Obama appoints a non-economist to the Fed

Neil Irwin writes in the Washington Post about Barack Obama's surprising ability to remake the Federal Reserve Board of Governors pretty damn quickly:  President-elect Barack Obama this morning named Daniel K. Tarullo to the Federal Reserve Board of Governors, the first step in an unusual opportunity Obama has to remake the Federal Reserve at a time the institution is undergoing dramatic change. Although it is common for presidents to appoint several Fed governors by the end of a term, Obama will be able to appoint three of seven members of the Fed's board of governors immediately upon taking office, subject to confirmation by the Senate. He can either reappoint or replace Chairman Ben S. Bernanke when his term expires in January 2010, and he will make the same decision for Vice Chairman Donald L. Kohn when his term ends that June. Governors serve a 14-year term, though in practice, slots turn over every few years. Thus, within 18 months of taking office, Obama will likely have appointed five of seven Fed governors, including its top two members. Tarullo, if confirmed, will be one of them. He was a top aide to President Bill Clinton for international economic policy in the 1990s and since then has taught at Georgetown University's law school. He published a book this year on the Basel II international standards for bank regulation, arguing that the approach needs to be changed in major ways to prevent financial crises like that now underway. He is thus well poised to represent the Fed in its coordination with bank regulators around the world in responding to the financial crisis, and to take part in what is likely to be a vigorous debate on how the U.S. financial regulatory system should be overhauled and what the Fed's role should be.... The Obama administration is likely to move quickly to fill the three open governors slots, said Democrats who have been in touch with the transition team. Two of those slots are currently vacant -- nominations were held up by congressional Democrats -- and a third is occupied by Bush appointee Randall Kroszner, whose term has expired but who is serving until his replacement takes office.  In filling the three governor slots, Obama should seek to bring a diversity of experience to the Fed in an effort to manage the various dimensions of the crisis, said economists who study the central bank. With Tarullo, he has filled one with an expert in international banking regulation. For the other two, he might appoint one person with a background in financial markets and another academic experience in macroeconomics and monetary policy. Tarullo is an interesting choice, in that a) he's a lawyer, not an economist; and b) he's known more for trade policy than financial policy.  Having interacted with him a fair amount, however, he's also a pretty sharp guy, and he did just write a book on Basle II.  The diversity-of-experience gambit makes some sense.