2010 Safety, Security and International Affairs

Karthik Ramanathan

Orchestrated the sale of Treasury bills that raised $1.7 trillion in the midst of a severe global economic crisis, helping stabilize the U.S. financial system and fund the country’s massive budget deficit and national debt.

As financial markets were collapsing and the economy was in a freefall in late 2008 and 2009, the federal government needed to raise an enormous amount of money in a very short period of time to finance the growing budget deficit and national debt.

Spearheading this effort was Karthik Ramanathan, the recently retired director of the Treasury Department’s Office of Debt Management, who worked tirelessly behind the scenes to arrange 291 Treasury auctions in 251 business days to meet the nation’s financial needs. In the process, he made the final decisions that raised $1.7 trillion.

Under pressure packed circumstances, Ramanathan analyzed the volatile capital market conditions to minimize risk and ensure successful sales of Treasury bills, bonds and notes. He constantly reshuffled the crowded auction calendar, issued new securities, handled internal negotiations, conferred with the rating agencies and consulted with domestic and global investors to gauge demand and provide reassurance. 

“Karthik was the face of the Treasury for the financial markets. The markets were really in turmoil and the only market that functioned was the Treasury market during the crisis,” said Christine deSabla, a financial economist at the department.

DeSabla said Ramanathan had to make critical decisions—at times counter to the desires of some financial market participants—and sometimes “did not win a lot of friends.” But she added that he was “always ahead of the curve,” and had “good rapport with counterparts in other countries.”

In addition, deSabla said Ramanathan “motivated his staff to put in the late hours and long days under stressful conditions.”

Ramanathan, a former investment banker and trader who was motivated to enter public service after the 9/11 terrorist attacks, started in government as a financial economist at Treasury in 2005 and became director of the debt management office in October 2006. In September 2008, he was named acting assistant secretary for financial markets and held the post for about 17 months during the transition between the administrations of Presidents George W. Bush and Barack Obama.

“We are a small part of Treasury that nobody focuses on, but we have enormous impact globally,” said Ramanathan. “There were many times, when making such decisions as whether to auction a $40 billion Treasury note or introduce a new seven-year note, when you felt extremely lonely.”

“At the end of the day, I signed off on every decision related to Treasury debt issuance and auctions, and those decisions had large repercussions. It was a wonderful job, but very nerve wracking,” he said.

While the sale of Treasury bills, notes and bonds raised $1.7 trillion under Ramanathan’s watch, the long-term cost to the government when interest payments are factored in was $8.4 trillion.

Ramanathan said he and his staff met quietly with investors around the world as the financial crisis hit, noting that part of his job was to “reassure them and coherently discuss our financial stabilization measures and policies of the administration.”

At the same time that Ramanathan was handling the Treasury sales and managing the debt portfolio, he was also engaged in a major revamp of Treasury’s outdated risk management systems. He initiated this overhaul in 2008 after almost two years of requesting funding.

Despite the importance of the Treasury’s debt office, it had relied on antiquated computer systems dating back more than two decades. There was no disaster recovery plan. Paper files spilled from cardboard boxes and shelves throughout the office. Some calculations were done in outdated spreadsheet programs. In one case, for example, the mechanism for setting rates for Social Security, which impacts nearly $1.5 trillion in trust fund balances and beneficiary checks, was done manually.

His conviction that the office was on the verge of disaster much like 2005 when the Federal Emergency Management Agency was ill-equipped to handle Hurricane Katrina led him to push for a complete overhaul of the risk management tools used to issue the national debt.

“We did things with little information or analytics,” Ramanathan said. “Previously, we would go to 15 different sources for information and made decisions haphazardly. Now we have over 500 metrics and about six models to explain our decision making process and plan for the future in a coherent manner.”

DeSabla said the sophisticated new system will permit more accurate pricing of securities. She noted if the government could lower the cost of borrowing on just one basis point per year—from say 3.7223 percent to 3.722 percent—it could save $400 million to $500 million annually.

Jeffrey Goldstein, the Treasury undersecretary for domestic finance, said Ramanathan played an important role in the government’s efforts to deal with the economic crisis, made difficult decisions without a roadmap, and was quite dedicated and successful.

“He wanted to contribute to public service,” said Goldstein. “It was service before self, a commitment to excellence, to the program and staff and to the Treasury’s mission.”