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  The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock

  http://www.econbrowser.com/archives/2008/11/the_progress_of....
  49 days ago in Econbrowser · Authority: 1,478

  Markus Brunnermeier provides an excellent summary graph of the financial crisis, told in "spreads". Figure 3 from Brunnermeier (2008): Interest Rate Spreads. The top panel shows the LIBOR-OIS spread (dark shaded area). The TED spread (LIBOR

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    The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock

    http://www.economistblog.com/2008/11/20/the-progress-of-the-...
    48 days ago in Economist Blog · Authority: 24

    The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock Posted in November 20th, 2008 by admin in Uncategorized Submitted by Econbrowser Markus Brunnermeier provides an excellent summary graph of the financial crisis, told in “spreads”. Figure 3 from Brunnermeier (2008): Interest Rate Spreads. The top panel shows the LIBOR-OIS spread (dark shaded area). The TED spread (LIBOR minus the Treasury bill rate) is given by the sum of two shaded areas. It also captures the fact that Treasury bonds are especially sought-after collateral in times of crisis. The top panel also shows the ABCP rate minus OIS spread, while the lower panel depicts the spread between mortgage backed repos and general collateral repos and the agency spread. Sources: Bloomberg, LehmanLive, and Federal Reserve Board.From the conclusion to M.K. Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007-08,” forthcoming Journal of Economic Perspectives, 2009, 23(1): An increase in mortgage delinquencies due to a nationwide decline in housing prices was the trigger for a full-blown liquidity crisis that emerged in 2007 and might well drag on over the next years. While each crisis has its own specificities, the current one has been surprisingly close to a — classical banking crisis. What is new about this crisis is the extent of securitization, which led to an opaque web of interconnected obligations. This paper outlined several amplification mechanisms that help explain the causes of the financial turmoil. These mechanisms also form a natural point from which to start thinking about a new financial architecture. For example, fire-sale externalities and network effects suggest that financial institutions have an individual incentive to take on too much leverage, to have excessive mismatch in asset-liability maturities, and to be too 36 interconnected. Brunnermeier (2008b) discusses the possible direction of future financial regulation using measures of risk that take these domino effects into account. (As an aside, I’ll observe that in this paper, Fannie and Freddie do not make appearances as “causes” of the crisis. I wonder who has an interest in pushing the view of Fannie and Freddie as betes noire. For more recent critiques of the “F&F caused it” meme, see [1], [2] (h/t DeLong).) Visit 1800blogger to see all of our industry leading blogs. Rating 3.00 out of 5 [?]

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      November 20, 2008

      http://tfitz.wordpress.com/2008/11/20/november-20-2008/
      49 days ago in Rising in Phoenix · Authority: 1

      Enthusiasm for one’s goal lessens the disagreeableness of working toward it. Thomas Eakins Well, on Wednesday, the Dow dropped -427.47, falling below 8000. Headline in today’s Wall Street Journal “Stocks, Bonds Tumble to New Crisis Lows” China has surpassed Japan as the U.S. governments largest creditor. China owns at least 10 percent of all U.S. debt, as much as $800 billion dollars. Source:  http://tinyurl.com/6otq7f Penny Pritzker Corporation may be tapped as Obama’s top choice as the next Secretary of Commerce.  From Wikipedia, “Penny Sue Pritzker (born 1959) is an American business executive, and a member of the Pritzker family of Chicago, one of America’s wealthiest families. She is the founder and current Chair of Classic Residence by Hyatt, a chain of luxury senior living communities spread throughout the United States, and the national finance chair of Barack Obama’s presidential campaign. Ms. Pritzker is estimated to be the 135th richest person on the Forbes 400 list of “America’s wealthiest,” with an estimated net worth of $2.8 billion US. UPDATE AS OF 12:30 pm, MST, 11/20.08.  Chicago businesswoman Penny Pritzker, national campaign finance chairwoman for the Obama campaign, has taken herself out of the running to be secretary of Commerce, a Democratic official said. “She fears problems with her confirmation based on past business dealings,” the official said. Pritzker was featured in a flurry of news reports as a likely secretary of commerce. But senior officials repeatedly — and correctly — told Politico that was not true.  Pritzker is a billionaire heiress to the Hyatt hotel fortune.  Officials said she was not vetted.   1987 – founded Classic Residence by Hyatt1991 – named as Chair of Superior Bank of Chicago. Pritzker stepped down in 1994, but remained on the board until the thrift’s collapse in July 2001.[6] 1991 – CEO of Pritzker Realty Group, overseeing all of the family’s non-hotel real estate investments. In this capacity she developed the Hyatt Center in downtown Chicago, the headquarters for Global Hyatt Corporation.1998 – founded The Parking Spot, the fastest growing company in off-site airport parking management, with CEO Martin Nesbitt. She continues as chair. 2005 – became chair of TransUnion, a credit reporting agency.Pritzker serves on the board of Global Hyatt Corporation. She was a board member and chair of the Governance Committee of the William Wrigley Jr. Co. from 1994 to 2005, a director of the Marmon Group from 2002 to 2008, and a director of LaSalle Bank Corporation, now a part of Bank of America, from 2004 to 2007. With a net worth estimated at $2.8 billion, Pritzker ranked 135th on the 2007 Forbes list of richest Americans.” One little problem, as Lynn Sweet reported last April in the Chicago Sun Times, “One of the banks that went under after making a lot of subprime loans — leaving 1,400 of its customers without part of their savings — was Chicago’s Superior Bank.At the helm of Superior Bank at least some of the time was Obama’s national finance chairwoman, Penny Pritzker, an heiress to the Pritzker fortune…Obama’s campaign notes that Pritzker stepped down as chairwoman of the bank’s board in 1994, seven years before it failed. She then went on the board of the bank’s holding company. But a letter obtained by the Chicago Sun-Times shows that until the end, Pritzker appeared to be taking a leadership role in trying to revive the bank with an expanded push into subprime loans  Pritzker wrote in May 2001 that her family was recapitalizing the bank, and she pledged to “once again restore Superior’s leadership position in subprime lending. The bank shut down in July 2001.” http://tinyurl.com/4fu8vh   “Deciphering the liquidity and credit crisis of 2007-2008 From the conclusion to M.K. Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007-08,” forthcoming Journal of Economic Perspectives, 2009, 23(1): http://tinyurl.com/5bgr6a.  Markus Brunnermeier is a Professor of Economics at Princeton University. ‘An increase in mortgage delinquencies due to a nationwide decline in housing prices was the trigger for a full-blown liquidity crisis that emerged in 2007 and might well drag on over the next years. While each crisis has its own specificities, the current one has been surprisingly close to a — classical banking crisis. What is new about this crisis is the extent of securitization, which led to an opaque web of interconnected obligations.  This paper outlined several amplification mechanisms that help explain the causes of the financial turmoil. These mechanisms also form a natural point from which to start thinking about a new financial architecture. For example, fire-sale externalities and network effects suggest that financial institutions have an individual incentive to take on too much leverage, to have excessive mismatch in asset-liability maturities, and to be too interconnected. Brunnermeier (2008b) discusses the possible direction of future financial regulation using measures of risk that take these domino effects into account. (As an aside, I’ll observe that in this paper, Fannie and Freddie do not make appearances as “causes” of the crisis. I wonder who has an interest in pushing the view of Fannie and Freddie as betes noire. For more recent critiques of the “F&F caused it” meme, see [1], [2] (h/t DeLong).) The financial market turmoil in 2007 and 2008 has led to the most severe financial crisis since the Great Depression and threatens to have large repercussions on the real economy. The bursting of the housing bubble forced banks to write down several hundred billion dollars in bad loans caused by mortgage delinquencies. At the same time, the stock market capitalization of the major banks declined by more than twice as much. While the overall mortgage losses are large on an absolute scale, they are still relatively modest compared to the destruction of about $8 trillion in stock market wealth that occurred in the period from October 2007, when the market reached an all-time high, to a year later in October 2008.  To answer this question, it is useful to first recall the three main factors leading up to the housing bubble. First, there are large capital inflows from abroad, especially from Asian countries. Asian countries bought U.S. Dollars both to peg the exchange rate on an export-friendly level and to hedge against a depreciation of their own currency against the dollar, a lesson learned from South-East Asia crisis in the late 1990s. These capital inflows contributed to a prolonged low-interest-rate environment. Second, fearing a deflationary period after the bursting of the Internet bubble, the Federal Reserve adopted a lax interest rate policy and thus did not counteract the buildup of the housing bubble. Third, the transformation of the banking system from a traditional banking model, in which the issuing banks hold loans until they are repaid, to the ―originate and distribute banking model, in which loans are pooled, tranched and then resold, caused a decline in lending standards. Financial innovation that was intended to stabilize the banking system by transferring risk to other market participants led to an unprecedented credit expansion and helped feed the boom in housing prices.” Economic Newsletter November, 2008 from  the Federal Bank Reserve of San Francisco (FRBSF).  This Letter is adapted from Janet Yellen’s October 30 speech to the UC Berkeley-UCLA Symposium “The Mortgage Meltdown, the Economy, and Public Policy.  Yellen is the President and CEO of the FRBSF. Some have asked why policymakers and others didn’t see all of this coming. A lot of people talked about a bubble in home prices that could eventually collapse and lead to sizable credit losses and significant negative wealth effects. I think the answer is that a lot of people also did not fully understand how these effects would be magnified by several key features of the financial system—features that have interacted with one another to produce a deep wariness about counterparty risk and a freezing up of credit flows. Each of these features corresponds to one of the three main elements of a balance sheet: assets, capital, and liabilities. I’ll start with assets. Here, a part of the problem is with the new securities and related derivatives that have been used extensively in this decade in mortgage finance and, in fact, throughout the financial system. They were once considered “state of the art”—dazzlingly complex, capable of spreading risk, and constructed using sophisticated mathematical models to price the risk. But it turns out that their very complexity makes it incredibly difficult now to know where the risk actually resides or how to price it, giving rise to major concerns about counterparty risk. Turning to capital, the problem is that there is a shortage—in other words, too much leverage—among financial institutions as a whole. Capital in many banking organizations has been adversely affected because of write-downs of many of the complex instruments I referred to and because of credit losses primarily associated with delinquencies and foreclosures on real estate loans. Moreover, investment banks and other entities in the so-called shadow banking sector were very highly leveraged, with the ratio of assets to capital exceeding 30 to 1 in many cases. Such slim equity cushions increase firms’ exposure to insolvency in the face of credit losses or asset write-downs. Finally, on the liability side, the problem is that many leveraged financial institutions relied heavily on very short-term debt—often overnight loans—to fund their operations. This has made them vulnerable to “runs,” especially in an environment where everyone knows that the system is exposed to impaired assets, where it is hard to determine exactly where those risks reside, and where some firms are known to have only slim equity cushions. As financial firms have struggled to fix their own problems, the systemic consequences have become painfully apparent. Firms have tightened lending standards, trying to improve credit quality, and reduced the volume of loans. They have also been selling assets in an effort to deleverage their balance sheets. However, the simultaneous attempts of so many firms to deleverage have depressed asset prices to fire-sale levels, producing additional losses and thereby creating selling pressures for other firms holding similar positions. Write-downs on such securities are reducing the already diminished equity cushions in some firms and raising their leverage at a time when they desire less leverage, not more. This vicious cycle has led to outright illiquidity in markets for certain asset-backed securities, making it almost impossible to determine appropriate prices and largely eliminating them as a source of new funding to borrowers. Moreover, financial institutions, and even nonfinancial firms, have become very reluctant to lend to each other, except at the shortest maturities, since they are uncertain about what demands they could face and whether they will be able to borrow to meet them; as a result, they are hoarding their liquidity. These responses have led to a greatly reduced flow of credit in the economy, which is the major factor responsible for the economic downturn that now is under way. In other words, we are in the grip of an adverse feedback loop in which a credit crunch exacerbates economic weakness, which in turn weakens financial institutions, intensifying the credit crunch. The economic outlook Indeed, recent data on the economy have been deeply worrisome. Data released on October 30 reveal that the economy contracted slightly in the third quarter. For the fourth quarter, it appears likely that the economy is contracting significantly. Mainly for this reason, inflationary risks have diminished greatly. Over the past year or so, the FOMC has cut its federal funds rate target by 425 basis points to its current level of 1%. Nonetheless, most private-sector borrowing rates are higher now than at the beginning of this crisis in August 2007. In pointing this out, I don’t mean to imply that the rate cuts did no good: borrowing rates in my view would be substantially higher absent the reduction in our base lending rate. It’s just that the effects of the growing credit crunch have outpaced the easing of policy, and, indeed, every major sector of the economy has been adversely affected by it. For consumers, the credit crunch is one of several negative factors accounting for the decline in spending in recent months. Consumer credit is costlier and harder to get: loan rates are up, loan terms are tougher, and increasing numbers of borrowers are being turned away entirely. This explains, in part, the exceptional weakness we have seen in auto sales. In addition, of course, employment has now declined for nine months in a row, and personal income, in inflation-adjusted terms, is virtually unchanged since April. Furthermore, household wealth is substantially lower as house prices have continued to fall and the stock market has declined sharply. Business spending, too, is feeling the crunch in the form of a higher cost of capital and restricted access to credit.In particular, many companies find that the financial markets have become unreceptive to their commercial paper, an important source of short-term funding. Some of our business contacts report that bank lines of credit are more difficult to negotiate, and many indicate that they have become cautious in managing liquidity, in committing to capital spending projects that can be deferred, and even in extending credit to customers and other counterparties. Nonresidential construction also is headed lower largely because of the financial crisis; the market for commercial mortgage-backed securities, a mainstay for financing large projects, has all but dried up. Many state and local governments are being dragged deeper into the financial mess as well. The downturn in the economy has bitten into their tax revenues, and disruptions in financial markets have made it harder for them to issue bonds. Until recently, weakness in domestic final demand was offset by a major boost from exporting goods and services to our trading partners. Unfortunately, economic growth in the rest of the world has slowed noticeably. There are a number of reasons for the slowdown abroad, including spillovers from the U.S. downturn and, most importantly, the financial meltdown that now has intensified substantially in Europe and elsewhere. In addition, the dollar has appreciated recently against the currencies of many of our trading partners, offsetting a portion of the depreciation that was boosting U.S. exports. As a result, exports will not provide as much of an impetus to growth as they did earlier in the year“  http://tinyurl.com/5bgr6a $700 billion and counting - what the bailout is really costing US taxpayers.  “We’ve all been referring to the federal government’s Troubled Asset Relief Program (TARP) for banks as the “$700 billion bailout.” But last night, BailoutSleuth, Marc Cuban’s site created to follow the administration of the bailout reported that our government has spent a whole lot more than that to rescue financial services companies. How much so far? Try $2.5 trillion.  [Note The SEC alleges Mark Cuban of insider trading this week) This comes out as Bloomberg L.P. has filed a lawsuit to force the Federal Reserve to provide more information about which companies are receiving money and what assets have been pledged to get the money. Although the bailout was initially approved amid claims that there would be total transparency, the reality has fallen far short of that.  Here’s how BailoutSleuth comes up with its total: $170 billion for banks who sold preferred stock to the government $150 billion given to AIG — $85 billion initially, another $25 billion, and another $40 billion $2 trillion in emergency loans from the Federal Reserve to banks under 11 different programs that are separate from the TARP program, and which didn’t require approval by Congress The total so far is at $2.32 trillion. And banks can still apply to get another $80 billion in aid. And… The tax code was also changed by the Treasury Department, which some say could give merging banks a savings of $140 billion in taxes. In total, the government is basically prepared to hand out $2.5 trillion to banks.  We’re not done yet. These numbers don’t include the funds the Treasury Department has offered up to help Fannie Mae, Freddie Mac, and the new HOPE for Homeowners program, totaling $500 billion. So a total of $3 trillion so far!!! And I’m not naïve enough to think it’s stopping there. I predict that in less than a month, the Treasury will tell us that we just haven’t approved enough, and need more to make the bailout “as effective as possible.” Mmmm-hmmmm. Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.”  Source: http://tinyurl.com/5ggqdv   These figures were listed in the Wall Street Journal on 11.19.2008.  Of the $350 Billion dollars in bailout funds, the Department of Treasury has to work with, $250 Billion was marked for a direct capital infusion into the nation’s financial system $40 Billion was set aside for American International Group, AIG $156.8 distributed to 30 financial institutions and of this, $125 Billion was given to 9 major banks, and $33.6 billion to a ‘variety of other institutions.  That leaves $91.4 Billion for insurers to target along with other firms.  Insurers are important to the health of the financial markets.  Life insurance companies are one of the biggest holders of corporate debt, with $1.3 Billion on their books.  “Seven top executives of Goldman Sachs Group Inc.have asked to forego bonuses for 2008, and the big Swiss bank UBS said its highest-ranking managers also would have to settle for only their salaries this year.  The banks announced the moves after interest groups and some member of Congress raised questions about the propriety of Goldman Sachs and other companies paying billions in year-end bonuses after taking financial aid from the government.  Goldman Sachs got $10 billion in taxpayer money from the Treasury Department last month as part of the government’s plan to inject capital into U.S. financial institutions and unfreeze the credit markets.  Although the company’s chief executive, Lloyd C. Blankfein, won’t be getting a bonus on top of his $600,000 base salary, he should have little trouble making ends meet. His combined salary and cash bonuses for the past four years totaled $90 million.  Goldman Sachs’ co-presidents, Gary D. Cohn and Jon Winkelried, each had $54 million in combined salary and cash bonuses over the two previous years, according to the company’s SEC filings.  Goldman Sachs has been one of Wall Street’s strongest performers in recent years, and its compensation levels have reflected that success. However, its profits for the first nine months of 2008 were off 70 percent from the same period last year.  UBS said that, in addition to eliminating executive bonuses this year, it was adopting a new compensation scheme. According to a summary, the company is changing to a long-term model in which variable compensation such as bonuses will depend on sustained performance.  UBS said a substantial portion of the bonuses will not be paid immediately, but will be held by the company and remain at risk, subject to future results”  Source:  http://tinyurl.com/6o2vko  “ “In his latest documentary Wal-Mart: the high cost of low price, director Robert Greenwald doesn’t explicitly state, as one South Park resident does, that Wal-Mart is “like some mystical evil force.” But his portrayal of the awesome degree of power Wal-Mart wields is nevertheless devastating. The opening scene shows a packed shareholders’ meeting applauding Wal-Mart CEO, Lee Scott, for minutes on end. Such is their zeal, they could be mistaken for a cult following. Scott tells them, “I promise you this: we’re going to stay the course. And this company is going to continue to grow.” http://tinyurl.com/6ycuh9 The Wal Mart Economy Lays us All Low.  “Merry Wal-Mart, America.  It is going to be a Wal-Mart Christmas. This is what all the facts and figures tell us, and what Wall Street analysts tell us after they’ve pored over the monthly retail sales reports, each bleaker than the last. In their odd half-emptiness, this is what the shopping-center parking lots tell us, too. It is definitely not going to be a General Motors Christmas.  This doesn’t depend on whether Congress and the Bush administration manage to rush cash into the coffers of GM and other Detroit automakers. It is not going to be a General Motors Christmas because we long ago stopped being a General Motors country. What were we like then? Well, we were a country in which, if you were working class, you were not feeling betrayed and you didn’t necessarily feel inferior to, say, the people who sold stock on Wall Street. They could only sell stock if you made a product that backed up that stock. This was nothing like those deals in which nobody can tell what’s exchanged except paper and false promises. Your employer recognized your skills and experience with a healthy, middle-class paycheck. You knew your family’s health was protected by good insurance, that your spouse could rely on a decent pension after you were gone and that your children might win a company scholarship to attend college — or get a job at the plant, an option in which there was no shame. Now America is not working very well and so we are going to have a Wal-Mart Christmas. The giant discounter is the only store where hard-squeezed consumers can afford to buy anything, and so it has kept posting sales gains amid the retail bloodbath. “This is the kind of environment that Sam Walton built this company for,” Wal-Mart chief executive H. Lee Scott Jr. told analysts recently. He should know. Because Wal-Mart has done so much to create this environment. Long before the stock market meltdown, the foreclosure crisis, the credit crunch and everything else in the cascade of bad economic news that swamps us, there was the income crisis. And the health insurance crisis. And the crisis in whether employers follow the labor laws, or routinely break them. Here is what Wal-Mart’s 2008 annual report says: The company is a defendant in “numerous cases” for alleged violations of wage and hour laws. Generally, they involve employees who say they were forced to work “off the clock,” who were denied meal and rest breaks, or who claim the company simply found other ways not to pay them for hours they’d worked. Wal-Mart also is ensnared in the largest gender-discrimination lawsuit ever, with women claiming they were paid less and denied promotions and transfers that men received. It faces environmental charges from federal and state prosecutors who say Wal-Mart has flouted hazardous waste disposal and other laws. In June, the National Labor Relations Board found that Wal-Mart illegally fired an employee for union organizing, and determined that the company had illegally threatened employees with a loss of merit pay during a unionization drive. The company that is now the biggest private-sector employer says the average hourly wage of its workers is $10.86. Wal-Mart has said it considers a 34-hour week as full time, though it declined to respond to my questions about this and other employment issues. Assuming the full-time week is 34 hours, a full-time Wal-Mart “associate” averages $19,200 a year. That’s about $2,000 below the 2008 federal poverty level for a family of four. So, it is going to be a Wal-Mart Christmas. Because we have become a Wal-Mart country, and we are all laid low.”  Source:  The Washington Post.  Copyright 2008, Washington Post Writers Group.  Link:  http://tinyurl.com/648fy9 Valerie Jarret, long-time friend and supporter of President-elect Barack Obama was recently appointed by Obama as his Senior White House Advisor.  There is some controversy about her tenure ad the CEO of The Habitat Corp, linking her to real estate scandals in Chicago and federal housing projects operated by Rezko and Allison Davies. Here are some recent stories about Valerie Jarret. From Judicial Watch.  “Judicial Watch has obtained documents linking Valerie Jarrett, an advisor to Barack Obama and the co-chairman of the President-Elect’s transition team, to a series of real estate scandals, including several housing projects operated by convicted felon and Obama fundraiser/friend Antoin “Tony” Rezko. According to the documents obtained from the Illinois Secretary of State, Valerie Jarrett served as a board member for several organizations that provided funding and support for Chicago housing projects operated by real estate developers and Obama financial backers Rezko and Allison Davis. (Davis is also Obama’s former boss.)  Jarrett was a member of the Board of Directors for the Woodlawn Preservation and Investment Corporation along with several Davis and Rezko associates, as well as the Fund for Community Redevelopment and Revitalization, an organization that worked with Rezko and Davis. According to press reports, housing projects operated by Davis and Rezko have been substandard and beset with code violations. The Chicago Sun Times reported that one Rezko-managed housing project was “riddled with problems — including squalid living conditions…lack of heat, squatters and drug dealers.” Like Barack Obama, Valerie Jarrett is a product of the corrupt Chicago political machine. And it is no stretch to say that she was a slumlord. We have real concerns about Jarrett’s ethics. Washington already has plenty of corruption. We don’t need to import more of it from Chicago. Characterized as “the other side of Barack Obama’s brain” by CBS News, Jarrett first met the Obamas seventeen years ago when she offered Michelle Obama a job. While speculation has arisen that Jarrett could take Obama’s place in the U.S. Senate, the New York Times reported that it is more likely she will become a senior White House adviser, thus continuing her long record of being an important influence and mentor to Barack and Michelle Obama.  Visit www.judicialwatch.org to access the Valerie Jarrett documents.” As Chief Executive Officer of the Habitat Company Jarrett also managed a controversial housing project located in Obama’s former state senate district called Grove Parc Plaza. According to the Boston Globe the housing complex was considered “uninhabitable by unfixed problems, such as collapsed roofs and fire damage…In 2006, federal inspectors graded the condition of the complex an 11 on a 100-point scale - a score so bad the buildings now face demolition.” Ms. Jarrett refused to comment to the Globe on the conditions of the complex”.  http://tinyurl.com/63nche Lynn Sweet of the Chicago-Sun Times tells the Valerie Jarret story and gives her a pass.   Source:  http://tinyurl.com/5oyoz3 From Muckety News, Source:  http://tinyurl.com/5wq65y ”They don’t come much more networked than Valerie Jarrett.  The longtime friend of Barack and Michelle Obama who was tapped Friday to be a senior White House adviser may be virtually unknown in Washington, but she is a fixture of Chicago’s business and civic scene. More important, she is fiercely loyal to the Obamas, whom she has known since 1991 when she persuaded Michelle Robinson to leave a high-paying law firm job to come to work on the staff of Mayor Richard M. Daley. Then Daley’s deputy chief of staff, Jarrett reportedly assured Obama that his fiance would not be asked to do anything untoward. “She is one of our best friends, somebody who is practically a sister,” Obama told the Wall Street Journal. “I don’t make any major decisions about asking her about them first.” Jarrett traveled extensively with the Obamas through the long presidential campaign, playing the role of honest broker.  “I’m very frank,” she told Time. “I always tell them what I think. But that’s probably easier to do when you’re good friends.” Her job title in the new administration will be White House senior adviser and assistant to the president for intergovernmental relations and public liaison. Besides advising the president-elect on a wide-ranging set of issues, she told the New York Times, she will be the White House point person for state and local officials and will supervise the Office of Public Liaison, which she hopes to make a channel for government-citizen collaboration.  “The level of the engagement in the campaign was tremendous, and we want people to understand this will be their White House,” she said.  While lacking Washington experience, Jarrett has well-honed political instincts after years spent in the trenches, often playing the role of conciliator and fixer.   As a court-appointed overseer to the desegregation of public housing in Chicago, for instance, she negotiated between residents of several notorious housing projects and the real-estate developers who were replacing them with middle-income housing. In her latest iteration, she was CEO of The Habitat Co., a real estate development and management company, as well as vice chair of the 2016 Chicago Olympic Committee, which is spearheading the city’s bid for the Summer Olympics.  Jarrett comes from a distinguished family. Her great-grandfather was the first African-American to graduate from M.I.T., her grandfather was the first African-American to head the Chicago Housing Authority; and her father, James Bowman, is a pathologist who was the first African-American to receive tenure in the University of Chicago’s department of biological sciences.   Her mother, Barbara Bowman, is a child psychologist and co-founder of the Erikson Institute for child development in Chicago.  Her great-uncle, Vernon Jordan, is the Washington super lawyer and Clinton confidante.  Like the Obamas, she lives in Hyde Park. Her daughter, Laura Jarrett, attends Harvard Law School.”

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