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Fixing the economy: The new Prez's biggest challenge

Last updated on: November 05, 2008 10:01 IST

The winner on Tuesday, Nov. 4, won't get much of a chance to rest on his laurels - or rest at all, for that matter. The calendar may show 11 weeks until Inauguration Day, but the President-elect will be expected to stage what may amount to the fastest transition in history.

"He'll have about a day to rest. His Presidency will start on Nov. 6," says one top staffer for a key Democratic senator.

That may be a slight exaggeration, but events won't wait for the new Administration. Congressional Democrats are laying the groundwork for a fiscal stimulus package they hope to pass in late November. Under pressure from European leaders - and perhaps with an eye on his own legacy - President Bush is hosting a summit of world leaders on Nov. 15. House Financial Services Committee Chairman Barney Frank (D-Mass.) has scheduled a hearing on the bailout for Nov. 18. And the President-elect may hold his own economic summit as well, as Bill Clinton did in 1992.

Meanwhile, Detroit is clamoring for $25 billion more in loan guarantees, and all sides say something has to be done - soon - to help homeowners and stem the housing market collapse.

A history of wrong guesses

Whoever wins, naming a Treasury Secretary is sure to be high on the list, followed by other key economic posts. Among other things, an early Treasury nominee will give the new Administration more influence over how the rest of the $700 billion bank bailout is rolled out.

Beltway pundits are working overtime to predict who will snag this key job, but "the guesses about the Clinton Cabinet were hilariously wrong in almost every respect," says Matt Bennett, spokesman for progressive Washington think tank Third Way, who worked in Clinton's 1992 campaign and in the White House during his second term. "Even Lloyd Bentsen (Clinton's first Treasury Secretary) wasn't on the top of people's lists."

Says Paul Stevens, CEO of Investment Company Institute, a mutual fund trade group: "I've heard about six different names, but in Washington that means it's none of the six."

The Bush Administration has already set aside a conference room for the winner's Treasury transition team and is preparing reams of briefings on everything from terrorism financing to travel policies. Nor is cooperation likely to be confined to administrative matters.

"There's no question we'll be consulting on big decisions with the President-elect's team," a Treasury Dept. official says. "It's in the best interests of the financial markets."

Hold off till January?

But the President-elect might consider mimicking Franklin Roosevelt, who famously declined to help out with policy before Inauguration Day during the Great Depression, on the grounds that the country has one President at a time. That's especially true with the planned Nov. 15 summit, which is likely to chart broad policy with little concrete action.

"There is a principle behind it, but it's also politically smart," says one lobbyist on financial issues. Both candidates have worked overtime to distance themselves from the deeply unpopular Bush Administration, and working too closely with it just weeks before taking office could undermine public support for the President-elect's policies.

But even if they don't get visibly involved in policy decisions just yet, economic advisers to whoever wins will undoubtedly start working overtime to better understand the nitty-gritty of how the Treasury is managing the financial rescue plan and making decisions about who does and does not get money.

Then there's Capitol Hill. With an Obama victory and a significant increase in the Democrats' margins in Congress, a bare-bones, lame-duck session is likely this fall. That session would focus on a fiscal stimulus package that includes extended unemployment benefits and perhaps aid to state and local governments; more sweeping fiscal measures would wait for the new Administration.

After inauguration, an Obama win could also mean a cascade of changes in powerful committee chairmanships, as Senator Joseph Biden (D-Del.) swaps his seat at the head of the Foreign Affairs Committee for the Vice-Presidency.

If McCain wins, Democrats could push a more comprehensive stimulus package, with hefty infrastructure spending or other measures. "Under a McCain victory, we might as well seek as much as we can from a legacy-seeking lame-duck Presidency," says another Democratic Senate aide.

Homeowners and car buyers

Another issue where other players are poised to act once the winner is clear is the housing crisis. The Federal Deposit Insurance Corp. and Treasury are hashing out a plan to use federal loan guarantees to help homeowners avoid foreclosure. McCain has proposed a sweeping plan to buy underwater mortgages and replace them with new ones at current prices. Obama has offered fewer specifics but for months has supported plans that would encourage lenders to modify more loans. And several plans to force lenders' hands are also circulating.

Automakers, too, are eyeing the outcome. Already promised $25 billion to offset their investments in alternative-fuel technologies, Detroit has been pushing since the political conventions to get the money sooner. Auto executives and some lawmakers have also been pushing to let the car companies' credit arms borrow from the Federal Reserve's discount window like banks, to increase the flow of auto-buying credit.

Over the years, the Presidential transition has been worked out to something of a science. Before Election Day, campaigns typically have a small team working on the transition, both recruiting policy experts to draft briefing books for the new Administration and drawing up lists of potential nominees. Both campaigns have already submitted some potential nominees for federal background checks, and more will follow from the victor's camp.

On the policy front, the campaigns also line up teams of supporters who will be ready to go into each federal agency within days after the election. Their goal: Begin tracking the agency's actions and pave the way for Cabinet Secretaries and other high-level nominees to learn the ropes.

Theo Francis and Jane Sasseen, BusinessWeek