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Now comes the hard part for Bush

"You want someone who is technically proficient. This is a very hard job to learn."

Joel Seligman, the dean of the Washington University law school in St. Louis and a historian of the SEC

President Bush led his party to a stunning midterm election victory despite a series of daunting economic problems that might have been expected to produce the opposite result.

The stock market fell more after his inauguration than during any similar period since the Hoover administration. The economy lost more than 2 million private sector jobs, and investor confidence plunged amid corporate scandals that reminded some of the 1930s.

Even as the president was celebrating the election results Tuesday night, his choice as chairman of the Securities and Exchange Commission was resigning and the Federal Reserve was preparing to cut interest rates to the lowest levels since 1961. Both moves reflected worries that the situation was significantly worse than it appeared only a few months ago.

Now a victorious president confronts a question most commonly asked by presidents who have suffered severe midterm election rebuffs: What will it take to get things back on track before he seeks re-election in two years?

In the economy, it is clear that the Federal Reserve's contributions to stimulus are coming to an end. After cutting the key interest rate it administers to 1.25 percent, the lowest since John F. Kennedy was in the White House, it indicated it did not expect to cut rates again soon. In any case, it cannot cut rates much farther.

"It makes sense for the Fed to act very aggressively when it doesn't have much ammunition left," said Bill Dudley, the chief US economist at Goldman Sachs. "But we shouldn't kid ourselves that this makes everything all right."

If further stimulus is needed for the economy, the Fed's situation makes it all the more likely that the burden will rest on fiscal policy. There is a widespread expectation that Bush will look for more tax cuts, while concentrating spending increases on defense and fighting terrorism. With Republicans controlling both houses of Congress, there is every reason to think he will get much of what he wants.

But his first challenge will be naming a new SEC chairman to replace Harvey L. Pitt, who resigned Tuesday night. Pitt is widely viewed as having botched the appointment of the Public Company Accounting Oversight Board, whose chairman, William L. Webster, is facing an investigation of his role as chairman of the audit committee of US Technologies and is involved in a ``who said what'' dispute with the company's former auditor -- a firm that the new board will regulate.

Names of potential SEC chairmen circulated widely on Wednesday, but there was no indication that any of them met with the approval of Bush, who must decide which constituency to appease in making an appointment that will be scrutinized.

Blockages

When Pitt was chosen, it was reported that other candidates had been blocked because they were viewed as too eager to impose new regulations. That, of course, was before scandals at Enron and WorldCom led to passage of the Sarbanes-Oxley law, which established the new accounting regulator and called for a series of new regulations.

A new chairman, if chosen quickly, will have to decide what to do about the accounting oversight board. That will involve choosing a new chairman if Webster steps down, as many expect he will do, or it will involve deciding whether to ask Webster to do so. To lure a new, high-quality chairman, it might be necessary to offer that person some choice in whether other board members should also leave.

In choosing a new SEC chairman, Bush may have wider latitude because the confirmation will be up to a Senate controlled by his party. But any choice comes with risks. Choosing a tough prosecutor would no doubt win public acclaim, but if that person knows little about securities laws it could be a major handicap.

"You want someone who is technically proficient," said Joel Seligman, the dean of the Washington University law school in St. Louis and a historian of the SEC. "This is a very hard job to learn."

Indeed, the SEC faces major issues in many areas, ranging from the structure of securities markets to reforming the way research is done.

Seligman pointed to the 1973 appointment of Roy Garrett Jr., a highly respected securities lawyer, after his predecessor, G. Bradford Cook, was forced out as a result of a scandal that made his honesty suspect.

"That is the kind of person you want, probably someone with an accomplished career in securities law, someone who will be a healer and a consensus builder," he said.

But any lawyer who had represented a wide variety of clients would also face questions of conflicts of interest, like those that followed Pitt during his first year in office. To some others, it is important to avoid such questions.

Politicized

With the SEC having been politicized to an extent that is unusual, with Democrats having called for Pitt's ouster and voiced suspicions that he was doing the White House's bidding in opposing one candidate for the accounting board, there is clearly a case to be made for a chairman who does not appear to have strong political ties or leanings. Some wonder whether a veteran commission staff member, like Steven Cutler, the director of enforcement, might have a chance.

Bush may need to decide quickly whether to change any members of his economic team.

He will also have to decide whether to propose large block grants for the states, whose fiscal problems will probably get more attention now that the election is over and the winners must confront large deficits that -- unlike the federal one -- must be closed somehow. To do so would increase the federal deficit, but to not come to the aid of the states would run the risk of their budgets acting as a severe drag on the economy in coming months.

The results of those decisions will become clear only over the next couple of years. But by then, they could have a major impact on whether Bush can win a second term as president.
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