By BINYAMIN APPELBAUM MARCH 12, 2014
WASHINGTON — Stanley Fischer has worked for much of his professional life to improve economic policy in the developing world. Now he is on the verge of a new role in a country with plenty of economic problems of its own: the United States.
Mr. Fischer, nominated by President Obama to serve as vice chairman of the Federal Reserve, is likely to move quickly through a confirmation process that begins with a hearing before the Senate Banking Committee on Thursday morning.
Assuming Mr. Fischer successfully negotiates that gantlet, he would join Janet L. Yellen, the Fed’s new chairwoman, in the difficult work of figuring out how much more the Fed can do to help the economy recover from the Great Recession.
Ms. Yellen proposed his selection to the White House. ...
Genial, courtly, self-effacing, Mr. Fischer is skilled at making sharp points without making enemies.
Lawrence H. Summers, a former Treasury secretary, suggested at a November conference held by the International Monetary Fund in Mr. Fischer’s honor that there were fewer financial crises in the decades after World War II because people acted prudently.
“Larry,” Mr. Fischer responded, “I wonder whether the 35 years after World War II had something to do with the fact that financial liberalization hadn’t yet happened.”
Mr. Fischer’s prepared remarks before the Senate committee, released by the committee on Wednesday, focused on the importance of the Fed’s role as a financial regulator. “The Great Recession has driven home the lesson that the Fed has not only to fulfill its dual mandate, but also to contribute its part to the maintenance of the stability of the financial system,” he said.
Mr. Fischer, now 70, is a widely respected figure in the world of economic policy.
His academic work in the 1970s helped to provide the intellectual justification for today’s activist monetary policy. His students included the recently retired Fed chairman, Ben S. Bernanke, and Mario Draghi, head of the European Central Bank.
He subsequently began a career in policy-making, including a stint as second-in-command at the I.M. F. during the 1990s and, most recently, an eight-year run as governor of the Bank of Israel, a job he left in June.
Along the way, Mr. Fischer, born into a family of shopkeepers in a small town in present-day Zambia, in a home without running water, amassed a fortune as the author of a best-selling economics textbook and a senior executive at Citigroup.
Mr. Fischer in December disclosed assets worth $14.6 million to $56.3 million, including a residence in New York worth at least $5 million. He said that he would divest some stock and investment holdings if he were confirmed.
Mr. Fischer has said that his upbringing in Mazabuka, then part of the British colony of Northern Rhodesia, imbued him with a passion for economic development.
“One of the things that got me interested in economics, peculiarly, was that Dag Hammarskjöld was an economist,” Mr. Fischer recalled in a 2004 interview with his friend Olivier Blanchard, now the chief economist at the I.M.F. “When I was in high school, Dag Hammarskjöld was this great man. Then he was killed in the then-Belgian Congo, right next door. I knew he had done good in the world and my parents had brought me up to believe I should do good in the world. I realized that economics would help you do good.”
Mr. Fischer came to America in the late 1960s for a doctorate at the Massachusetts Institute of Technology, then spent nearly two decades there as a professor of economics. His most famous work was a 1977 paper that helped to ignite a revival of the idea that central banks can stimulate economic activity. He became an American citizen in 1976.
He turned to policy-making in the late 1980s — a change Mr. Bernanke and others would describe as an inspiration in their own careers — by joining the World Bank as chief economist. Then, after a brief return to academia, the Clinton administration secured his appointment as the I.M.F.’s first deputy managing director.
Developing nations were hit by a series of financial crises during Mr. Fischer’s time at the fund, and the changes in economic policy that the I.M.F. required from countries seeking its help remain controversial. The fund’s typical demands included reductions in domestic spending and greater openness to foreign investment. Critics argue that many of the changes did more harm than good.
“Tens of millions of people were unnecessarily thrown into poverty,” said Mark Weisbrot, co-director of the liberal Center for Economic and Policy Research. He said the United States suffered, too, as those countries devalued currencies and pumped out cheap exports, driving trade deficits to record heights.
“Did he ever admit that they were wrong in the Asian crisis?” Mr. Weisbrot asked of Mr. Fischer. “If he’s never admitted that, then I wouldn’t trust him.”
Of course, there was another financial crisis in 1998 -- in Russia -- but Fischer's sizable role in Russian policy in the seven years before Russia's 1998 default has disappeared down the Memory Hole. But Russia hasn't been in the news much recently, so who could possibly remember to ask Fischer about his role in Russian policy in 1991-1998?
Mr. Fischer’s tenure as a Citigroup executive between 2002 and 2005 also has drawn scrutiny from Democratic senators who favor stronger limits on big banks.
“I’d never been in a private sector and it interested me,” Mr. Fischer said in 2004.
He led the bank’s public sector advisory group and served as president of Citigroup International, overseeing the bank’s foreign operations, working under a contract that allowed him to leave for a “high-level” government job without surrendering the value of his stock options. When Israel called in late 2004, he left.
Senator Sherrod Brown, an Ohio Democrat, has said that he plans to ask Mr. Fischer what he learned on Wall Street and how it would influence his work at the Fed.
Mr. Fischer became an Israeli citizen in 2005 while retaining his American citizenship, but he already had deep ties to the country, and he insisted on speaking Hebrew there from the outset. His arrival was compared by one local paper to the acquisition of the Brazilian soccer great Ronaldinho by an Israeli team.
Although the Israeli economy swooned during the global financial crisis, it never fell into recession. Mr. Fischer cut interest rates quickly at the beginning of the crisis and, breaking with the I.M.F. playbook he had helped to write, he built up foreign reserves to limit the rise of the shekel.
Shlomo Maital, a professor at the Technion Institute of Management, credited Mr. Fischer with “navigating Israel through the global financial crisis that began in 2008, more or less unscathed, by clever manipulation of interest rates and impeccable timing.”
Mr. Fischer also worked quietly to preserve the Palestinian banking system and, when he stepped down last year, both Israeli and Palestinian officials mourned his departure.
While Mr. Fischer has avoided public speaking in recent months, there have been glimpses of his views. The former secretary of the Treasury Robert Rubin said last week that he had made a $1 bet with Mr. Fischer about the economy’s performance in 2014. Mr. Rubin said he was the pessimist, while Mr. Fischer was more optimistic.
“I think he’s good for the money,” Mr. Rubin joked. “I know I am.”