March 3 (Bloomberg) -- Lee Sachs, a counselor to Treasury Secretary Timothy F. Geithner, plans to step down this year as the government’s emergency programs give way to exit strategies
amid the economic recovery.

As an adviser on domestic finance, Sachs helped the Obama administration conduct stress tests on the biggest banks and reshape the $700 billion bailout. He’s also helped manage
trillions of dollars in additional government borrowing and
advised Geithner on the market implications of issues from the
Greek budget crisis to housing finance, Fannie Mae and Freddie
Mac.

Sachs’ departure comes as the crisis-response team he established becomes a permanent part of the Treasury Department. A former senior managing director at Bear Stearns Cos., the New
York-based investment bank bought by JPMorgan Chase & Co. in
2008, Sachs will be one of the most senior of Geithner’s
advisers to step down.

“I am likely going to head back to the private sector at some point in the next couple of months,” Sachs, 46, said in an interview. He says he’ll take some time off before deciding on
his next move, to recover from “running 100 miles-an-hour
around the clock to stabilize the financial system” alongside
regulators and White House officials.

Geithner, 48, today credited Sachs with showing “great judgment and skill in helping the president navigate the greatest financial crisis since the Great Depression.”

Markets Office

One of Sachs’ legacies will be the Office of Capital Markets and Housing Finance, successor to an informal crisis- response team he helped establish in the Treasury’s domestic
finance division. Led by Matthew Kabaker, a former executive at
Blackstone Group LP, the unit fulfilled one of Geithner’s goals
at the start of the new administration.

“In transition, we recognized that the Treasury Department did not have a staff capability to deal with capital markets and finance-related issues,” Sachs said. “We need this team.”

The Treasury is moving into a long-term planning phase, after 18 months of primarily managing the aftermath of the financial crisis. Priorities this year include pressing for an
overhaul of financial regulation and starting to design plans
for the future structures of Fannie and Freddie to bring to
Congress in 2011.

Since taking office, the Obama administration has tried to change the $700 billion Troubled Asset Relief Program from a bank rescue into a financial-stability plan. TARP, enacted in
October 2008, expires in October.

Smaller PPIP

Geithner’s department last year set up the Public-Private Investment Program with the goal of removing as much as $1 trillion in troubled assets from bank balance sheets. The
program has moved forward on a much smaller scale, committing as
much as $30 billion in government money for participating funds.

The Treasury also held several additional rounds of capital injections for small banks. Those programs drew few applicants, as banks feared customers and investors would shun firms that
accepted money from the TARP.

Other regulators say Sachs’ strength has been his ability to understand the government’s role in the crisis, which allowed him to start work immediately after the 2008 presidential
election. He was already known on Wall Street and in Washington
from his early career, which spanned 13 years at Bear Stearns
followed by a tour in the Clinton administration under former
secretaries Robert Rubin and Lawrence Summers.

Transition Team

“When he called me in November, right away we were communicating, I knew I could trust him, I knew I was working with somebody who knew what they were talking about,” Federal
Reserve Vice Chairman Donald Kohn said in an interview. “He’s
really knowledgeable about financial markets and financial
institutions. He’s seen that world from both sides.”

Kohn, who will step down in June after a 40-year central bank career, described Sachs as “even-tempered,” with a sense of “quiet authority.” He says they worked closely together
when Sachs served in the Clinton administration and spoke daily,
sometimes more often, during the height of the financial crisis.

“I have found him an important ally for the Federal Reserve,” Kohn said. “He was very sensitive to the issue of Federal Reserve independence.”

Sachs forged ties to his current boss during the Clinton administration, when Geithner worked in the Treasury’s international affairs division. With Sachs in domestic finance,
the two worked on debt crises in Russia and Asia, while also
competing on the tennis court and in triathlons.

Geithner is faster. “I think he called me from home as I was crossing the finish line,” Sachs said of one shared racing experience.

Wall Street Resume

Critics said Sachs’ financial-market experience isn’t an automatic advantage. His ties to Rubin, who hired Sachs in 1998, could be seen as a liability after the country’s biggest banks
required bailouts, said William Black, a law professor at the
University of Missouri-Kansas City.

“‘Market experience’ from individuals that screwed up the markets is an interesting concept,” said Black, who served as a federal bank regulator during the savings-and-loan crisis of the
late 1980s and early 1990s.

The post-crisis stigma attached to Wall Street resumes accompanied Sachs to the Obama administration: Since joining the team in late 2008, he was never nominated for a Treasury
position that required Senate confirmation.

Geithner’s Counselors

Instead, Sachs was one several counselors serving Geithner in the first months of the administration, when the Treasury Department had no Senate-confirmed senior officials other than
the secretary. Congress has since confirmed Deputy Secretary
Neal Wolin and a number of assistant secretaries, without
approving the administration’s picks to lead the Treasury’s
international affairs and domestic finance divisions.

As a result, nominees Jeffrey Goldstein and Lael Brainard have been serving alongside Sachs, Jake Siewert and Gene Sperling as counselors, while the Senate weighs their
nominations. Goldstein, a former private equity executive, has
been tapped as the undersecretary of domestic finance. Brainard,
who served as Clinton’s deputy director of the White House
National Economic Council, has been nominated as the
undersecretary for international affairs.

The lack of Senate-confirmed Treasury officials came as the White House fended off criticism from lawmakers including Senator Maria Cantwell, a Democrat from Washington state who has
repeatedly faulted Obama administration proposals as being
too soft on the financial industry without doing enough to close
regulatory loopholes.

Market Experience

In the Clinton administration, market experience was viewed as an asset and not a handicap. Gary Gensler, chairman of the Commodity Futures Trading Commission and Clinton-era Treasury
official, said he remembers being “delighted that somebody of
Lee Sachs’ caliber and values was willing to join the team.”

After the Clinton team left office, Sachs was a partner at New York-based Mariner Investment Group, which owned a stake in at least one company that specialized in collateralized debt
obligations -- a type of investment that fueled the crisis.

Before joining Barack Obama’s transition team after the 2008 election, Sachs earned more than $3 million in salary and partnership income at Mariner in 2008, according to his
financial-disclosure forms.

In the 1980s and 1990s, Sachs rose to head of global capital markets and the board of directors at Bear Stearns after graduating from Ohio’s Denison College. Sachs is married to
Whitney Sachs, a former attorney, and they have two 14-year-old
daughters.

“You can work for the secretary of the Treasury of the United States,” said Michael Berman, president of the Duberstein Group, a Sachs family friend who helped him link up
with Rubin’s Treasury. “But when it comes right down to it, the
twins are in charge.”