WASHINGTON -- Michael E. Basham, who as deputy assistant secretary for federal finance at the Treasury Department has been instrumental in streamlining and standardizing auction procedures, says he plans to resign.
Mr. Basham said in an interview on Monday that he would like to return to the bond business on Wall Street and is considering leaving the Treasury in late summer or early fall.
At a time when the savings and loan bailout and the recession are driving the federal budget deficit sharply higher, the Bush administration will now have to find someone else to manage the Treasury's regular sales of bills, notes, and bonds. The White House has been notified of Mr. Basham's planned resignation, but a spokesman would not comment on a possible successor.
Mr. Basham's work -- especially his ability to make auctions run smoothly -- is crucial to Treasury. Not only do officials know that any disruption or suprise could boost government borrowing costs, but the task is complicated by the large volume of debt offerings, which last year totaled $1.53 trillion.
Last week, the Treasury reported a record budget deficit of $53.35 billion in May, bringing total red ink so far this year to $175 billion. The report rocked the bond market, and private economists expect this year's total deficit to significantly exceed last year's total of $220.5 billion.
"I'm continually amazed at the debt we can sell," Mr. Basham said. "The last thing we want to do is gum up the works."
As a government debt manager, Mr. Basham meets once a week with Robert Glauber, Treasury Undersecretary for finance Robert Glauber and other department officials to carry out Treasury securities auctions. The financing group is responsible for anticipating the government's borrowing needs and setting the schedule and size of the auctions accordingly.
The department recently began announcing all public debt offerings to the markets at around 2:30 p.m., and all results go out to the markets around 2:00 p.m. Included in the new procedures are the quarterly auctions of notes and bonds.
The times of offerings and announcements varied in the past, depending on the type of security involved. Some announcements were not made until late in the afternoon. Besides being faster, the new procedures help remove uncertainty for dealers and enhance market liquidity, Mr. Basham said.
Mr. Basham has also played a major role in crafting legislation drawn up by the administration to reauthorize the Government Securities Act, which would make Treasury the primary authority in developing rules for sales practices and dissemination of price information in the government securities markets.
Other legislation he has helped develop was designed to strengthen the federal regulation of securities issued by the Federal National Mortgage Association and other so-called government-sponsored enterprises -- a huge market with outstanding issues in excess of $1 trillion.
Investors treat the debt as carrying an implicit government backing, which enhances its creditworthiness. But Treasury believes in some cases that the issuing agencies may have to build up their capital to provide added protection against possible losses, Mr. Basham said.
Mr. Basham was also a chief architect of the Resolution Funding Corp., which issued $30 billion in long-term bonds to help raise funds for the savings and loan bailout. The bond sales occassionally received a shaky reception on Wall Street, and Treasury ended up borrowing directly to raise operating funds for the thrifts and to make up losses to depositors.
Still, said Mr. Basham, the cost of the Refcorp bonds turned out to be only 27 or 28 basis points above comparable Treasury securities, which was close to Treasury Secretary Nicholas Brady's prediction.
Mr. Basham joined Treasury in Aug. 1989 after serving as a vice president in the government bond department of Westheim Schroder & Co. in New York.
He began his work in the bond business with a nine-year period of service beginning in March 1973 at the South Carolina National Bank, the state's largest commercial bank, in Columbia, S.C. There, he served as money market trader, municipal bond trader, and head government trader. In 1982, heleft the bank for New York, where he set up a fixed-income trading unit for Oppenheimer & Co.
Mr. Basham established his own bond trading firm in 1984, with a $10 million loan from four Scandinavian banks.