Lew is man of mystery to Wall Street

Jack Lew knows the budget, but does he know derivatives?

That’s the question financial executives want answered when Lew testifies before the Senate as President Obama’s nominee for secretary of the Treasury.

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While Lew’s mastery of the budget is unquestioned, his views on a host of financial issues — notably the reforms mandated by the Dodd-Frank law — are mostly unknown to the industry players who have worked closely with the man he’s seeking to replace, Timothy Geithner.

“We don’t know what he’s going to do,” said one former financial executive. “While it’s clear he brings credibility for dealing with larger budget issues, financial reform will remain a very important part of what Treasury does, and we simply don’t know where he stands on those issues.”

Lew has spent much of his time in the federal government immersed in budget issues. He put in stints as budget chief for both Obama and Clinton, and he has served as a central negotiator in fiscal negotiations with the GOP.

While knowledge of the budget is critical for any Treasury secretary, the job also brings a daunting policy portfolio that touches every aspect of the U.S. economy, including the complex instruments that fuel high finance.

Lew put in a brief stint at Citigroup between Democratic administrations but is not seen as a Wall Street expert.

Senate Finance Committee aides are working through Lew’s nomination materials, hoping to schedule a confirmation hearing soon. The panel’s Republicans are eager to put Lew on the hot seat, and the financial industry is eager to hear his answers.

“We will be watching the confirmation hearings very closely to see what his public statements are about some of the issues we care about the most,” said Camden Fine, president and CEO of the Independent Community Bankers of America.

Sen. Orrin Hatch (Utah), the top Republican on the Senate Finance Committee, said Republicans have some concerns that Lew’s career as a budget official might not have prepared him for the demands of Treasury.

“He has relatively little experience on Wall Street, and we’re concerned about that — because, normally, people have had extensive experience on Wall Street when chosen for this position,” Hatch said.

Senators say they plan to question Lew on how he would handle his role as head of the Financial Stability Oversight Council, a new regulatory body that oversees the largest and most essential parts of the financial market. 

Lew would not bring the same level of Wall Street experience to the job as his two most recent predecessors. Geithner oversaw financial markets as head of the Federal Reserve Bank of New York, and Hank Paulson was the top executive at Goldman Sachs before leading Treasury for President George W. Bush.

But while Geithner spent much of his stint knee-deep in the complexities of high finance, Lew faces a different set of challenges. 

Much of the work on Dodd-Frank now falls to regulators, who are tasked with writing rules that implement the law. Lew would still need to serve as a point man for defending Dodd-Frank, but most expect Obama to appoint a deputy with extensive markets experience to assist him.

But just because Lew isn’t immersed in the world of Wall Street doesn’t mean he’s not up to the job, lawmakers say.

“He’s a bright guy … I’m not going to judge him,” Hatch said. “We’re in the middle of the background checks right now, and until that’s complete, it’s pretty hard to make any value judgments about things.”

Sen. Mike Crapo (R-Idaho), also a Finance Committee member and the top Republican on the Banking Committee, said Lew’s background would be an asset.

“He has some very significant experience, and varied experience,” he said.

“I know a lot of people make an issue that they think he’s light in the financial services arena,” Fine said. “The man has the intellectual ability and the breadth of the issues to be an effective secretary of the Treasury.”

After meeting with Lew in January, Banking Committee Chairman Tim Johnson (D-S.D.) gave him a strong vote of confidence.

“He shares my commitment to sustaining and strengthening the economic recovery and providing certainty through implementation of Wall Street reform,” Johnson said in a statement.

Obama tapped Geithner to lead the Treasury amid the financial crisis, and now many see a similar thought process in the selection of Lew. With a number of major fiscal fights on the horizon, Lew would bring a commanding knowledge of the federal books to Treasury.

“The next Treasury secretary is going to be very engaged in implementation of Dodd-Frank legislation, and rules and regulations that are relative there. So it’s very broad. But I think the biggest issue facing our country right now is our debt crisis,” Crapo said. “That should be the biggest focus, but not the only focus.”