Evan Vucci/AP Photo
Federal Reserve Governor Lael Brainard during a meeting of the Board of Governors in October 2015
Her name is not a household word, even among people who closely follow politics, but Lael Brainard is the odds-on favorite to be Joe Biden’s Treasury secretary. As the power of the current secretary, Steve Mnuchin, demonstrates, the Treasury appointment will set the whole economic tone of a Biden administration. Brainard, 58, is a Federal Reserve governor who held several senior posts in the centrist Clinton-Biden milieu, but moved moderately left with the needs of the times. As such, she could be the symbol and substance of Biden himself.
Brainard grew up as the daughter of a diplomatic family, in then-communist Poland and Germany. Her father, Alfred Brainard, according to his obituary, was among the first U.S. officials in Poland to reach out to Solidarnosc and other dissident groups. Coming to the U.S. for high school, she graduated from the elite George School in Pennsylvania, and then from Wesleyan. Brainard’s doctorate in economics is from Harvard, where a member of her dissertation committee was Paul Krugman and a close mentor was Larry Summers.
After a job at McKinsey and a teaching stint at MIT, Brainard, still in her thirties, landed in 1997 as deputy director of the National Economic Council under Clinton, with a focus on international economics. She spent the Bush II years mostly at Brookings, where she directed the global economy program from 2006 to 2009. She was then named by Obama to be undersecretary of the Treasury for international affairs. When Tim Geithner left the Treasury secretary job in 2013, Brainard made a run at the deputy secretary position, but was passed over. Obama named her as a governor of the Federal Reserve in January 2014.
In terms of sheer experience, Brainard has punched all the tickets. It would be hard to imagine a more mainstream background. For the Wall Street allies of the Biden campaign, Brainard is ideal. As a career scholar and public official, she would presumably be less of a lightning rod for progressive critics than a Wall Street figure. Yet her policies, though activist around the edges, would be no threat to Wall Street’s core business model.
“In some ways, she is the 2020 equivalent of Tim Geithner. She hasn’t worked at a large financial institution, but she has the deep trust of that wing of the party,” says one well-placed critic who hopes Elizabeth Warren will get the job. “But because it is 2020 and not 2008, she has put more effort into reaching out to progressive critics of Wall Street.”
Others give her more credit, though virtually everyone I interviewed questions how much of her repositioning is principled and how much is tactical. “She is smart, personable, a good listener, a shrewd tactician, and very ambitious,” says a senior figure who has sometimes worked with her and sometimes against her. “It’s fair to say she has politically distanced herself from the Rubin-Summers-Geithner wing of the party. I wouldn’t call her a progressive.”
For the past several years, however, Brainard has gone out of her way to be accessible to groups well to her left. Fed Up, the grassroots protest group of Fed critics sponsored by the Center for Popular Democracy, the successor organization to ACORN, views her as a sometime ally. In August 2015, at the elite Jackson Hole meetings, Brainard, then a fairly new Fed governor, sat down with Fed Up activists who were in Jackson Hole protesting the impact of Fed policies on workers and families. Brainard, who was hoping to be Hillary Clinton’s Treasury secretary, began meeting regularly with progressive groups and took on the franchise as the Fed’s own leading advocate of monetary policies friendlier to full employment. After the meeting, Shawn Sebastian, the field director of Fed Up, told the Financial Times, “When it comes to monetary policy, Lael Brainard is one of the strongest and loudest voices advocating for policies that working families across the US need.”
A cynic might observe that progressives are so accustomed to being ignored by elites that when someone with real power reaches out and listens respectfully, people are charmed and flattered. The left is a cheap date. Yet these meetings have evidently had some influence on Brainard’s own thinking, and have been pure gold for her politically. When Trump took over, she became the leading go-to Democrat on the Fed for groups such as the AFL-CIO.
Brainard is also half of an Obama-Biden–era power couple. Her husband is Kurt Campbell, former assistant secretary of state for East Asian and Pacific Affairs under Obama, and a candidate for any of several top jobs in a Biden administration. Like Brainard, Campbell has also moved leftish. In two recent pieces in Foreign Affairs, he repudiated much of the Obama-Clinton wishful thinking on China, but without explicitly criticizing it. Once again, the intriguing question is what motivates this kind of repositioning—principle, tactics, or the changing needs of the times.
THE FED HAS major roles on both monetary policy and financial regulatory policy. And in severe crises such as the financial meltdown of 2008 and the current corona depression, the Fed is also responsible for massive credit creation to keep the economy from collapsing entirely.
On monetary policy, Brainard’s push for more liberal policies, dating to 2015, is real. In the 2014-2018 period under the Fed’s liberal chair Janet Yellen, despite very low inflation rates often well below the Fed’s own target of 2 percent, the Fed decided to raise interest rates on the rather dubious premise that it should raise them now so it could lower them later in the event of a downturn. As late as December 2018, the Fed was still nudging rates upward.
Brainard’s policies, though activist around the edges, would be no threat to Wall Street’s core business model.
On August 27, the Fed unveiled a long-awaited new monetary framework that will allow higher inflation than its average 2 percent target for some periods and permit the Fed to tolerate lower unemployment without triggering preemptive rate hikes. Fed Chair Jay Powell termed this “a flexible form of inflation targeting.” This is the policy shift that Brainard has been urging for years in public speeches and private Fed deliberations. This stance actually put her slightly to the left of Yellen, the only liberal Fed chair since FDR’s chairman Marriner Eccles. A high-profile May 2019 Brainard speech was titled “The Disconnect Between Inflation and Unemployment in the New Normal.” At a Brookings panel September 1 assessing the significance of the new framework, she and Yellen politely clashed over whether the economy would have done better had the new framework been in place in 2015.
Once the pandemic hit, of course, the Fed had every reason to loosen money. Wall Street, the Fed’s prime constituency, desperately needed very low rates and wide-open credit spigots. By 2020, Brainard was pushing on an open door, but it was a door that she helped open. The Fed’s new framework will outlive the pandemic, and represents a welcome shift in the Fed’s traditional bias toward tight money. Brainard’s dovishness on monetary policy was also in evidence while she was the top international official at Treasury, when she pressed the EU and the European Central Bank to lighten up on their perverse austerity politics.
At the Fed, Brainard’s defense of strong regulatory policy has also been intermittently nervy, though far from Warrenesque. She has dissented from several policy changes that gut key aspects of the Dodd-Frank Act, pushed through by the Fed’s vice chair for supervision, Trump appointee Randy Quarles, with the support of Fed Chair Powell. Among these shifts, from which Brainard dissented, were revised regulations that weakened the Volcker Rule restricting the amount of speculating in derivatives large banks can do for their own accounts; watered down the rules on bank liquidity and capital adequacy in favor of the banks; and weakened the terms of bank stress tests.
Though she was mostly firm in resisting bad deregulation, she has been more indulgent in voting for bank mergers, including the widely criticized merger of BB&T and SunTrust in North Carolina, which created the nation’s sixth-largest bank and dramatically restricted competition and consumer access in its basic service area. “She will make smart calls within the establishment consensus, but as a potential Treasury secretary she would not be a transformative figure,” says a leading advocate of financial reform. “Her message to Wall Street is, you should make some marginal compromises for the sake of stability. In the Trump era, she has taken advantage of the space that has opened up to Trump’s left.”
It’s also important to place Brainard’s actions in the context of Fed norms. For the most part, the Fed is a very clubby institution that operates by consensus. If your goal is to have real influence, you can’t dissent too much or you are just dismissed as a gadfly. When Brainard cast the lone vote in April 2018 against a rule change weakening bank capital requirements, it was the first dissent in six years.
Yet Brainard is not just dissenting to make a point. She is an inside player who likes to have impact. A good example of Brainard’s liberalish impulses and operating style is her recent success in keeping the Fed from joining the comptroller of the currency in watering down the Community Reinvestment Act.
I should confess more than a passing interest in CRA since I was its prime draftsman when I was working for Sen. William Proxmire in the mid-1970s. CRA requires banks to reinvest in communities, with a special emphasis on low- and moderate-income ones, rather than just seeing them as sources of deposits. CRA was frankly intended as a source of leverage on banks and bank regulators by community organizations. Some bankers have seen CRA as a relatively painless way of looking like corporate good guys; others have resented the regulatory intrusion. As the Fed governor responsible for community investment, Brainard took a particular interest in CRA, regularly met with community groups, and raised the Fed’s profile on these issues.
Starting in 2019, some bankers and conservative activists made a major push to gut CRA. Their agent was one of Trump’s most conflicted regulatory appointees, Joseph Otting, the comptroller of the currency, who left office last May as soon as the deed was done. Otting had come to hate CRA in his previous job as head of OneWest Bank.
Thanks to Brainard’s pushback, the Fed did not support the comptroller; nor did the FDIC. So the weakening of CRA was limited only to banks regulated primarily by the comptroller. At the end of the day, Brainard enlisted the support of big banks that see CRA as a low-cost badge of community mindedness, and won over Fed Chair Powell.
And yet, her support of CRA is at odds with her indulgence of bank mergers. The most powerful weapon CRA provides regulators is their ability to veto mergers if they seem against the community interest. In the case of the BB&T merger in North Carolina, the leading organization of Black farmers filed adverse comments with the Fed warning that the merger would cause branches to close and deny them credit. At the very least, Brainard might have conditioned her support for the merger on the bank keeping more branches open, or tried to organize other governors to resist it. She did neither.
For the past several years, Brainard has gone out of her way to be accessible to groups well to her left.
This is the setting in which many left-liberal activists for financial reform offer qualified praise. “She was not our friend under Obama, but she’s our friend now,” says one leading progressive advocate for financial reform. Then again, it’s easier to be a relative progressive when your antagonist is Randy Quarles. “She is mainly defending Obama-era regulatory policies that were too weak to begin with,” says another.
One senior and well-connected observer of Brainard with strong progressive credentials sums her up this way: As a consummate professional, her concern is first about the banking system’s safety and soundness, and secondarily about a well-performing, high-employment economy. While her interest in the economic development of poor communities is genuine, this person adds, “She does not have a populist bone in her body.”
ONE TELLING INDICATOR of Brainard’s non-populism is her stance on trade policy, where there is little evidence that she has strayed from her earlier orthodoxy. When she went to work for Clinton in 1997, two of her main assignments were implementing NAFTA and preparing the way for China’s entry into the WTO, with few conditions other than granting access to investment banks such as Goldman Sachs, a quid pro quo demanded by Robert Rubin, the former Goldman co-CEO who served as Clinton’s Treasury secretary. No other meaningful changes in China’s entire mercantilist economic system were demanded or received.
Brainard supported bilateral trade deals without serious labor rights. She expressed no concern about China’s impact on American manufacturing or on jobs. Rather, Brainard saw outsourcing as a plus that resulted in cheaper consumer products. She shared the prevailing wishfulness about the impact of the trade deal on liberalization within China. “WTO accession will advance market-oriented economic reform, the rule of law, and economic freedom in China,” she said in one speech. “It will more deeply integrate China into a rules-based economic system, which in turn will increase its stake in peace and security.”
As the director of Brookings’s global economic program in the early 2000s, Brainard was a traditional globalist. She was a huge booster of the now defunct Trans-Pacific Partnership, which was substantially a corporate wish list presented as a trade liberalization deal that benefited the United States and somehow contained China. Brainard continued to be a strong defender of the WTO, and the trade assumptions that underlie the WTO system.
When she moved to the Treasury undersecretary job under Obama, one of her responsibilities was to review China’s currency operations to determine whether Beijing should be branded a currency manipulator. She resisted all efforts to make such a finding. The policy of rejecting that approach came from higher-ups, who naïvely hoped that a modus vivendi with China might be found. Brainard was not just a loyalist, but an enthusiast. When Congress toughened the law in 2015, after Brainard had left Treasury, to add grounds for citing and punishing Beijing’s currency manipulation, some progressives in Congress joked that the legislation should be named the Lael Brainard Memorial Act.
Brennan Linsley/AP Photo
Lael Brainard speaks with activists Angela McCall, right, with MORE, Missourians Organizing for Reform and Empowerment, and Kendra Brooks, of Action United of Philadelphia, August 25, 2016, at the annual invitation-only conference of central bankers in Jackson Hole, Wyoming.
Though the Fed does concern itself with trade issues such as exchange rates, foreign bond purchases, and the risk of trade wars on the larger economy, Brainard has had little to say on trade lately. The Fed public-affairs office confirms that while Brainard does extensive speaking, trade has not been one of her subjects. There is little if any evidence that she has changed her views. Her husband Kurt Campbell, as noted, has almost totally disavowed the earlier conventional wisdom on China policy. It would be interesting to be a fly on the wall of their dinner table conversation.
All this matters, should she move to Treasury, because the Treasury secretary is a major player on international economic issues. Progressives who welcome her movement on other issues cite her trade stance as a big problem. The Democratic Party is split between traditionalists in the Obama-Clinton mold, who think the WTO system can be fixed, and those who believe that the entire trading system has been good for U.S. multinational corporations and banks, but bad for American workers and communities. Donald Trump played on accurate feelings by American workers that our trade policies served mainly elites. So it is of more than passing interest which side of this debate the next Treasury secretary is on.
ONE ISSUE THAT straddles both the Fed and the Treasury is the question of which sectors of the economy the Fed should be supporting with its almost unlimited capacity to create credit. Thus far, that capacity has served mainly financial markets, at the expense of Main Street businesses and state and local governments.
In the CARES Act, the major economic relief program enacted in May, Congress gave the Fed almost half a trillion dollars, which in turn was intended to leverage about $5 trillion in lending. Two of the credit facilities, which have languished almost unused, are the $75 billion targeted at municipal lending, and another $75 billion for medium-sized businesses that in turn employ some 48 million people. But the terms have been so draconian that hardly anyone has applied. According to Fed Up, some 97 percent of state and local governments, which nominally qualify for credit under the program, are excluded by the terms. When it comes to the Main Street Lending Program, a great many businesses don’t want or need loans. They need equity.
The tough terms are mainly the work of Treasury Secretary Mnuchin, though support for risky lending, especially to state and local governments or to businesses, goes against the culture of the Fed. Both the Fed and the Treasury are quick to blame Congress. If Congress wants to legislate direct aid to business and to state and local governments, well and good. But this is not the Fed’s job. On the other hand, as pointed out by Bharat Ramamurti, the former chief banking counsel to Sen. Warren who now serves as one of four oversight commissioners for the CARES programs, if the Fed wanted to extend credit to state and local governments at ten years at interest rates less than 1 percent, there is nothing to prevent the Fed from doing so. At a recent hearing, Ramamurti pointed out that Philip Morris got credit from the Fed at far more favorable terms than the state of Kentucky, though both have identical credit ratings. While Brainard, as the lead Fed governor responsible for the CARES program, has pressed quietly for modestly more liberal lending terms, she is not going against the larger culture of the Fed, an institution that hates to lose money.
As Treasury secretary, Brainard would likely push harder for fiscal relief to municipalities and Main Street businesses. She would resist premature austerity, recalling the calamitous mistake Obama’s people made in 2010. She’d be a force for defending Dodd-Frank, and reversing some of the worst assaults on it—but not going much beyond it. On trade, she’d likely be a big disappointment to progressives. Most importantly, unlike Warren, she would not push hard to dismantle an entire Wall Street business model that has come to focus more on trading and speculation than productive investment.
At the Fed, Brainard’s defense of strong regulatory policy has been intermittently nervy, though far from Warrenesque.
One of the most toxic aspects of the current financial economy is the overweening economic power of private equity, which strips assets and jobs from the real economy and lines the pockets of its sponsors, while evading any meaningful regulation. Warren basically reverse-engineered the private equity model, and proposed legislation closing all the loopholes on which private equity depends, essentially putting it out of business.
Addressing private equity abuses does not seem to be on Lael Brainard’s radar screen. On the contrary, she is said to be a favorite of Larry Fink, who heads the world’s largest investment company. BlackRock has hired several Clinton and Obama alums to avoid being designated under Dodd-Frank as a systemically important financial institution (SIFI), which would bring greater regulatory scrutiny. As Treasury secretary, Brainard would head the Financial Stability Oversight Council (FSOC), the powerful interagency committee created by Dodd-Frank that makes that call.
The FSOC, which has languished under Trump, is also empowered to intensify regulatory and reporting requirements if it believes major financial institutions pose risks. Under the leadership of an aggressive Treasury secretary, the FSOC and other Dodd-Frank provisions offer substantial power to limit the trading-and-speculation business model that has come to dominate Wall Street in favor of one that emphasized genuine investment in the real economy. Under Obama, when Brainard served at Treasury, the balance-sheet health of the biggest banks was given priority over serious systemic reform. It is possible to imagine Brainard as Treasury secretary working to improve safety and soundness via better capital requirements and enforcement of the Volcker Rule. It is hard to imagine her interfering with Wall Street’s immense profit machine in any fundamental way.
THERE ARE PLENTY of people to Brainard’s right mentioned for the Treasury job. Several who come directly from Wall Street, such as Larry Fink of BlackRock, Tom Nides of Morgan Stanley, Tony James of Blackstone, or Jamie Dimon of JPMorgan Chase, seem highly improbable because the progressive wing of the party would go ballistic. Progressive senators such as Warren, Bernie Sanders, Sherrod Brown, and Jeff Merkley might well balk at confirming them. Biden intimates such as Jeffrey Zients, also to Brainard’s right, are also mentioned as possibilities. But a white male is almost out of the question per se. Biden has made clear that he wants more women and Blacks in top positions. Brainard has sought to preempt rivals by lining up support across the spectrum, from Wall Street Democrats to progressives, and of course in the Biden camp.
Three potential alternatives might edge out Brainard, though she seems the front-runner for now. One is Elizabeth Warren. As Treasury secretary, Warren would be a game changer. The senior senator from Massachusetts is a category of one. There is simply nobody else as savvy about how financial markets work, as deeply committed to drastic reform, and as politically shrewd.
By all accounts, Warren has not yet decided whether to make a run for Treasury secretary. If she did, Warren would have the passionate support of a progressive base that has been feeling anxious lately about some of Biden’s senior campaign officials and transition appointees. When Warren made a run to be Obama’s first director of the Consumer Financial Protection Bureau, she let the whole world know that she wanted the job.
A Warren run for Treasury secretary would both galvanize progressives and jam Biden. Unlike Brainard, Warren would threaten the hegemony of Wall Street. We can expect all manner of warning by Biden’s financial-industry backers that the appointment of Warren would crash the markets. A Warren candidacy would smoke out Wall Street’s influence in the Biden campaign and force Biden to do something that he has been loath to do—choose sides. If Biden ultimately did not give Warren the job, he would be compelled to offer some consolation prize—taking Warren’s suggestions for other key appointees and policies, or even offering her another administration position. So Warren may calculate that she has little to lose and much to gain by giving it a shot.
It may also occur to Biden that Warren could be more tractable if she joins the administration than if she stays in the Senate. As Lyndon Johnson famously said (and more coarsely), better to have her inside the tent. If the Senate goes narrowly Democratic, Warren will be one of several financial progressives in a position to support good Biden initiatives and appointees and resist bad ones. But even if she decides to make a run for the post, Warren seems a long shot to get it.
Brainard has sought to preempt rivals by lining up support across the spectrum, from Wall Street Democrats to progressives, and of course in the Biden camp.
A second possibility is Sarah Bloom Raskin. Like Warren, Raskin is a progressive on financial regulation and reform. Like Brainard, she has been both a governor of the Federal Reserve (2010 to 2014) and held a senior post at Treasury, where she served as deputy secretary from March 2014 through the end of the Obama administration. She has also served at the state level as Maryland’s banking commissioner. At the Fed, Raskin was a major force for unconventionally progressive thinking on regulatory and monetary issues. At Treasury, serving as the number two under Jack Lew, Raskin was the inside player in charge of what she calls “the plumbing”—all the mechanical parts of what Treasury does. This background gives her extensive knowledge of how the system operates.
Since leaving government, Raskin has been an astute critic of the Fed’s favoritism for propping up Wall Street at the expense of the real economy. She has come up with ingenious proposals for reversing these priorities, as illustrated in this Prospect conversation and other writings and speeches. Raskin, like Brainard, is also half of a Washington power couple, but a very different one ideologically. She is married to Rep. Jamie Raskin, a leader of the Congressional Progressive Caucus.
Both women are technically qualified and deeply knowledgeable about financial markets and the games bankers play at public expense. The difference between Brainard and Raskin is the difference between center-left and progressive. Should Warren not make a run for the job, progressive groups have made clear to the Biden people that their choice would be Raskin. The challenge is that Warren is a progressive rock star, while Raskin is not well known outside of policy circles. As a radical reformer, Raskin would likely be just as much of a target as Warren for Wall Street opposition; but she might not inherit Warren’s grassroots support—unless Warren made clear that Raskin was her choice for the job and spent real capital on it.
One other intriguing possibility is Raphael Bostic. You may not have heard of him. He’s president of the Federal Reserve of Atlanta, the first African American to be chief executive of one of the regional reserve banks that are the heart of the Federal Reserve System.
Bostic, who is also gay, has served since 2017. He was not appointed by President Trump. These jobs are filled by the boards of the regional reserve banks. Bostic, 54, has held positions as a Fed staff economist and as a leading academic business economist, and as assistant secretary of HUD. He became a contender for the job because then–Fed chair Janet Yellen and leading Black members of Congress made a major push to get more diversity in senior Fed positions. When the Atlanta job came open, Yellen insisted that at least two diversity candidates had to be in the pool.
Two of Bostic’s passions are affordable housing and better jobs and training for low-wage workers. A friend of Bostic told me that he has not made any decision on whether he’d like to be considered for the job. He’d likely be a little to the left of Brainard. It has been widely anticipated that a President Biden would name a woman to be the first female Treasury secretary. But he also might decide to appoint the first Black secretary.
Consider this possible play. Until Biden’s overwhelming win in the South Carolina primary, his candidacy was foundering. Rep. Jim Clyburn’s effusive endorsement and work on Biden’s behalf was key to Biden’s massive Black support, his big win, and the bandwagon effect that followed. Clyburn, the House majority whip, who represents much of Charleston and Columbia, is a towering figure in the Black community. And Biden owes Clyburn, big-time. We don’t know how Clyburn will call in that chit—actually several chits. But suppose he said, let’s have a Black Treasury secretary.
If Brainard does get the Treasury job, she seems a precise harbinger of what we can expect from a Biden administration—not progressive in the mold of an Elizabeth Warren, but more liberalish than many Clinton-Obama alums on some key issues, and still a work in progress. Mostly, this evolution has occurred not because Brainard (or Biden) has personally moved all that far, but because events have moved. The success of Biden’s administration could well depend on whether officials such as Brainard and Biden himself are able to move a good deal farther beyond their comfort zones.
