The first 100 days of the
administration will be tumultuous as members of the new president's economic team inherits a difficult set of challenges -- the reformation of the financial system, a substantial stimulus package and a potential bailout for the U.S. auto industry, just to name a few.
How's that for a welcome to Washington? Between Jan. 20 and April 29, the 100-day mark, both President Obama and his advisers will be asked to tackle an economy in turmoil and a collapse in investor confidence that shows few signs of turning around.
President Obama's group, all of whom have made their mark on the U.S. economy in the past, will need to be the equivalent of economic superheroes to really fix what troubles America. But they must also reshape the view that Washington's regulators have failed to keep Main Street's best interests at heart.
Obama's picks to fill his top spots include names with strong economic experience and equally strong personalities. New York
President Timothy Geithner was nominated to become Secretary of the Treasury. Former Treasury secretary Lawrence Summers will become director of the National Economic Council. Paul Volcker, a former Fed chairman, will become the chairman of the Economic Recovery Advisory Board.
"They're all top-caliber people, but of course that's no guarantee," said Mike Feroli, U.S. economist with JPMorgan. "You do have a lot of potential competition as you have several bright people. Whether that creates friction or not, who knows. They're equipped with the intellectual ability, if anyone is."
Mark Williams, a professor of finance and economics at Boston University, said that Americans' view of Obama's selections will hinge largely on two factors: "The average homeowner has two assets that make up the majority of their wealth -- their home and their 401(k)," he said. "Their 401(k) could be down 30% to 40%, even with the
index, and their home could be down 20%. Once those two measurements are stabilized, that'll show how successful the appointments are."
While many economists and market observers praise all three choices, each will be in the unenviable position of performing better than not only their predecessors but their own resumes.
Tim Geithner, whose confirmation as Treasury secretary was pushed back to Wednesday due to an alleged mistake of
underpaying his taxes
, was the head of the New York Fed when the office was involved in the sale of
and the bailout of
While those might be considered relative successes, Geithner's office failed to prevent the demise in September of storied investment bank
. For that, Geithner has been criticized in some corners. Several financial analysts have argued that the financial crisis would not have snowballed as it did if Lehman had been saved.
"He was part of the problem, so how can he be part of the solution?" Williams asked rhetorically. "The fact that he has more inside experience and the fact that he spent time at the Fed gives him the inside track. The fact that he hasn't spent his career in the private sector is a plus, as he understands the benefits of regulation and how Washington works."
If confirmed this week, Geithner will assume the role of Treasury secretary from Henry Paulson, one of the major architects of the mammoth $700 billion Troubled Asset Relief Program, or TARP. Paulson, the former CEO of
, has taken a beating in the media due to many of his decisions in 2008, so his replacement will likely be given considerable leeway at least in the early going. The market was certainly initially impressed by the Geithner nomination, and the major stock indices rallied sharply after Obama named him as his pick for Treasury.
"Henry Paulson, someone with his resume, wouldn't even be nominated in this environment," said Williams. "Paulson is an insider on Wall Street and that isn't need in Washington right now. The reality is that we're moving back to a Keynesian environment."
Both Williams and Joseph LaVorgna, managing director and chief U.S. economist with Deutsche Bank, say that a major fault that Paulson and Fed Chairman Ben Bernanke have is the inability disseminate information clearly and advise effectively, something that should be fixed under the Obama administration.
"The ability to truly communicate effectively was absent under the Bush administration," Williams said. "The market felt
they were running from fire to fire without having a game plan, and as a result that helped erode confidence further. The message wasn't clear to the American people, and that fed the uncertainty and the lack of confidence in the marketplace."
LaVorgna says that Geithner is certainly an experienced pick, one the market is comfortable with. "There's no question
Obama needs to get Geithner to the Treasury," he said. "The market will not want to see a vacancy of the Treasury secretary position for any span of time."
Larry Summers is no stranger to Washington, having served as Treasury secretary during the Clinton administration and chief economist of the World Bank before that. Summer became president of Harvard University after serving under President Clinton, but resigned from the post in 2006 after several controversial statements, including one that males perform better in science and engineering than women.
Before being selected to director of the National Economic Council, Summers had been rumored to be a candidate for the Treasury secretary spot. But while Obama has based his entire presidential campaign on the idea of change, some observers are befuddled by his decision to hire Summers into a top economic position.
"Unfortunately, Summers has been much-maligned as the president of Harvard," Williams said. "But he knows Washington pretty well. He's a bit long in the tooth, and I'm not sure he's the most creative thinker to use new approaches, but that's where Geithner comes in."
Volcker Is No Nonsense
Many Wall Street observers cheered Obama's pick of Paul Volcker for chairman of the Economic Recovery Advisory Board. The former Fed chairman made the very difficult decision to raise interest rates in the early 1980s, which received considerable criticism despite the fact that it ultimately helped tame inflation in the U.S. It's no surprise that with the country facing significant decisions, Obama wants Volcker's expertise.
"Volcker brings a lot of experience and credibility to Obama's team and financial markets," said LaVorgna. "He brings an incredible amount of experience, knowledge and credibility. Perhaps his role will be selling whatever the administration chooses to do with helping the financial sector."
What remains to be seen is exactly what role Volcker and Summers will ultimately play in the economic recovery. "I'm not sure exactly what his and Larry Summers' role are going to be. But I think where he will help will be on certain matters and how they relate to finance markets," LaVorgna added.
Williams says that Volcker's decisions while head of the Fed makes him an ideal candidate to help Obama navigate the tough U.S. economic environment.
"What's phenomenal about Volcker is that he's battle-hardened," Williams said. "The economy became much stronger because of his actions at the helm of the Fed. He made some bold decisions. He increased interest rates dramatically when many thought this would hurt and not help. But he tamed inflation and interest rates came down. He's no-nonsense. He speaks his mind. This is not a footnote on his resume. His commitment is to improving the economy."
"An Incredible Amount of Speed"
Feroli says the first order of business for Obama's team must be to address is the continuing crisis in the financial system. On the day Obama took the oath of office, stocks were pressured as a lack of confidence continued to batter the financial sector.
Royal Bank of Scotland
fell nearly 60%,
Bank of America
declined 20%, and JPMorgan Chase lost 21%.
"Obviously there are a lot of issues with the banks today," said Feroli. "If they put the financial system third or fourth on their list, they could be in a lot of trouble. The problem is not going to sit around for a couple months for a solution."
LaVorgna said that the team needs to lay out a plan on how they expect to use the second half of the TARP funds. "If you want markets to improve, the sooner the better," he said. "Markets will improve depending on how they view the policies. If the markets improve, you can build in a bottom to forecasts. Right now, unfortunately, there isn't a bottom as economic data continue to worsen. There's a tremendous amount of uncertainty."
Fortunately, LaVorgna says the Obama economic team has moved with "an incredible amount of speed. I can't remember a time, if ever, you had a president-elect start giving economic speeches and announce his cabinet as quickly as he did. I think policymakers realize they need to do things quickly. They can do a lot in 100 days, more than we ever thought possible looking back at history."