Bush Cleans House

They had met more than two decades ago, in the Ford White House, and Dick Cheney wanted to be the one to deliver the bad news to his old friend. After all, it was the veep himself, Bush's headhunter in chief, who had pressed Paul O'Neill to leave a lucrative career and come back to Washington. But after two years of off-message, sometimes bizarre utterances that regularly roiled markets--like declaring Social Security all but obsolete, or inadvertently talking down the dollar--it was clear the Treasury secretary had become a major millstone around George W. Bush's neck. The nation's economy was "just bumping along," Bush had told audiences last month. "It's not as strong as it should be." O'Neill, the self-styled maverick, had to go. The only question was how and when.

The plan was to time O'Neill's resignation perfectly. It would be a mere blip in the holiday season, coming after the GOP's big November election win, but before the Bush team starts selling its economic-stimulus plan when Congress reconvenes next year. It didn't work out quite so smoothly. Initially, the administration had hoped to wait until after Saturday's Senate runoff in Louisiana to announce the shake-up. But Cheney's abrupt call, described as cordial, seems to have surprised the Treasury chief and sent him into a cold fury. As recently as mid-November, Andy Card, the White House chief of staff, had assured O'Neill his job was secure, NEWSWEEK has learned. Now, after hanging up with Cheney, O'Neill phoned Card, dashed off a bitter, four-line letter of resignation and was on his way home to Pittsburgh by 9 a.m., griping to aides that he was "not a politician and doesn't want to be one," as one put it. Wall Street celebrated his departure with a mild rally that defied the news that unemployment had shot up to 6 percent.

It was no accident that Lawrence Lindsey, the head of Bush's National Economic Council, was also asked to leave the same day. Card called Lindsey at his snowbound Virginia home to tell him his four-year run as Bush's leading economic adviser was over. Lindsey, who was seen as smart but also a bumbler in public, took the news more graciously than the Treasury chief had, praising the president in private. And White House officials hinted that the "Friday-morning massacre" might only be the beginning: the deputy Treasury secretary, Kenneth Dam, and a handful of other top Treasury officials are expected to resign as well. Though the moves were long expected, the ruthless method of execution was a stunner, even taking some of O'Neill's senior colleagues and top Republican leaders on the Hill by surprise. (Robert Zoellick, Bush's U.S. trade representative, did not know of Lindsey's departure until NEWSWEEK called Friday morning.) "It shocked most of Washington," said Tom Daschle, the Senate Democratic leader, who told NEWSWEEK the firing of Bush's "generals" was "an admission of economic failure."

Daschle would like to turn the confirmation hearings for Bush's new team into a debate on the economy. His problem is that Republicans are in charge of both houses of Congress. But there was some truth to the criticism. The economy's sagging performance, borne out by the worst unemployment statistics in eight years, represents the weak core of Bush's still-soaring popularity as a war leader. And for a president who prizes loyalty, his sudden dismissal of two men he once defended shows that Bush is acutely aware of this weakness. Just a month after Harvey Pitt's departure from the Securities and Exchange Commission, the administration is now headhunting three senior figures to restore economic confidence. A "menu of options" for a stimulus package is on Bush's desk waiting for his approval, says a senior official.

Now it needs some salesmen. Replacements were to be named as early as this week. In what might be seen as a rare case of Clinton envy, the president was said to be interested in naming Stephen Friedman--an old friend of Robert Rubin's who served as cochairman of Goldman Sachs with the much-admired Clinton Treasury secretary--to Lindsey's old job. Commerce Secretary Don Evans, Bush's oldest friend from Texas, was one of those in the running for the O'Neill job, with Glenn Hubbard, chair of the Council of Economic Advisers, as a possible Treasury deputy. But Evans's name met with a tepid reaction on Wall Street. Friedman, a fiscal conservative like Rubin, may be less than fully supportive of the permanent tax cuts at the heart of Bush's economic plan.

Despite homages to O'Neill's honesty, almost no one mourned his departure. Looking and sounding like a real-life Mr. Magoo, O'Neill was prone to the sort of snafu that could be both comic and costly. Last summer he helped to send the Brazilian currency into a 13 percent tailspin with an offhand jab at its government. "Every time he got on TV, we would all say 'Don't talk!'," said one Wall Street trader. Even Treasury officials shrugged off their boss's resignation. "When it was announced, no one cheered and no one looked upset," said one.

GOP loyalists tried to portray the change as a tuneup of the message team, nothing more. "They have an economic plan they've put together for the State of the Union and the new Congress, and they need a team to sell it effectively," said Ralph Reed in Atlanta, perhaps the most important political operative in the country after Bush guru Karl Rove. But even some Republican insiders said they were shocked by how the White House handled Lindsey. O'Neill had always been an outsider, trying Bush's patience by questioning tax cuts. Lindsey, on the other hand, was close to "movement" conservatives. "O'Neill isn't one of us, but Larry is, and that's a concern," said one GOP operative.

Administration officials suggest it was the prospect of war that focused minds inside the White House. When Lindsey, in the run-up to the midterm elections, publicly mused that an Iraq war could cost as much as $200 billion, senior White House officials were furious with the off-the-cuff remark. For all his face-time with Bush during the presidential campaign, Lindsey never won the respect accorded to his foreign-policy counterpart, Condoleezza Rice.

Bush had not spoken to either man by the end of last week, with one official admitting, "Emotions are raw." But heading into 2004, Bush seems to be taking no chances. The White House can only hope that the man who started the whole bloodbath, Cheney, finds a Treasury secretary who commands more respect than the hapless O'Neill. "I'm constantly amazed," O'Neill once said, "that anybody cares what I do." George W. Bush, however, will care very much what his successor does.

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