Role of treasury secretary considered

Role of treasury secretary considered
Forum focuses on secretary’s role in wake of attacks
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BY B.J. ALMOND
Rice News Staff

While emergency crews were dealing with the aftermath of the Sept. 11 terrorist attacks, the U.S. secretary of the treasury had to deal with a related problem: the potential impact that the loss of the World Trade Center might have on the economy.

At Rice Oct. 5, eight former secretaries of the treasury explained the multiple challenges faced by the current treasury secretary, Paul O’Neill. They were participating in a forum on the role of the secretary of the treasury, which was presented by Rice’s James A. Baker III Institute for Public Policy and the Woodrow Wilson International Center for Scholars, Washington, D.C.

“Our current secretary first had to figure out how to get back from Japan,” said George Shultz, who served President Nixon as the 62nd secretary of the treasury. Citing O’Neill’s travels to Japan as a marker of what the secretary does, Shultz noted that in addition to having “immense domestic responsibilities,” the treasury secretary also has “tremendous interaction all over the world.”

Because the economy already was in trouble before Sept. 11, “you could see immediately that the trouble would get more serious,” Shultz said, and the secretary of the treasury had to take a lead in helping the president formulate a program to aid the economy.

Robert Rubin, who served President Clinton as the 70th treasury secretary, said that after the Sept. 11 tragedies, the treasury secretary needed to meet with the president and his economic team to determine the economic impact of the events and the changes that the secretary would like to make in response.

“The other thing you need to do is figure out how to discuss the economy in the public domain in a way that on the one hand is serious and thoughtful, and on the other hand provides reassurance,” Rubin said.

Donald Regan, who served President Reagan as the 66th secretary, noted that the treasury secretary has to look after the money markets and the stock market. “Those are the two barometers that the world is watching — what’s happening to the dollar and what’s happening to the stocks,” he said.

Closing the stock market the rest of the week after the events of Sept. 11 was an appropriate response, Regan said. “They needed the time not only physically, because their plant was wiped out and a lot of their communications gear was not working, but also they needed time to breathe, to think.”

William Miller, who served President Carter as the 65th secretary, pointed out that the secretary of the treasury also has responsibility for the Secret Service. So in the wake of the terrorist attacks, the secretary also had to be concerned about protecting the president and government property and making sure security was in place.

“But at the same time, he needed to be in contact with a multiplicity of avenues to create confidence and stability,” Miller said, adding that members of the Department of the Treasury probably contacted their foreign counterparts to alert them about the events and assure them the secretary would coordinate a policy to deal with the markets and avoid any danger of collapse.

Nicholas Brady, who served presidents Reagan and Bush as the 68th secretary, noted yet another responsibility the secretary of the treasury has to fulfill after an incident like the destruction of the World Trade Center towers. “Something enormously important is to assure liquidity in the system so the trades that were being conducted do settle on time,” he said. “The thing that scares people the most is when they don’t get paid and they owe other people money.”

Because a record-breaking $80 billion of liquidity — more than 10 times the amount that had ever taken place before — was injected into the system by the Federal Reserve Bank of New York and the Federal Reserve Board, liquidity was maintained — “a remarkable performance,” Brady said.

Michael Blumenthal, who served President Carter as the 64th secretary, said O’Neill’s concern about liquidity was not just domestic. “He had to remember that the psychological shock was not only great in this country, but equally great around the world.”

O’Neill most likely contacted his principal international colleagues by phone or e-mail in an effort to maintain liquidity not only in the United States but worldwide, according to Blumenthal. The secretary of the treasury had to give “some reassurance to the global system that the U.S. is handling the problem and doing its job,” he explained.

James A. Baker III, who served President Reagan as the 67th secretary and is honorary chair of the Baker Institute, observed that the various comments offered by the panelists demonstrate the wide range of functions and responsibilities of the treasury secretary.

“You’ve got to deal with your law-enforcement function, so you would be talking to the White House on that,” Baker said. “You would have to deal with the function of coordinating with the Federal Reserve and injecting liquidity, and you would have to be very diligent in talking to your counterparts overseas to make certain that they understand that the United States is going to deal with this in a rational, reasonable and successful way.”

Lloyd Bentsen Jr., who served President Clinton as the 69th secretary, also attended the forum.

ABC News anchor Sam Donaldson and Wall Street Journal editorial page editor Paul Gigot served as moderators for the forum, which gave the former secretaries a chance to reminisce about the bureaucracies, politics, personalities and policies they encountered during their years with the Department of the Treasury and express their opinions of tax reform, recession and other aspects of the economy.

Edward Djerejian, director of the Baker Institute, Rice President Malcolm Gillis and Steven Kotler, president of the Wilson Council, presented introductory and welcoming remarks.

The Carlyle Group and the Shell Oil Co. Foundation sponsored the forum, which was the third in a series of joint programs between the Baker Institute and the Woodrow Wilson Center.

A Webcast of the panel discussion has been archived on the Baker Institute home page at <www.bakerinstitute.org>.