Page last updated at 15:49 GMT, Wednesday, 26 November 2008

Obama makes crisis the priority

By Steve Schifferes
Economics reporter, BBC News

Paul Volcker
Paul Volcker worked closely with Mr Obama during the election.

US President-elect Barack Obama's announcement of his economic team has given a strong indication of how he intends to govern.

The appointments suggest that he has recognised the severity of the economic crisis, but chosen individuals who will bring continuity to economic policy and reassure the markets.

They indicate that he will govern with a pragmatic approach to policy, but with a strong recognition of the need for urgent action.

His team is also noticeable for its deep experience of managing international economic crises in the past decade.

Among the key appointments are:

Timothy Geithner as Treasury Secretary

Lawrence Summers as head of the National Economic Council

Peter Orszag as head of the Office of Management and Budget

Paul Volcker as head of a new Economic Recovery Advisory Board

Wall Street ties: Timothy Geithner

Timothy Geithner - 24/7/2008
Timothy Geithner has been heavily involved in tackling the credit crisis

In particular, in picking Timothy Geithner as Treasury Secretary, Mr Obama has chosen someone who has been centrally involved in all the key decisions in the financial bail-out since the crisis began last year.

Mr Geithner, as head of the New York branch of the US central bank, the Federal Reserve, was the official in charge of implementing the decisions of Ben Bernanke, the Fed boss who has played a pivotal role in the crisis.

Mr Geithner was the official who was key in liaising between the private banking sector and the government, and he developed a close working relationship with Mr Bernanke.

His appointment has reassured Wall Street, as it means that there will be a relatively seamless transfer of power during the transition period until Mr Obama takes office in January.

"He's the right man for the job at hand, both in terms of technical experience and profile," says Paul Ashworth, US economist at Capital Economics.

Mr Geithner also worked at the IMF, and was under-secretary of the Treasury for international affairs during the last years of the Clinton Administration, where he was the key official dealing with the Asian financial crisis of 1997-8, which almost led to a meltdown of the world financial system.

As such, he was a protege of Larry Summers, the US Treasury secretary under President Clinton who is also a leading member of the Obama team.

His close working relationship with Mr Summers, who is set to head Mr Obama's National Economic Council, is also an advantage in smoothing the path of policy-making.

New Keynesians: Larry Summers

In appointing Mr Summers to a key role in his administration, Mr Obama has also signalled that he will put talent above politics.

Lawrence Summers (file pic)
Lawrence Summers was treasury head at the close of the Clinton years

Mr Summers, a pugnacious Keynesian who was one of the earliest advocates of a big bail-out, alienated many women's groups by his intemperate remarks about the lack of successful female scientists - remarks which led to him losing his job as president of Harvard.

But Mr Summers, who has advised Democratic presidential candidates since Michael Dukakis, has been one of the most forceful advocates of a strong role for government in the current economic crisis.

His appointment to a behind-the-scenes role will give him the ear of President Obama, and he will play a major role in shaping the big economic rescue plan that will be the first priority of the new administration.

It is also a signal that Mr Obama will maintain a strong White House role in economic policy, with the National Economic Council perhaps playing the same major role that the National Security Council has played in foreign policy.

Budget concerns: Peter Orszag

Peter Orszag
Peter Orszag has headed the Congressional Budget Office

Mr Obama has signalled his determination to keep the budget deficit in check by appointing Peter Orszag, the head of the Congressional Budget Office (CBO), to head the Office of Management and Budget (OMB).

It is the OMB, rather than the Treasury, that allocates government spending and estimates the size of future budget deficits.

His appointment could help ease the new president's relations with Congress.

Peter Orszag is well-known as a fiscal conservative, who is concerned to keep spending and tax cuts in check.

He was one of the first directors of the Hamilton Project, a Brookings think tank initiative backed by Robert Rubin which aimed to combine fiscal responsibility with progressive politics.

As such, he worked closely with Jason Furman, Mr Obama's economic adviser during the election campaign.

Earlier in his career, Mr Orszag was also the chief economist at the National Economic Council under Mr Clinton.

As head of the CBO, the independent congressional body, he was charged with "scoring" the administration's budget proposals to evaluate their real cost.

Mr Orszag has been particularly concerned with the rising cost of health care, and his influence will be particularly important in shaping Mr Obama's plans to expand health care coverage.

And the confidence he enjoyed from Congressional Democrats will help ease passage of Mr Obama's budget plans, which are likely to face scrutiny not just from Republicans but from Conservative Democrats who are worried about the growing budget deficit.

Congress, rather than the White House, has the last say in budget and tax matters, under the US system of government.

Fed Veteran: Paul Volcker

President-elect Obama has drawn one of the veterans of many economic battles, former Fed chairman Paul Volcker, to head a new Economic Recovery Advisory Board, designed to give private sector advice to the new administration.

Paul Volcker famously clashed with President Ronald Reagan in the early 1980s over tax cuts and budget deficits.

Worried that the Federal government was running a big budget deficit, which would be inflationary, Mr Volcker raised interest rates sharply to slow the economy.

Mr Reagan did not reappoint Mr Volcker again, putting Alan Greenspan in charge of the Fed in 1987.

By appointing the former Fed boss, the president-elect is reaching out to Republicans and Wall Street investors who are often sceptical of Democratic economic policies.

He has won the praise of former Bush administration economists such as Glenn Hubbard, the former head of the council of economic advisers.

He said Mr Volcker had "an unmatched record of success in leading the Federal Reserve during a period of significant regulatory change, financial innovation, and economic stresses."

Mr Volcker has also commanded the respect of the international community, having been appointed to investigate the UN's Iraq oil-for-food scandal in 2004.

He has also been closely involved in attempts to reform the international financial system for the last three decades.

Mr Volcker served as Under Secretary of the Treasury for International Affairs when the US abandoned the gold standard and ended the Bretton Woods regime of fixed interest rates in the early 1970s.

Although Mr Volcker resumed his banking career on Wall Street after his government service, he continued to serve on various advisory committees, including the Group of Thirty and the Trilateral Commission.

But at 81, it was always unlikely that he would have a permanent role in the Obama administration.


A notable feature of Mr Obama's appointments is that many of the key figures have worked closely together in the past.

This suggests that the president-elect places a high premium on teamwork, using the same disciplined approach that helped him win the election.

It is also noticeable that his appointments are mainly young and able, rather than representing particular interest groups.

The relatively moderate character of his team could worry some of Mr Obama's strongest supporters during the election, such as the trade unions.

The president-elect's resolve is likely to be tested very early on by the issue of the auto industry bail-out, after GM and Ford warned they would run out of money if they did not get further government assistance.

David Axelrod, Mr Obama's campaign manager, has already said there will be no "blank cheque" bail-out of struggling auto manufacturers, who would have to return to Congress in December with a plan, not just "an expression of need".

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