|Member of the Federal Reserve Board of Governors|
February 24, 2006 – March 31, 2011
|President||George W. Bush|
Kevin Maxwell Warsh
April 13, 1970
Albany, New York U.S.
|Education||Stanford University (BA)|
Harvard University (JD)
Kevin Maxwell Warsh (born April 13, 1970), is an American financier, lawyer, and former government official. During and in the aftermath of the 2008 financial crisis, Warsh was a governor of the Federal Reserve System, and acted as the central bank's primary liaison to Wall Street and served as the Federal Reserve's representative to the Group of Twenty (G-20) and as the Board's emissary to the emerging and advanced economies in Asia. Prior, Warsh served as Special Assistant to the President for Economic Policy and Executive Secretary of the White House National Economic Council. He is a distinguished visiting fellow at Stanford University's Hoover Institution, a member of the Group of Thirty, and a former steering committee member of the Bilderberg Group. He has conducted research in the field of economics and finance, and has advised several private and public companies.
Warsh was born to a Jewish family in Albany, New York, and grew up nearby, attending Shaker High School in Latham. He received a B.A. in public policy from Stanford University in 1992 with a concentration in economics and political science. He then attended Harvard Law School and graduated cum laude with a J.D. in 1995. He also took coursework in market economics and debt capital markets at MIT Sloan School of Management and Harvard Business School.
In the November 2010 Federal Open Market Committee meeting, Warsh remarked about his hometown: "Also, President Dudley mentioned that he visited upstate New York, where I'm from, and he noted that the economy there appeared to be 'hunkered down.' That's not a nearterm phenomenon—it's been going on for about 40 years. [Laughter] He also noted that the economy there was at a tipping point, and that is true, but the only way it ever tips is over."
From 2002 to 2006, Warsh was Special Assistant to the President for Economic Policy, and Executive Secretary of the National Economic Council. His primary areas of responsibility included domestic finance, banking and securities regulatory policy, and consumer protection He advised the President and senior administration officials on issues related to the U.S. economy, particularly fund flows in the capital markets, securities, banking, and insurance issues. Warsh participated in the President's Working Group on Financial Markets and served as the administration's chief liaison to the independent financial regulatory agencies.
Federal Reserve Board
President Bush nominated Warsh and Randall Kroszner to fill two Fed vacancies on January 27, 2006. Warsh's nomination drew some criticism, based on his age and inexperience. At 35 years old, Warsh was the youngest appointment in the history of the Federal Reserve. At the time, former Fed vice chairman and Reagan appointee Preston Martin said Warsh's nomination was "not a good idea" and that if he had a voice in the Senate, he would vote no. Ben Bernanke wrote "His youth generated some criticism, including from former Board vice chairman Preston Martin, but Kevin's political and markets savvy and many contacts on Wall Street would prove to be invaluable.":124 In his confirmation documents, Warsh listed two published writings - "Deciding to Run for Congress: An Opportunity Cost Model with Partisan Implications" and "Corporate Spinoffs and Mass Tort Liability."
At his confirmation hearing on February 14, 2006, Warsh touted his experience on Wall Street: "I hope that my prior experience on Wall Street, particularly my nearly 7 years at Morgan Stanley, would prove beneficial to the deliberations and communications of the Federal Reserve."
His first meeting of the Federal Open Market Committee (FOMC), the Fed's policymaking body, was in March 2006. In March 2007 - less than a year before the rescue of Bear Stearns - Governor Warsh suggested that financial innovation made the system safer:
"First, liquidity is significantly higher than it would otherwise be due to the proliferation of financial products and innovation by financial providers. This extraordinary growth itself is made possible by remarkable improvements in risk-management techniques. Hewing to my proposed definition, we could equally state that financial innovation has been made possible by high levels of confidence in the strength and integrity of our financial infrastructure, markets and laws. Moreover, remarkable competition among commercial banks, securities firms and other credit intermediaries have helped expand access to—and lower the all-in-cost of—credit. Interest rate risk and credit risk exposures are now more diversified.
Look no further than dramatic growth of the derivatives markets. In just the past four years, notional amounts outstanding of interest rate swaps and options tripled, and outstanding credit default swaps surged more than ten-fold. These products allow investors to hedge and unwind positions easily without having to transact in cash markets, expanding the participant pool.
Syndication and securitization also lead to greater risk distribution. Commercial and industrial (C&I) lending potential has expanded with the adoption of syndication practices, allowing credit risks to be spread across a greater number of participating banks and non-bank lenders. Perhaps an even more significant support for the expansion of C&I loans is the rapid growth of collateralized loan obligations (CLOs)-special purpose entities that buy C&I loans with funds raised from investors seeking different risk exposures. CLOs allow loans to be financed primarily with high-rated debt securities issued to institutions like mutual funds, pension funds, and insurance companies. Indeed, in recent years, the share of syndicated C&I term loans funded by institutional investors is estimated to have exceed that funded by commercial banks."
Warsh played a significant role in navigating the financial market turmoil of 2007 and 2008. According to author David Wessel, "Warsh established himself as the chairman's protector in Republican circles and Bernanke's bridge to Wall Street chief executives." Bernanke would write "Don Kohn, my vice chairman, with his long experience at the Fed, and Kevin Warsh, with his many Wall Street and political contacts and his knowledge of practical finance, were my most frequent companions on the endless conference calls through which we shaped our crisis-fighting strategy.":172
During the crisis Warsh tried to engineer mergers between Citigroup and Goldman Sachs and Wachovia and Goldman Sachs. These efforts failed. On September 20, 2008 he was granted a waiver to deal with his former employer Morgan Stanley. The next day Morgan Stanley was converted into a bank holding company in order to access Federal Reserve loans, in effect saving the firm. According to the Wall Street Journal, "Timothy Geithner, president of the Federal Reserve Bank of New York, and Kevin Warsh, a Fed governor and former Morgan Stanley executive, worked in New York to sort out the details with Goldman and Morgan Stanley."
Throughout 2008 Warsh predicted that inflation would rise despite financial turbulence and economic weakness:
- March 2008: "On the inflation front, there is little reason to be confident that inflation will decline. There are reasons to believe that our inflation problems will become more pronounced and, I fear, more persistent."
- June 2008: "Inflation risks, in my view, continue to predominate as the greater risk to the economy."
- September 2008: "I'm still not ready to relinquish my concerns on the inflation front."
Many economists and observers, including conservatives, have argued that this focus on inflation and failure to recognize the risk of deflation significantly exacerbated the crisis. In his memoir, Chairman Bernanke writes about his frustration, "I vented in an email the next day to Don Kohn: 'I find myself conciliating holders of the unreasonable opinion that we should be tightening even as the economy and financial system are in a precarious position and inflation/commodity pressures appear to be easing.'"
In September 2009, with unemployment at 9.5% and climbing, Warsh argued that the Fed should begin to pull back on its efforts to help the real economy recover: "if policymakers insist on waiting until the level of real activity has plainly and substantially returned to normal — and the economy has returned to self-sustaining trend growth — they will almost certainly have waited too long… There is a risk, of much debated magnitude, that the unusually high level of reserves, along with substantial liquid assets of the banking system, could fuel an unanticipated, excessive surge in lending." The runaway inflation he warned about never appeared. University of Oregon Professor Tim Duy wrote in response to the speech that it looked as though "monetary policymakers are more willing to use unconventional monetary policy to support Wall Street than Main Street."
At the November 2010 FOMC meeting, Warsh was extremely skeptical of the Fed's plan to generate economic activity and jobs by trying to lower long-term interest rates. Although unemployment was close to 10%, Warsh told his colleagues that he would only vote for QE2 out of respect for Chairman Bernanke: "If I were in your chair, I would not be leading the Committee in this direction, and frankly, if I were in the chair of most people around this room, I would dissent." Even if unemployment were "unacceptably high," he suggested that he would vote against the program continuing if inflation inched up a bit: "if inflation were to move up and were to be broadly consistent with the implicit inflation target [2%] in different people's minds around this room, even if unemployment were unacceptably high, I think that would be time to stop this program. If inflation expectations were to move out of the range that they have been in for a long time, that would be a reason to end this program, even if unemployment were exceptionally high and GDP were well below what we think the economy is ultimately capable of." The Federal Reserve has a legal dual mandate to pursue maximum employment as well as to ensure price stability.
He elaborated on his opposition to the program: "I think we are removing much of the burden from those that could actually help reach these objectives, particular the growth and employment objectives, and we are putting that onus strangely on ourselves rather than letting it rest where it should lie. We are too accepting of dangerous policies from others that have been long in the making, and we should put the burden on them." While Federal Reserve officials routinely offer their views on non-monetary questions such as taxes, spending and regulations, it is unusual for a Federal Reserve official to suggest that monetary support should be withheld in order to compel other branches of government to enact the Federal Reserve's favored policies.
Five days after the meeting, Warsh published a blistering op-ed criticizing the action he had just voted for.
Warsh announced his intent to resign from the Board in a letter sent to President Obama on February 10, 2011, effective around or on March 31, 2011. When he left the Fed, CNBC's Larry Kudlow expressed disappointment and described Warsh as a "hard money hawk."
In 2002, Warsh married Jane Lauder, a granddaughter and heiress of Estée Lauder and long-time employee of the family business, the Estée Lauder company. The couple lives in Manhattan. Formerly general manager of Origins, Lauder has served as the Global Brand President for Clinique since 2014. According to Forbes, her net worth as of September 27, 2017 was $2 billion. Warsh's father in law is Ronald Lauder.
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- "Kevin M. Warsh - Resignation" (PDF). Board of Governors of the Federal Reserve. February 10, 2011. Retrieved January 6, 2016.
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- Kudlow, Larry (February 12, 2011). "2 hard money hawks leaving the central bank scene: US #KevinWarsh, and German #AxelWeber. With commodities soaring, QE3 from #Bernank? No!". @larry_kudlow. Retrieved September 27, 2017.
- "Kevin M. Warsh: Shepard Family distinguished Visiting Fellow in Economics". Hoover Institution. Retrieved January 6, 2016.
- Luther, Justin (July 26, 2012). "UPS Board Names Economic Expert Kevin Warsh A Director". United Parcel Service. Retrieved January 6, 2016.
- Bryan, Bob (December 2, 2016). "Trump is forming an economic advisory team with the CEOs of Disney, General Motors, JPMorgan, and more". Business Insider. Retrieved June 1, 2017.
- Toy, Vivian S. (May 20, 2010). "Jane Lauder Apartment for Sale". The New York Times. Retrieved January 5, 2016.
- Trower, Alexandra; D'Andrea, Dennis (June 3, 2008). "Jane Lauder Named Senior Vice President, General Manager of Origins, The Estee Lauder Companies Inc". Reuters. Retrieved January 6, 2016.
- "The Estée Lauder Companies Names Jane Lauder Global Brand President, Clinique". EL Companies. Retrieved June 1, 2017.
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- "40 under 40: 20. Kevin Warsh". Fortune. 2009. Retrieved January 6, 2016.
- Warsh, Kevin, and Jeb Bush. "Commentary: A New Strategy for Economic Growth." The Wall Street Journal. August 10, 2011.
- Warsh, Kevin. "Commentary: The 'Financial Repression' Trap." The Wall Street Journal. December 6, 2011.
- Warsh, Kevin, and Stanley Druckenmiller. "Commentary: The Asset-Rich, Income-Poor Economy." The Wall Street Journal. June 19, 2014.
- Wessel, David. In Fed We Trust: Ben Bernanke's War on the Great Panic. New York: Crown Business, 2009. ISBN 978-0-307-45970-1 OCLC 464303608 "Chapter 6: The Four Musketeers: Bernanke's Brain Trust." pp. 106–115.