A Cool Hand at the Tiller of the Bailout?

There is a lot of talk these days, at least from John McCain, about the need for a “cool hand at the tiller” of government. Presumably, that would apply not only to the White House but also to the $700 billion bank bailout that is under way. Yet the man just chosen by Treasury Secretary Henry Paulson to oversee the massive purchase of toxic securities once wrote an anti-Japanese tirade that was published as a letter to the editor in an automotive trade journal.

Neel Kashkari (photo) has received lavish praise for his intelligence and his character since Paulson announced his selection earlier this week. While some observers are surprised that so much responsibility is being given to someone who is only 35 years old and only six years out of business school, that seems to be outweighed by the gee-whiz descriptions of a career that has included stints as an engineer for a NASA contractor and a vice president under Paulson at Goldman Sachs as well as his current position as Assistant Treasury Secretary for International Economics and Development. His immediate boss at Treasury told the Associated Press that Kashkari, who describes himself as a “free-market Republican,” is “very analytic…very fact-based…very unemotional.”

Perhaps now, but the December 26, 1988 issue of AutoWeek published a letter from Kashkari (available in the Nexis archive of that publication) that read as follows:

I’m sick of it! Japanese corporations are always taking credit, or in some way relating their pathetic attempts at quality or success, to that of some American or European accomplishment. For years, the Japanese have been stealing computer secrets from IBM and other American computer firms and have tried to build computers with that stolen technology. Now they’re copying others’ cars. Nissan built that car which looks like an out-of-proportion Ferrari Testarossa. The real Testarossa is a fabulous display of Italian craftsmanship. But no, Nissan had to build a copy cat. As far as I’m concerned, the so called “great” Mazda 929 is an out-of-proportion Lincoln Continental. And now this new Lexus is said to be so great. But the Japanese cannot be original at anything. Their cars fail, but someone else’s car is a winner. Then they decide to make a body style change — and suddenly they have a winner, which looks exactly like the other person’s car! I am really sick of it.

Now, with their new Honda CRX ad they are, in some odd way, comparing the CRX to the world’s most advanced nuclear bomber, which is an example of American technology, not Japanese. I can stand no more!

The editor of the magazine felt compelled to insert the following note after the letter: “We do not concur with Mr. Kashkari’s views nor the racial animosity that is apparent in his letter.”

It is true that Kashkari, whose parents are from Kashmir, was only 15 years old when he wrote the letter, but if the Senate gets around to holding a confirmation hearing on his new post, it might be worth asking him how much his views have changed.

Meanwhile, the Treasury Department is moving ahead with the process of hiring outside asset managers to carry out the Troubled Asset Relief Program. The close of business of Wednesday was the deadline for asset managers to submit applications to participate in the Treasury’s big buy-up. That was only two days after the solicitation was announced.

The impression that the managers will be chosen from a small group of players was reinforced by the requirement that an applicant already be involved in managing “at least $100 billion in dollar-denominated fixed-income assets.” According to a ranking published last May in Pensions & Investments, there may be only a handful of firms, mainly Legg Mason and Pimco, that would meet the requirement. The winners are supposed to be announced next week.

Paulson’s solicitation also addresses the question of conflict of interest, which he had been ignoring before being pressured by Congress. The interim guidelines require that applicants disclose potential conflicts, but there is no indication that firms will necessarily be disqualified because of them. In fact, the guidelines come right out and say that conflicts may be waived. The bailout is open for business.

CORRECTION: I belatedly realized that the Pensions & Investment ranking cited above refers only to assets managed for pension funds. A fuller list that appeared in Institutional Investor magazine shows that there were 24 firms managing $100 billion or more in domestic fixed-income assets as of the end of 2007. More than a handful but still not a very large group. Goldman Sachs, the alma mater of both Paulson and Kashkari, is number seven on the list.