Of all the changes Barack Obama is bringing to Washington, the one he probably never imagined is the change to the president's job description. Thanks to the market meltdown, he is now not only commander-in-chief and leader of the free world, but also chief executive of the planet's largest mega-bank.
And just to make the new job that much more challenging, the Bank of the U.S. he inherited on Jan. 20, which was capitalized to stave off a panic in our financial system, is facing its own crisis of confidence over the outgoing administration's handling of the assorted bailouts now in progress.
If Obama is going to overcome these grave doubts and succeed in his demanding new role as banker-in-chief, he's going to have to start thinking in bold new ways about his extraordinary new money-management responsibilities.
It's not enough to ask how our tax dollars are being allocated, as many skeptics are now understandably doing. We also need to ask more fundamental questions about who is devising and managing the investment plan. Do we have the people and structure we need at the Bank of the U.S. to effectively target the $1.7 trillion in rescue funds we will soon have in our portfolio, not to mention the rest of our budget?
Obama has already demonstrated the capacity to be an innovator in this regard. A few weeks ago, he appointed an accomplished management consultant to the newly created, efficiency-creating post of chief performance officer.
Soon he plans to appoint a similarly tasked chief technology officer. The next logical and far more essential step in this hiring line would be to find a chief investment officer, one who would be responsible for looking holistically at the government's broad portfolio of assets and developing coherent, balanced strategies for maximizing our ROPI--return on public investment.
At the moment, no one federal official or agency has this mission. That is staggering, given the size and complexity of the federal budget even before the meltdown. Regular tax revenues totaling $2.6 trillion are allocated to everything from Social Security to health care, national defense, homeland security, infrastructure and education, among other things.
Various branches of the government pull countless levers to drive investment activities, using taxes, environmental regulations, trade regulations and tariffs and monetary policies.
This vacuum is particularly inexplicable now when you consider the amount of future earnings we are in the process of handing out like paper towels to prop up our economy:
--$350 billion to banks through the first installment of Troubled Asset Relief Program funding, $15 billion of which was recently diverted to auto companies, and $122 billion of which was invested in
--At least $100 billion in guarantees on a massive real estate portfolio through our off-the-balance-sheet takeover of
--$350 billion in new TARP funding that Obama recently requested.
--$300 billion in stimulus tax cuts that Obama is proposing.
--$550 billion in stimulus spending that Obama is proposing.
Most astonishing of all is how we are currently filling this vacuum. In the worst economic collapse since the Great Depression, we have been relying primarily on a relatively young mergers-and-acquisitions banker at the Treasury Department with no meaningful government or investment experience, along with a staff of about 40, to invest the first $350 billion in TARP money on a purely ad hoc basis.
On the stimulus side, we are relying on a committee of 535 politicians to direct our 401(k) investments for the next four to 10 years, all with limited investment experience and almost all with close connections to the investments they've recommended. This is Washington as usual on steroids.
The CIO I am proposing would fill this glaring vacuum and fix these problems by doing what CIOs in the business sector do every day: evaluate all investments and assets held on our books on a pure ROPI basis, as well as comparatively, across the entire public portfolio.
Even prior to its present buying spree, the U.S. held a formidable portfolio of assets ranging from real estate to water rights, national parks, airwaves and waterways, managed by a welter of different agencies with potentially conflicting agendas and no cross-department coordination.
Now the Treasury Department has created a whole host of new challenges by going in just sixth months from a standing start to investing as much capital as does Fidelity Investments, the world's largest mutual fund manager. All of that needs to be managed in the context of the whole U.S. portfolio.
For instance, when thinking about Fannie and Freddie's mortgage holdings, how long do we hold off on foreclosures? Do we turn some seized houses into rentals, to generate steady cash until the market turns? Do we sell off assets in small batches? Create a real estate investment trust? Right now, these questions never get properly evaluated in terms of their implications for other assets in the portfolio and other needs among total government expenditures.
A White House CIO would be uniquely positioned to assess the relative returns of these assets in terms of both financial and non-financial goals. For example, what if the nation were best served by diverting some foreclosed units to use as subsidized housing for veterans? Perhaps we could lease these depressed properties, at attractive rates, to teachers, fireman, police officers and other public servants so they could finally afford to live in or near the affluent communities they serve.
Or we might maximize the absolute returns on these assets by putting them into their own REIT, the realized value of which could then be drawn on, over time, by our needy Social Security system. We could even take the REIT public at some point and use the proceeds to pay down a chunk of our national debt.
Consider the national infrastructure spending that's a critical component of Obama's economic recovery program. Industry estimates of the total outlay range from $700 billion to $1.6 trillion for modernizing our transportation networks alone. Wouldn't it make sense to have our CIO take a close look at the relative returns on those investments, as opposed to permitting them to be held hostage to all the predictable special interest groups?
Promoting a greater use of highways and bridges by building new roads and keeping gas taxes down, for example, will encourage more driving and greater fossil-fuel consumption. This could cost more in imported oil than we spend on the short-term jobs the work creates--thus producing the unintended outcome of a massive net outflow of public wealth, and a poor ROPI for the U.S.
A CIO looking at that quandary would also take into consideration that almost all the cost of generating electricity is spent in the U.S. That would suggest that timely investments in rail and electrical vehicles and infrastructure might generate a better national rate of return than investments in highways.
Forget about change you can believe in. Hiring a federal chief investment officer would be change we could bank on.
Rafi Musher is the chief executive officer of Stax Inc., a management consulting firm.