Somehow, in a matter of weeks this summer, Jack Lew, the 76th secretary of the Treasury, managed to turn conventional wisdom on its head. Twice. The first moment came early in July, after he summoned Gary Gensler, the chair of the Commodity Futures Trading Commission, into his office for an urgent meeting. Rumors swirled that Lew had reined in Gensler, a former Goldman Sachs partner turned zealous reformer who was pushing for rules in the global derivatives market that many in the financial industry considered draconian. Here was a clear sign, said Wall Street lobbyists: The new Treasury secretary, who had a quick stint at Citibank overseeing alternative investments — who had been a protégé of Robert Rubin, after all — was “one of us,” a Wall Street ally.
Two weeks later brought a starkly different message, when Lew flew to New York for a speech at the Delivering Alpha conference. There, to a roomful of investor heavyweights, the bookish, 58-year-old Lew announced his intent to complete by year’s end the mass of still-unwritten financial regulations promised by the Dodd-Frank reform legislation — rules that legions of bank CEOs and lobbyists had worked feverishly to delay … or scuttle.
Here, now, was definitive proof, said Washington’s warren of whisperers: Lew, who had been a protégé of the liberal lion Tip O’Neill, was a dyed-in-the-wool reformer.
That neither event happened quite the way the chatter suggested added more confusion to the rumor mill. Lew’s Wall Street speech was in fact a nuanced take on rulemaking, not a call to arms. And as for his reputed smackdown of Gensler, Lew did lecture the strong-willed reformer — but on style, not substance: He wanted all the government’s regulators to work together and maintain a united front.
But the whiplash of expectations about who Jack Lew is, nearly half a year into his tenure as Treasury secretary, is telling in itself: The nation’s financial czar — the person who, short of the President and the chairman of the Federal Reserve, arguably has the most power to reshape the economic system for a generation to come — remains a cipher to the people most heavily invested in what he does. And it may be that Lew (and President Obama, for that matter) wants it that way. (Lew declined to speak to Fortune for this story.) After all, it’s easier to forge a consensus when none of the parties involved can quite place the negotiator anywhere but in the murky middle.
With unemployment at a 4 1/2-year low, a federal budget deficit trimmed to about 4% of GDP (from 8.7% in 2011), and the stock market flirting regularly with record highs, Obama no longer needs a crisis manager in the mold of Tim Geithner — or Hank Paulson before him. He needs someone who can deal with the legacies of the financial crisis and implement the nuts-and-bolts rules that may help us stave off another one. (See “Are We Ready for the Next Meltdown?“)
The President needs a quiet, nonpolarizing cat herder — someone who can push lawmakers, regulators, and industry players toward swift consensus on rulemaking. Someone who can keep markets placid while convincing congressional Republicans that it’s in their interest to lift the debt ceiling and fund the government — a process that could kick off fresh talks on tax and entitlement reform. Getting any of that done will be no easy task, even for a get-it-done guy like Jack Lew.
The Treasury is the most ancient and august fixture of the federal government. It traces its origins back before the Declaration of Independence, when its earliest incarnation managed the debt that funded the Revolutionary War. Alexander Hamilton served as the first official secretary, an imperial lineage traced through the line of succession — Andrew Mellon, James Baker, Rubin, Lawrence Summers, Paulson — as the reach of the agency beneath it extended. Lew, most days, still packs his own lunch and eats it at his desk.
He makes a point of wandering the building’s halls and introducing himself to junior staffers in far-flung corners. Negotiating partners over decades of Washington budget battles know he comes to meetings armed with two or three black binders bulging with data, though Rob Nabors, a longtime colleague who is now the White House deputy chief of staff, says he’s never seen Lew need to crack one open. “He goes very, very deep on the substance,” says John Podesta, a chief of staff in the Clinton White House.
That egoless devotion to the boss’s mission earned him early entry into Obama’s inner circle, rare for a non-charter member. When the administration wanted to promote its latest economic pivot this summer, it sent Lew out to sit for back-to-back interviews on four Sunday shows. ABC’s George Stephanopoulos had to ask for a redo to his introduction: He’d referred to Lew on tape as “Jack,” rather than the honorific “Mr. Secretary,” an apparently common slip.
Longtime friends date Lew’s sensibility to his earliest days in politics. He was raised Orthodox Jewish in the middle-class Forest Hills section of Queens, the son of a Polish immigrant father who practiced law and ran a mail-order rare-book business on the side, and a mother who’d gone to work full-time at 15 to help her family through the Depression. During high school he wore his jeans torn and his hair long and organized protests against the war in Vietnam and world hunger. For college he headed to Carleton, in Minnesota, where his adviser was liberal firebrand and future U.S. senator Paul Wellstone. He dropped out after a year to work for another lefty icon, Rep. Bella Abzug of Manhattan’s West Side, then got his bachelor’s degree at Harvard.
At a time when many peers viewed government with suspicion, Lew’s interest in social justice drew him to the mechanics of budgets. He argued in his Harvard honors thesis that Social Security should be a guaranteed benefit with a funding supply more progressive than the payroll tax. A few years later, barely old enough to rent a car, he was elbow-deep directing surgery on the program as a top aide to House Speaker Tip O’Neill.
The larger-than-life Boston pol impressed his young underlings by showing the same courtesy to elevator operators as heads of state. But for Lew the most important lesson came in the way O’Neill applied that ethic to make government programs work. The landmark Social Security compromise O’Neill struck with President Ronald Reagan hiked the retirement age and raised taxes to salvage the program’s solvency for a generation. Both sides budged from first principles to achieve a greater good. “That was the crucible Jack was formed in, and I don’t think he’s given up on that,” says Stan Brand, O’Neill’s general counsel at the time.
Lew has spent the better part of his career mastering the guts of government. He worked his way up to budget director in the Clinton administration, leading negotiations with congressional Republicans for a balanced-budget agreement in 1997 that yielded the first surpluses in 30 years. All along, his low-key approach has given him Teflon protection from the slings that his more bombastic Clinton-era colleagues — think Larry Summers — brought down on themselves.
Lew’s work for Citigroup, for example, posed a potential stumbling block to his Treasury confirmation. Former Clinton Treasury Secretary Robert Rubin helped get Lew hired in 2006 to run the operations side of the firm’s wealth-management unit — “Citi saw government people as a good investment,” one former colleague says — and in 2008 he moved over to its alternative-investment group. The division housed the firm’s hedge funds, which were cratering. Citigroup ended up securing more federal bailout help than any other bank, though Lew’s role remains foggy. In interviews with the Senate Finance Committee staff, one of the tougher gantlets for cabinet nominees, “he was unbelievably good,” one Republican Senate aide says. “And by ‘good’ I mean he could handle every question thrown at him with ease without ever getting specific about what he did there.” Lew performed similar jujitsu at his hearing; his confirmation as Treasury secretary sailed through the Senate.
Reforming the industry he briefly served was Lew’s first order of business. As the secretary likes to note, he walked directly from his Oval Office swearing-in on Feb. 28 to the Treasury building to preside at his first meeting as chairman of the Financial Stability Oversight Council. That group convenes the regulators implementing the reform law and tasks the secretary with the soft power to urge consensus.
This early in Lew’s tenure, it’s tough to judge whether his emphasis on speeding up the process is bearing fruit. He can point to some recent notable progress: the new rules for swaps, stricter capital requirements for banks, a nascent push to shore up money-market funds, and progress on how to wind down failing financial institutions, among other things. But he’s starting behind, with only 40% of the rulemaking completed by July 15, the law’s third anniversary, according to the law firm Davis Polk. At that point, regulators had missed 62% of their deadlines. (See “Jacob Lew Perfects the Art of Dodging Questions.“)
People close to Lew, though, say he’s eyeing a different standard for success. Instead of seeing the rulemaking as just a to-do list, he is also trying to answer some pragmatic questions: Are the rules workable? How long will it take to see results? “Jack’s view is that if we don’t solve the institutional failings that led our regulatory system to atrophy, history is not going to speak kindly to the implementation of the law,” one administration official says. And the only real test will be the next financial crisis.
It’s a fair guess where Lew’s sympathies lie. He hosted his first outreach meeting two weeks into the job with a dozen heads of labor and other progressive groups. But he has also been working to develop a dialogue with Wall Street executives “The characterization put on him is that he is not familiar with the mores of the markets and Wall Street and the people in it,” Goldman Sachs CEO Lloyd Blankfein tells Fortune. “But guess what? When you’re the Treasury secretary, you can meet people awfully quickly and get them to engage with you. He is definitely making an effort to make himself available and communicate with the Street.”
While reform has been a preoccupation, other demands have intruded. Lew had to invest time getting to know his counterparts in Europe. He traveled to China in March as the first administration official to meet with the country’s new leadership and started negotiating a bilateral investment treaty. The scandal over the IRS’s targeting of political nonprofits broke in May and seemed to swallow the department whole. And there have been less visible but equally critical concerns, like managing the sanctions against Iran. “You’re talking about a war-and-peace issue and potentially huge impacts on the oil markets if this goes wrong,” says Stuart Eizenstat, a former ambassador to the European Union who is now a partner at Covington & Burling.
Lew did get one lucky break in his first half-year as secretary: It was a period of relative calm with congressional Republicans — something he never experienced during his second tour of duty as budget director, then chief of staff. In the first of these roles, his reputation took a minor hit. He hatched the sequestration scheme to defuse the debt-ceiling standoff in the summer of 2011, but some in the GOP found him to be an insufferably sanctimonious negotiator.
Those gripes seem rare — and the President is unlikely to heed them. Only part of that is attributable to his esteem for Lew. There is also momentum for their position in the debate. In July, at a meeting of Group of 20 finance chiefs in Moscow, Lew helped craft a consensus statement rejecting austerity in favor of new government spending to boost job growth. Even cutback-obsessed Germany signed on.
Congress, however, is a world unto itself. In late August, Lew sounded the alarm that the government would exhaust its borrowing authority by mid-October — setting up another showdown with Republicans who want major policy concessions in return for extending it. Yet other budget fights, over funding the government and how to deal with ongoing sequestration cuts, are looming as well.
Five years after an economic emergency kicked off both a federal spending binge and a historic regulatory overhaul, Washington is primed for battle. Where Lew will dig the trenches remains unknown. What we do know? They will be somewhere in the middle.
This story is from the September 16, 2013 issue of Fortune.