Risk & Compliance

O’Neill Shown the Door

Abrupt resignation of Treasury Secretary may pave the way for more government borrowing -- and surprise -- the return of the 30-year bond.
John GoffDecember 6, 2002

Call it the opening salvo in the 2004 Presidential campaign.

With U.S. stock markets still floundering — and with a national election only 2 years away — the Bush administration launched a major shakeup of its economic team today, announcing the resignations of Treasury Secretary Paul O’Neill and top financial adviser Lawrence Lindsey.

The outspoken O’Neill has come in for his fair share of criticism in his two years on the job. While his candid responses to reporters’ questions won him admirers in some quarters, his frank comments also tended to roil markets and annoy leaders in other countries.

In a brief letter to Bush, O’Neill gave no hint that he was quitting at the White House’s request, although officials later confirmed that was indeed the case. “It has been a privilege to serve the Nation during these challenging times. I thank you for that opportunity,” O’Neill reportedly wrote in a brief letter to the president.

During O’Neill’s tenure at Treasury, the U.S. economy has sunk into a deep recession, financial scandals have been uncovered at a dizzying pace, and shareholders have taking a beating on Wall Street. Some believe O’Neill’s resignation, which reportedly was orchestrated by Vice President Dick Cheney, will make Bush less vulnerable to investor criticism about the Administration’s economic policies.

“The resignations are a good thing for the economy,” Bill Strazzullo, a market strategist with State Street Global Markets, told Reuters. “I don’t think the market had much faith in O’Neill because of his inability to articulate a strategy for the dollar and his general ineptness.”

Some market watchers are worried, however, that a new Treasury chief might be inclined to support more government spending — and hence, borrowing. In fact, some observers believe O’Neill’s successor might even consider reintroducing the 30-year bond, which was dropped a year ago.

“Speculation has already begun that Treasury will bring back the bond in the near future,” Steven Stanley, senior market economist at RBS Greenwich Capital Markets, told a Reuters reporter.

But other analysts disagree, arguing that the decision to get rid of the long bond was largely championed by Treasury Under Secretary Peter Fisher. At this point, it does not look like Fisher will be leaving his post.

An administration official reportedly said O’Neill quit “at the request of the White House.” That makes him the first Bush cabinet officer to leave. Less than an hour after O’Neill’s letter became public, Lindsey, who is director of the National Economic Council, also offered his resignation.