Obama picks chief of staff Lew to head Treasury

White House Chief of Staff Jack Lew, seen here walking with President Obama on the South Lawn of the White House in Washington on Feb. 14, 2011, is the White House's pick to succeed Tim Geithner as U.S. Treasury Secretary.
Charles Dharapak/AP

(MoneyWatch) President Obama's move this month to fill key Cabinet posts leaves a glaring vacancy -- someone to head the U.S. Treasury Department, whose chief will be tasked with sustaining the fragile economic recovery.

That may change as early as tomorrow. CBS News chief White House correspondent Major Garrett reports that Obama will nominate White House Chief of Staff Jacob 'Jack' Lew as his next Treasury Secretary, replacing Tim Geithner. Lew, a long-time Washington insider who previously served as head of the Office of Management and Budget under both Obama and President Bill Clinton.

Geithner has previously said he intends to leave the agency around the time of Obama's second inauguration on January 21.

Other names that had surfaced as possible replacements for Geithner included American Express (AXP) chief executive Kenneth Chenault, BlackRock (BLK) CEO Laurence Fink, and investment banker and former Clinton Administration Treasury official Roger Altman.

Given his expertise, Lew's selection signals Obama's preference for focusing on budgetary matters as lawmakers square off over the government's borrowing limit, planned federal spending cuts and the President's 2013 budget.

But Lew, 57, is also likely to draw fire both for his resume and for his politics. From mid-2006 to 2009, he served as chief operating officer of Citigroup Alternative Investments, the banking giant's proprietary trading division at the time. Citigroup (C) required a $45 billion government bailout in 2008 after its bets on mortgage loans soured. Lew's compensation at the bank included a roughly $950,000 bonus in 2009, after the company's rescue by taxpayers the previous year.

During a 2010 Senate hearing to confirm him as director of OMB, Lew also appeared to soft-pedal the role of financial deregulation in the housing bust, saying in response to a question that he didn't "personally know the extent to which deregulation drove [the crash], but I don't believe that deregulation was the proximate cause."

That background is prompting some Wall Street critics to question if Lew is right for the job, especially as major elements of the 2010 Dodd Frank financial reform law remain on ice amid aggressive lobbying by Wall Street firms.

Neil Barofsky, former Special Inspector General of the government's bailout program and author of "Bailout," a pointed critique of the Treasury Department's actions following the housing crash, questioned if Lew would be too deferential to corporate interests.

"What you'd like to see is for Treasury to commit to standing up to the largest financial institutions," said Barofsky, now a senior fellow at the New York University School of Law. "You want someone who is willing to stand up for Dodd Frank and who rejects the usual Wall Street canards that reform will eliminate lending and shock the economy."

With Obama and Geithner having touted the impact of Dodd Frank during last year's presidential campaign, Lew is unlikely to renew the call for another major round of financial regulation as the White House focuses on corporate taxes, spending, gun control and other front-burner issues.

That may not stop some Republican lawmakers from balking at the prospect of Lew -- a former legislative aide to the late House Speaker Tip O'Neill who also had ties to the late Minnesota Senator Paul Wellstone, both democratic stalwarts -- fronting the Obama Administration's relations with big business. Although he has mostly remained behind the scenes during the repeated fiscal clashes that have split official Washington in recent years, Lew's participation in the 2011 debt ceiling talks left some GOP members grumbling that he is too liberal and unwilling to compromise.

As far as Wall Street is concerned, Lew's shortcomings may be not too much financial industry experience, but too little. Along with shepherding economic policy, the Treasury Secretary is seen as the government's chief liaison to financial markets. Other key issues for the agency this year include deciding whether to back Ben Bernanke for another term as chairman of the Federal Reserve, U.S. policy toward China and how to mitigate the risks to the U.S. economy from the festering debt crisis in Europe.

Beyond any partisan feuding over his nomination, if confirmed as Treasury chief Lew will face a far greater challenge -- keeping the U.S. economy on course in a year that could make or break the recovery. Growth has fallen in recent weeks and grew only an estimated 1.2 percent in the final three months of 2012, according to research firm Macroeconomic Advisers. Job-creation remains too weak to significantly lower unemployment. And prolonged infighting on fiscal policy could throw the economy in reverse.

Antulio Bomfim, senior managing director with Macroeconomic Advisers, notes that the next Treasury Secretary will likely assume office just as the latest conflict over fiscal policy reaches a head.

"The biggest challenge is still this fiscal cliff situation," he said. "That wasn't really addressed at the turn of the year -- it was just postponed into March. The main question is how you put the economy on a fiscal path that is sustainable over the long run."

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