Reorganization man

Anyone familiar with Jeffrey Goldstein's career in the public sector might for a moment question Barack Obama's faith in the U.S. economy.

The president recently nominated Goldstein to be the Treasury Department's undersecretary for domestic finance. For the past five years he has been a managing director at private equity firm Hellman & Friedman LLC. But before joining the buyout industry, Goldstein served as a managing director at the World Bank, the intergovernmental organization dedicated to lending to, and helping restructure, the economies of poorer nations.

It would be far-fetched to believe that Goldstein has been brought in to impose on the U.S. economy the kind of austerity measures the World Bank often requires of struggling economies, however much drastic measures might seem to be be in order. But Goldstein's experience at the bank has provided him some unique perspectives on an American economy burdened by debt and dogged by deficits.

The organizational skills he developed at the World Bank and honed as an investment banker at BT Wolfensohn drew the attention of Obama's economic advisers. And his past five years at Hellman & Friedman provided an insider's view of private equity and executive level knowledge of a wide array of financial companies. Hellman & Friedman made a number of investments in financial -services companies ranging from broker-dealers to reinsurers.

Goldstein, 54, was nominated in August and still awaits a hearing before the Senate Banking Committee and confirmation by the full chamber. Typically, the undersecretary for domestic finance would be the top Treasury official overseeing the banking and financial services industry.

But after the massive federal interventions of last year, financial services is a constant priority of Treasury Secretary Timothy Geithner and Deputy Secretary Neal Wolin. In this environment, Goldstein will undoubtedly have less autonomy than his predecessors to determine financial institutions policy.

Nevertheless, Geithner should be glad to have him, says James Wolfensohn, who hired Goldstein to work for his firm in 1984. At the time, Goldstein was an economics professor at Princeton University and was looking for opportunities outside academia.

"He had made the decision to leave teaching when he came to see me," Wolfensohn says. "His leaving had nothing to do with me, but I say, 'When talent like that is available, you take it.' He was undoubtedly one of the top financial people globally."

Goldstein quickly adjusted to being an investment banker. "What struck me was the flexibility he showed in immediately adjusting to commercial challenges," Wolfensohn says. Goldstein spent 15 years at Wolfensohn. The firm was acquired by and became a unit of Bankers Trust Co. in 1996. After Wolfensohn left, former Federal Reserve Board Chairman Paul Volcker became head. Goldstein himself served as co-chairman before leaving in 1999 to join Wolfensohn at the World Bank.

By then, Wolfensohn and his team of managing directors were engaged in a complete reorganization and Goldstein was assigned to tackle the bank's finances. "He was able to work not only inside the bank but interfaced with finance ministers throughout the world," says Wolfensohn. He was also assigned to gauge developing countries' ability to borrow. "That capacity to judge national accounting and national debt capacity is something he can apply to our country," Wolfensohn says.

Some World Bank insiders took a dim view of the Wolfensohn reorg. David Phillips, a former consultant for the bank and author of "Reforming the World Bank: Twenty Years of Trial -- and Error," chronicles the bank's structural weaknesses and lack of defined mission and says Wolfensohn and his directors hamstrung themselves by bringing in mostly outsiders for the reorganization. Phillips describes the effort as "badly planned" and little more than a reaction to political criticism of the institution.

Phillips doesn't lay blame entirely on the Wolfensohn team, however. The World Bank, he says, long suffered from uncertainty over its mission.

Grappling with such ambiguity isn't unlike the task now before Goldstein and his colleagues at Treasury. They and Congress must define the proper role for financial regulators in a complex market economy and decide just how heavy a burden of new rules and regulations to impose on a still-recovering financial sector. Hard calls all.