DALLAS FED GETS A NON--ECONOMIST WITH A CONTROVERSIAL RESUME / THE WALL STREET JOURNAL

Dallas Fed Gets a Non-Economist with a Controversial Resume

By Jon Hilsenrath


The Federal Reserve system is dominated by Ph.D. economists. Eight of its twelve regional bank presidents fit into this category, as do the Federal Reserve board’s chairwoman and vice chairman and the heads of its major divisions. For a diversity of views, the place could surely use more smart people whose worldviews aren’t molded and potentially constrained by the economic models that are so central to the thinking of Ph.D. economists. Given that the Fed was blindsided by a financial crisis in 2007-2009, the place could surely also use more people who understand the inner workings and fault lines of banks and Wall Street.

In that respect, the Dallas Fed seems to have gotten its guy in hiring Robert Steven Kaplan, a former investment banker, to become its new president. It also got a Goldman Sachs veteran and Harvard professor who exemplifies to some everything that is wrong with the nation’s central bank. Mr. Kaplan, a Harvard Business School professor, was until 2006 the vice chairman of Goldman Sachs Group Inc., leading investment-banking activities. Critics consider the Fed elitist and working at service to the banks it is meant to supervise.

The Dallas Fed hire is “another example of the revolving door that exists in the Federal Reserve,” said Shawn Sebastian of the Center for Popular Democracy, a left-leaning advocacy group.

Goldman is an object of particular animus among some Fed critics, who see the Wall Street bank as having an unusual hold on government. A long list of former Goldman executives have indeed cycled through the Fed, the government and global central banks more broadly. The list includes Hank Paulson, the former U.S. Treasury Secretary, Mario Draghi, the current head of the European Central Bank, and William Dudley, the head of the New York Fed.

The Goldman blowback is a particularly challenging subject to understand and analyze. Taken to extremes, criticism of the firm, which was founded and built by Jewish Americans, smacks at times of anti-Semitism. Fed officials don’t want to fall into the trap of ostracizing qualified people merely because of their association with the firm or its Jewish roots.

Still, the Dallas Fed hasn’t made it any easier for the central bank to prove to an often skeptical public that it is truly independent of Wall Street and the banks it oversees.