MINNEAPOLIS — Neel Kashkari, a key architect of the government rescue of the banking industry during the financial crisis and recent candidate for governor of California, will be the 13th president of the Federal Reserve Bank of Minneapolis.
Kashkari will replace Narayana Kocherlakota on Jan. 1.
He will serve on the Fed’s powerful Open Market Committee, which sets interest rates, and oversee 1,100 employees in Minneapolis and Helena, Montana, who administer bank regulations and payments, provide economic research and boost development in the six states of the Fed’s Ninth District.
The appointment of the 42-year-old Ohio native is a major departure for the Minneapolis Fed, which has been run by academic economists since 1985. Kashkari is not an economist but was a central actor during the biggest economic crisis since the Great Depression.
“There are world-class people here, and if I’m able to tap into their best ideas and focus on issues that are important to the district and important to the country, I think we can make a big, big difference,” Kashkari said in an interview with the Star Tribune.
Kashkari worked for Hank Paulson at the U.S. Treasury, where he developed and ran the Troubled Asset Relief Program, the much-maligned but ultimately successful bailout of the financial industry and others after the subprime mortgage crisis.
He retreated from Washington a few months into President Obama’s first term and has since worked in finance and run for governor of California as a Republican, losing to Jerry Brown in 2014.
Randy Hogan, the chief executive officer of Pentair PLC and chairman of the Minneapolis Fed’s board of directors, said Kashkari will bring a fresh eye at a time of change for the Federal Reserve system. Technology is changing the way payments work and currencies are understood, and Kashkari was chosen for his ability to figure out what can be done and do it, not just to represent the district on monetary policy.
“There are an enormous number of very talented economists setting policy,” Hogan said. “Diversity of thought is much more powerful than anything else when you have a team. Bring diversity of thought to a set of challenges, and you will get better thinking, you will get better ideas. And I think the system will benefit from Neel’s diverse sets of experiences.”
In the interview, Kashkari said he has deep faith in public policy, and the Minneapolis Fed’s tradition of top flight economic policy research attracted him to the job, which he first heard about from an executive search firm in June.
“If you want to help 1,000 people, donate to a charity. That’s really, really important,” he said. “If you want to help a million people, or 10 million people or 100 million people, the only way you can do that is by improving public policy.”
Kashkari also believes the Ninth District — which includes Montana, North Dakota, South Dakota, Minnesota and parts of Wisconsin and Michigan — is a good proxy for the nation as a whole, thanks to its diversity of industry, including mining, oil, agriculture, food, health care, medical devices, water, heavy manufacturing, banking and retail.
“In many ways what happens in this district represents the country because so many different major sectors are represented,” he said. “As a policymaker, the chance to work on issues that are both local and national at the same time is very appealing.”
He said it was too early to describe a stance on monetary policy.
“It’s premature. I want to get to know the staff, hear their ideas, work with them, before I even formalize my own views,” he said.
A former aerospace engineer who in his late 20s left a job working on satellites to go to business school, Kashkari hoped to land at a startup where he figured an engineering and business background would be valuable.
Instead he ended up working for Goldman Sachs in San Francisco advising tech companies in Silicon Valley. A little less than four years later, in 2006, he was exploring ways to get into public service.
“When President Bush selected Henry Paulson to become Treasury secretary, I basically cold-called him,” Kashkari said.
He and the CEO of Goldman had only met once, since Paulson was based in New York, and Kashkari was only four years out of business school and based on the West Coast.
But Paulson vetted Kashkari with some of his superiors, and decided to take him to the U.S. Treasury as an aide. Then only 33 years old, he spent his first several months working on alternative energy policy. When the subprime mortgage crisis started bubbling to the surface in 2007, Paulson asked Kashkari to lead the department’s work on the housing market.
Over time Kashkari became the point man on TARP. When Congress gave the Treasury authority to use $700 billion in public money to try to rescue the financial system, Paulson gave Kashkari the job of running the program.
TARP was unprecedented, deeply unpopular at first. The program expanded to include the bailout of auto industry, the government-backed mortgage agencies and others. When it was done, the government dispensed less than it expected and recovered more than it paid out.
Kashkari in retrospect considers TARP an “extraordinary success.”
“A lot of members of Congress and senators paid for that vote with their careers. They lost their seats because they voted for it. They knew they were putting themselves at risk,” he said. “In a moment of extraordinary crisis, our political system worked brilliantly, and I would challenge any other country in the world, their political systems, to match that performance.”
Paulson, in a statement to the Star Tribune, called Kashkari “a dynamic leader with great moral courage and integrity,” pragmatic, creative, “an excellent communicator and a thoughtful and decisive manager.”
Kashkari stayed at the Treasury through the transition to the Obama administration, then in December 2009 took a job with the Pacific Investment Management Company, or PIMCO, a prominent bond investment firm based in Newport Beach, California.
In 2013, he ran for governor of California as a socially moderate Republican, and spent $3.1 million of his own money on the campaign. He lost the 2014 election to popular Democrat Jerry Brown, and has since married and tried to figure out his next move.
He grew up in Akron, Ohio, the son of a doctor and an engineering professor who had immigrated from India in the 1960s. His interest in public policy first sparked when his father, who worked on wells and solar power in remote villages in India, received an award for his work from President George H.W. Bush. Kashkari attended the ceremony. He was a sophomore in high school.
He went to college at the University of Illinois and took a job as an aerospace engineer in Los Angeles before leaving to get an MBA at the Wharton School of Business at the University of Pennsylvania and ultimately joining Goldman Sachs.
Kocherlakota, who is returning to academia for a post at the University of Rochester, announced a year ago that he would not be seeking a second five-year term as president of the Minneapolis Fed.
The Minneapolis Fed’s board chose a search firm in April and over the summer looked at some 75 prospects, interviewed finalists in September, and forwarded Kashkari to the Federal Reserve Board of Governors for approval in October. He was approved Oct. 22.
“I don’t know of a more qualified person to serve as a Fed president. Neel to me, just based on the way he handled such difficult issues during that time, is someone who should be in the public sector,” said Sen. Bob Corker (R-Tennessee), who worked with Kashkari during the financial crisis. “This is something very significantly good for the Federal Reserve system.”
