Succession at Treasury Emerges as Key Question

By David Cho and Paul Kane
Washington Post Staff Writers
Thursday, September 25, 2008

The Bush administration's proposal to give the Treasury secretary broad discretion to spend $700 billion to rescue the ailing financial system comes with a hitch: No one knows who will be asked to succeed Henry M. Paulson Jr., the plan's architect, on Jan. 20.

The bailout plan not only calls for Congress to authorize a massive amount of money to help Wall Street firms, but also gives virtually unbounded discretion to the secretary to spend that money that "may not be reviewed by any court of law or any administrative agency." Paulson has said he supports an oversight board.

Yesterday, some on Capitol Hill, where skittish nerves over the size and scope of the bailout have stalled the plan, encouraged the presidential nominees to step forward and discuss who they would want as Treasury secretary.

Sen. Robert P. Casey Jr. (D-Pa.), a close ally of Democratic presidential nominee Sen. Barack Obama, said he hoped that at Friday night's debate the candidates would face this question: "Describe for us, and use names if you want, the sort of person who would be in your Cabinet, particularly Treasury."

Without pinning the candidates down, such answers would help Congress understand who would be guiding the oversight of this massive bailout since Paulson's term expires with Bush's on Jan. 20, Casey said. Several conservative Republicans echoed the sentiment.

Preparations are underway at the Treasury for Paulson's departure. In an interview this month, Paulson had made it clear that he planned to hang up his hat in January.

His decision to leave -- some financial market leaders are calling for him to stay on longer -- adds an element of uncertainty as lawmakers ponder whether to approve the administration's plan. They say they cannot be sure who will wield these new, sweeping powers or whether the next Treasury secretary will have a different approach to Wall Street's problems.

One person mentioned by Wall Street and Washington insiders is Federal Reserve Bank of New York president Timothy F. Geithner. A top Treasury staffer during the Clinton administration, Geithner is playing a leading role with Paulson and Federal Reserve chairman Ben S. Bernanke to address the credit crisis.

These analysts speculate Paulson and Bernanke may press whomever wins the White House to consider Geithner for the job.

One problem with Geithner, according to Ken Duberstein, a former chief of staff in the Reagan White House, is whether he can use the bully pulpit of the Treasury to publicly inspire confidence in the markets. "Tim at 47 looks 32, and you need to have in these compelling times grey hair and gravitas," Duberstein said. "It's not that he's not qualified, it's how he looks."

Duberstein sees Obama preferring Steven Rattner, a wealthy private-equity guru and close ally of Sen. Hillary Rodham Clinton (D-N.Y.), who now advises Obama on economic matters. Rattner is well-respected in Washington and Wall Street and has a good grasp of the issues afflicting the financial markets, but like Geithner, he also looks young.

Other candidates include economist Lawrence H. Summers, who was President Bill Clinton's last Treasury secretary. Although considered brilliant by many Democrats, his penchant for making controversial remarks may hurt his chances, and there's no guarantee he would want to come back to the Treasury. Laura D'Andrea Tyson, another Obama adviser and a University of California business school dean, is also mentioned as a possibility, but lacks Wall Street experience.

"I think we are going back to the old model of Treasury secretary, who is the chief economics spokesperson and the chief economic guru of the administration," Duberstein said. "You need to have someone of stature, somebody who has the confidence of Wall Street, somehow has the confidence of Main Street and also Pennsylvania Avenue -- both ends."

Several Republicans see John McCain tapping close friend John A. Thain, the former head of the New York Stock Exchange whose stock rose when he sold his firm, Merrill Lynch, at a premium price to Bank of America just before last week's turbulence hit the markets.

Other possibilities include former Massachusetts governor and presidential candidate Mitt Romney and former Sen. Phil Gramm of Texas, but lawmakers say both men could be lightning rods for the Democrat-controlled Senate and remain unlikely choices.

Washington insiders also named New York Mayor Michael Bloomberg as someone who has the financial experience to be Treasury secretary and could work with both parties. But they question whether Bloomberg would leave Gracie Mansion to take a Cabinet position.

Whoever takes up the mantle will have plenty of help from the Treasury, said Jim Wilkinson, Treasury's chief of staff. Wilkinson is leading a five-member transition team to compile an inside account of every decision that was made at the Treasury during the credit crisis as well as detailed instructions on who to call at foreign governments around the world. Paulson has said that he would also advise his successor.

Rep. Barney Frank (D-Mass.) said it is not unusual to have a leadership change at the Treasury during a crisis and that with Bernanke and Geithner continuing their roles in government, the transition should be smooth.

"If the new president designates someone early on, then I think this is a very manageable situation," Frank said. "Unless John McCain decides to appoint someone ideological like Phil Gramm, then all bets are off. But to this point there haven't been major ideological battles over how to respond to the credit crisis."

Warren E. Buffett, the Omaha-based investing guru and a director of The Washington Post Co., said he has a suggestion for who would make a good Treasury secretary in the next administration: Paulson.

"You couldn't have any better guy," Buffett said on CNBC. "The important thing is that if this program extends into the next administration is to have somebody in the next administration that has similar market savvy."

Buffett on Tuesday made a $5 billion investment in Goldman Sachs -- Paulson's old firm -- and said he is betting that the administration's bailout proposal will pass.