STAFF NEWS & ANALYSIS
U.S. Treasury Appoints Financial Stability Chief
By - October 08, 2008

A space technology whizz who works in the US Treasury is expected to be appointed to run one of the world's largest investment funds. Neel Kashkari, 35, who developed technology for Nasa missions in his first career, is thought to have been chosen to oversee the $700 billion fund that the US Treasury has set up to buy bad mortgages from financial institutions. Mr Kashkari's appointment, which is to be announced soon but is likely to expire when a new government takes office in January, comes less than 18 months after Henry Paulson, the US Treasury Secretary, poached him from Goldman Sachs. There he headed the IT Security investment banking practice in San Francisco, advising companies on mergers, flotations and other financial transactions. Mr Kashkari joined the Treasury last year as an adviser. He quickly became involved in the unfurling credit crisis and was promoted to the position of Treasury assistant secretary for international affairs. – London Times

Dominant Social Theme: Bankers to the rescue.

Free-Market Analysis: From farce to tragedy? This is what happens when free-markets are overtaken by uncontrolled cronyism and corruption. A 35-year-old gets tapped to run a US$700 billion bailout fund that is supposed to save the American economy and thus the world's financial system.

Who is this young godhead? Here's some information from the Huffington Post:

"The ex-Goldman Sachs vice president lives in the pleasant Washington, DC suburb with wife, Minal, 32, and their enormous brown shaggy Newfoundland dog, Winslow – named after former Browns star tight end Kellen Winslow."

"His high school yearbook is filled with quotes he chose from rock bands like AC/DC and Rush."

"Kashkari is a 1991 graduate of Western Reserve Academy, a private college prep boarding and day school."

"Prior to his career in finance, Mr. Kashkari was a R&D Principal Investigator at TRW in Redondo Beach, California where he developed technology for NASA space science missions such as the James Webb Space Telescope."

So there we are. A dog lover who enjoys hard rock and may well be a Browns football fan. But surely a living god should have a more illustrious pedigree than this? We would except such an individual to compose symphonies, create great works of art, discover prime numbers, invent a cure for cancer, etc.

Perhaps there is something in his professional background that qualifies him to make decisions that will save the financial world. Let us dig deeper. Here's some background from the Wall Street Journal:

The move essentially puts a new title on what Kashkari has been doing since he joined the Treasury in 2006-examining the consequences of an economic housing fallout. Kashkari was one of three Treasury staffers-including general counsel Robert Hoyt and head of legislative affairs Kevin Fromer – who stayed up until 4 a.m. last Sunday putting together the $700 billion bailout bill that was shot down by House Republicans the next day. Kashkari is an Indian-American who has a few things in common with Paulson. Both are former Goldman Sachs bankers, though Kashkari, at 35 years old, is much younger and was just a vice president-level banker in Goldman's San Francisco technology banking effort when Paulson tapped him to join the Treasury. Both also are Midwesterners. Kashkari grew up in Stow, Ohio, and earned a bachelor's and master's degree in engineering from the University of Illinois at Urbana-Champaign. Paulson was raised in Barrington Hills, Ill. And both sport similar hairstyles – or lack thereof.

After Wharton, Kashkari joined Goldman and worked in San Francisco, where he advised companies that create computer security programs like antivirus software. He and his wife, Minal, still keep a house in California. It also included Robert Steel, who has since left the Treasury to become CEO of Wachovia. Paulson likes to surround himself with people he's comfortable with: people, mostly, from Goldman Sachs. Paulson's inner circle already includes former Goldmanites Dan Jester, a financial institutions banker, and retired banker Steve Shafran, who focused on corporate restructuring at Goldman. Kashkari's appointment is another example of how deep those Goldman Sachs ties go. In fact, Paulson himself was recruited by a former Goldman Sachs banker: former White House Chief of Staff Josh Bolten.

It's the last paragraph in fact that is most telling in the above excerpt: Paulson likes to surround himself with people he's comfortable with: people, mostly, from Goldman Sachs. Paulson's inner circle already includes former Goldmanites Dan Jester, a financial institutions banker, and retired banker Steve Shafran, who focused on corporate restructuring at Goldman.

This is key to what's really going on. Kashkari apparently happened to be at the right place at the right time – at Goldman Sachs in other words, when Paulson was running the place and before Paulson went to Washington. Now that Paulson has achieved his apparent goal of intertwining the federal government inextricably with America's largest blue chip companies (as the feds will buying their paper) Kashkari will be the point man on the project.

And what an opportunity that is – all thanks to the distortive nature of high finance as its practiced early in the 21st century. This endlessly wretched fiat money system turns mortals into something more by giving them power they could never accumulate on their own. Could Kashkari assemble $700 billion in the private marketplace at 35? Nonetheless he is in charge of this pot of gold and the prestige and power that will accrue to him comes from his association with it. And his association comes from who he knows. What were his real talents in this regard? Ingratiating himself to Paulson, obviously. Helluva living.

There were apparently many other ways that the US government could have helped companies unload the toxic paper that is said to be jamming up lending. An insurance fund that guaranteed the paper at a certain price might have done the trick as well. But in that case, nobody in Treasury would have had vast sums at their disposal to throw around. And Paulson, arguably among the most important and powerful bureaucrats in the world right now would not have had the right to appoint Kashkari his demigod.

After Thoughts

The current system of marketplace salvage is very bad for everyone but those who take command of the buckets of money being thrown at the market. And, yes, injecting trillions of dollars by hook or crook may well turn a deflationary depression into an inflationary recession, and from a fiat money standpoint was perhaps necessary, from the point of view of those who run the system. But in reality it only puts the pain off until next time. And next time, the monetary elite will be "forced" by obvious circumstances to reconfigure the financial system in a way they are only starting to know. This will be an interim affair, it would seem, in which the internationalization of finance will only go so far. But just wait.

In the meantime, expect the worst. The "bailout" may ameliorate the lending crisis, but banks will still be hard-pressed, jobs will still vanish and the corruption and cronyism that has been a growing problem in Washington for a full century now will go through the proverbial roof. Financial power will indeed move from New York to Washington, and the firm to enjoy the most obvious benefits from this is Goldman Sachs. America is creating a new financial system one, intertwined with Washington DC. It is a harbinger of things to come and a bad one.

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