011 debt limit negotiations, where his stridency irked many Republicans, which might make confirmation difficult. In the end, he should get through in time to head this year’s debt limit talks—if there are any. (The president has said repeatedly he won’t negotiate over the debt ceiling.)

With Lew moving, the president is still short a chief of staff but has an opportunity to turn to someone who has already proven himself to be s skilled—if somewhat blunt—negotiator, one of the key roles of a chief of staff. He has someone on his team with long relationships with members of Congress who knows his way around Capitol Hill and is not afraid to take on tough issues. That he has another job should not be an obstacle if Obama turns to Vice President Joe Biden to fill the chief of staff role.

The chief of staff is the first person the president sees when he begins work and the last person before he ends his working day, an individual with unfettered access who is supposed to know what he knows and present a unified face for the administration. Biden—his sole constitutional responsibility notwithstanding—fills those requirements. In slotting Biden to be chief of staff as well as vice president, Obama would assure Biden is fully and completely prepared to step in as president should that become necessary and at the same time achieve calculable budget savings.

Before the idea is dismissed out of hand, it has some historical support.

Recent vice presidents have assumed increasingly important roles, a far cry from when President Dwight Eisenhower was asked in 1960 what important programs or suggestions his vice president (and then presidential candidate) Richard Nixon had been responsible for. Eisenhower replied by saying if he had a week to think about it he might come up with one.

Jimmy Carter elevated the role of the vice presidency with Walter Mondale, as did Bill Clinton with Al Gore. It was elevated even more—perhaps over the top—under Vice President Dick Cheney. Obama, though, has increasingly turned to Biden.

In 1980, Ronald Reagan considered the suggestion from former president Gerald Ford, whom he had defeated for the Republican nomination for president. It was seen—at least by Ford—as a way to complement Reagan, providing him with someone who could attend to the details Reagan abhorred. When it became clear to Reagan that Ford wanted not to be vice president but co-president, with a specific portfolio, Reagan turned instead to George H.W. Bush as his running mate.

That Biden ran, albeit briefly, against Obama in 2008 should not be a deal-breaker. Obama not only selected him to be vice president, but also tapped Hillary Clinton as secretary of state, cementing his team-of-rivals approach to governing.

Obama could do worse.

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It may take a while before the impact of the long-awaited Consumer Financial Protection Bureau’s (CFPB) rules on qualified mortgages will be felt.

The CFPB heard the pleas of lenders and housing advocates to avoid taking steps to slow the incipient housing recovery.

In their lobbying efforts, banks apparently warned that too-strict regulations would stop the housing recovery in its tracks, and indeed, the bureau cited the “fragile state” of the housing market in allowing a seven year phase-in period for the strict rules.

That concession will have implications “qualified mortgages,” which are expected to be the most common. The phase-in period will allow banks to make “qualified” loans with higher debt-to-income ratios if the loans meet standards set by Fannie Mae and Freddie Mac. Those agencies—burned themselves by the mortgage crisis—have set new, reasonably high standards, but the higher debt burden is a loophole banks could exploit.

The absence of any down payment standards is also potentially perilous but a concession to housing groups who argued it was burdensome to the poor in what was perhaps circular reasoning.

In any case, don’t look for any quick bump to housing when the new rules take hold in January 2014.

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New housing and housing related data due next week will reflect the mixed and slow nature of the ongoing recovery.

The retail sales report (Tuesday) is expected to show no change from the 0.3 percent increase in retail activity in November. Some important points to watch will be sales at furniture stores as well as garden and building supply stores. An important point to remember is that retail sales are based on the dollar amount of sales, so last-minute markdowns on holiday items—even if they generated traffic to stores—could have driven cash register receipts down.

The National Association of Home Builders’ housing market index (Wednesday) is expected to show a slight increase to 48 from December’s reading of 47, remaining below the tipping point of 50 for the 81st straight month.

Total housing starts were pulled down in November by a drop off in single-family starts but are expected, in the report out Thursday, to show a rebound in December. Permits, which in November reached their highest level since July 2008, are expected to show another increase.

Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 a.m. and again at 9:40 a.m. Eastern time.

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