The Wall Street Journal headline last December calmed more than a few nerves in global markets: "Bush Seeks a Wall Street Heavyweight To Head Treasury." The words prompted furious handicapping among investors wondering who'd become the next architect of US economic policy.
Given Robert Rubin's fabled run as treasury secretary, Wall Street assumed one if its own would head George W. Bush's Treasury Department. The odds favored executives from financial powerhouses like Chase Manhattan Corp, Paine Webber Group Inc and Credit Suisse First Boston.
Hope then turned to bafflement when Bush tapped Paul O'Neill, the retiring chairman of aluminum giant Alcoa Inc. Yet given the 65- year-old's success at running a Fortune 500 company for 13 years -- Alcoa hasn't had a quarterly loss since 1994 -- investors and analysts gave O'Neill the benefit of the doubt. Besides, adviser Lawrence Lindsey, a former Federal Reserve Governor well known in markets, would be around to help steer Bush's policies.
Five months into the job, O'Neill isn't getting many raves on Wall Street. His penchant for verbal gaffes that roil markets has painted him a loose cannon among market participants. He's been referred to as the US's answer to Wim Duisenberg, the European Central Bank head who's tossed more than his share of verbal hand grenades into markets. TheGlobalist.com, an online think tank, asks whether he's "Washington's Forrest Gump."
"O'Neill has been great for market volatility and likely will be in coming months," says Peter McTeague, a bond strategist at Greenwich Capital in Greenwich Connecticut.
One famous example came in the first weeks of his tenure: During an interview with a German newspaper, O'Neill said "we don't follow, as is often said, a strong-dollar policy. In my opinion, a strong dollar is the result of a strong economy." He added that countries with high growth rates and low inflation should enjoy strong currencies.
The dollar plunged in response, and for good reason. O'Neill seemed to forget that he and the rest of the Bush administration had been flooding the airwaves with gloomy chatter about the US economy. It was the Bush team, after all, that introduced the word "recession" into the debate. So why wouldn't traders sell dollars? Based on O'Neill's own assessment, the economy was weak, meaning the dollar should weaken accordingly.
O'Neill's downbeat comments about the economy earlier in the year also damaged his credibility with economists. Analysts were unnerved by O'Neill's willingness to talk down the economy in order to make the argument for a tax cut even he admitted wouldn't boost growth much. His reputation for political tone deafness wasn't helped by his recent withdrawal of support for a global crackdown on tax havens and his push to end corporate income taxes. The same is true of his reluctance to sell his remaining Alcoa stock.
O'Neill "is steadily working himself toward weakest-link status" within the Bush Administration, said The Washington Post in a May 20 editorial.
To some, O'Neill's style is refreshing. "He's pretty impressive, as far as I'm concerned," says Rory Robertson, interest-rate strategist at Macquarie Bank in New York. "Bloody smart, practical and straight shooting."
The Treasury chief also has had his share of successes, says Ashraf Laidi, senior currency analyst with MG Financial Group in New York. "O'Neill's role in passing the tax package was indeed successful," Laidi explains.
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