Jan. 27 (Bloomberg) -- William Dudley, named president of the Federal Reserve Bank of New York today, kept up his stamina during last year’s all-night talks on the financial crisis by napping on the carpet of his office at the bank.
For two years Dudley was a top lieutenant to former New York Fed chief Timothy Geithner, who was sworn in yesterday as U.S. Treasury secretary. Now, the central bank is relying on Dudley’s frontline crisis experience, financial expertise and capacity for long hours to guide the Fed’s biggest district bank and coordinate policies toward Wall Street firms including his former employer, Goldman Sachs Group Inc.
“He’s someone who I think has high marks in every attribute you could possibly want for the job,” said New York University economist Mark Gertler, who was a Fed visiting scholar in 2006-2007 and served with Dudley on an advisory panel to the bank. “He’s contributed to the positive developments on the policy front in terms of combating this crisis.”
As the New York Fed’s head of markets, Dudley, 56, was in the thick of marathon talks last year over the fate of Bear Stearns Cos. and Lehman Brothers Holdings Inc. Instead of checking into a nearby hotel or using one of four dorm-style rooms at the bank’s downtown Manhattan headquarters, Dudley once slept on the floor near his desk in his ninth-story office when the talks dragged late into the night.
Role in Fed Programs
Dudley, who holds an economics doctorate from the University of California at Berkeley, is one of the main architects of the emergency credit programs the Fed has introduced since December 2007, and has overseen most of them. The initiatives have more than doubled holdings on the central bank’s balance sheet to a record high of more than $2 trillion.
Fed Chairman Ben S. Bernanke said in a Dec. 1 speech that “market functioning would have been more seriously impaired in the absence of our actions.”
Goldman Sachs, where Dudley worked for more than two decades and in 1995 became head U.S. economist, has long contributed top policy makers. Henry Paulson and Robert Rubin both headed the bank before becoming Treasury secretaries. Bank of Italy Governor Mario Draghi and Bank of Canada Governor Mark Carney are former managing directors of Goldman. Other notable alumni are Neel Kashkari, Paulson’s director of the Troubled Asset Relief Program, and Josh Bolten, who served as White House chief of staff under President George W. Bush.
Agreement With Bernanke
While “too many from Goldman have their hand in this thing, on balance I like and trust Dudley,” said Robert Brusca, a former chief of the New York Fed’s international division and now president of Fact & Opinion Economics. “He seems to be in broad agreement with Bernanke and that does not seem to be a bad thing.”
Dudley is already well known at the Fed in Washington. Part of his job as New York Fed markets chief was to speak first at meetings of the Federal Open Market Committee, which sets interest-rate policy.
The appointment comes in time for Dudley, as chief of the New York Fed, to be installed as the FOMC’s vice chairman and the only one of the 12 regional Fed presidents to have a permanent vote on the committee, which starts a two-day meeting today.
“I don’t think the New York Fed position has ever been more important than right now,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, who used to work at the New York Fed. “The New York Fed president is on the front lines.”
Markets Role
Before managing many of the Fed’s emergency programs, Dudley oversaw the markets group’s traditional responsibilities for implementing U.S. monetary and dollar policy, conducting purchases and sales of Treasuries and maintaining relationships with Wall Street’s biggest bond dealers.
The unprecedented loan programs have failed to halt the recession that began in December 2007.
The Fed’s lending is “not as elegant as we might like,” Dudley said Jan. 4 at a conference in San Francisco. Still, “if we don’t do anything to slow down the pace of that adjustment” in banks’ balance sheets, “it’s going to do very significant damage to the macroeconomy,” he said.
As New York Fed president, Dudley will remain involved in any decisions to wind down and exit the loan programs. Several Fed officials have spoken in recent months about the need to end the facilities when they are no longer needed.
Dudley’s Surprise
Like most policy makers and private-sector economists, Dudley failed to foresee the worst of the credit crisis. In an October 2007 speech, he predicted that subprime-mortgage losses “probably will ultimately turn out to be in a range” of $100 billion to $200 billion, though “it undoubtedly will take time for circumstances to return to normal” in financial markets.
Writedowns and losses from financial institutions worldwide have totaled more than $1 trillion in the past two years. In a May 2008 speech, Dudley said that since the previous talk, the “list has gotten much longer” of events he never expected to see.
Before joining Goldman Sachs in 1986, Dudley had been vice president at the former Morgan Guaranty Trust Co. From 1981 to 1983, Dudley was an economist at the Fed board in Washington.
In October 1998, Dudley accurately predicted the devaluation of Brazil’s currency, the real. Three months later, Brazil gave up a 4 1/2-year defense of its currency, allowing it to fall by about a third in the following two months.
Dudley and his wife, Ann Darby, reside in Cranford, New Jersey. They have no children.
Political Donations
Dudley donated $5,000 to Democratic political candidates from 2000 to 2004, according to records compiled by the Center for Responsive Politics.
Stephen Friedman, a former Goldman Sachs chairman who was also director of the National Economic Council from 2002 to 2004, headed the panel to find a successor to Geithner, 47. Dudley’s “deep economics background, extensive working knowledge of the markets and hands-on policy-making role make him an outstanding choice,” Friedman said in a statement today.
Geithner was sworn in as President Barack Obama’s Treasury chief yesterday after winning a confirmation vote in the Senate by 60-34. Dudley’s appointment by the New York Fed’s board of directors was approved by Bernanke and the Fed’s Board of Governors in Washington.
The New York Fed presidency isn’t the only vacancy being filled at the central bank. For the Board of Governors, Obama nominated Daniel Tarullo, a former Clinton administration economics aide, to succeed Randall Kroszner. Obama would then need to choose two more candidates to restore a full complement of seven governors.
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