Ron Suskind: The Bush Files:
From The Book
In this Jan. 22, 2001 memo to the newly inaugurated President, Treasury Secretary Paul O'Neill outlined a plan to get the president's tax cut swiftly passed by Congress. In this hard-edged political memo, O'Neill advised the president to stick to the tax cuts he promised in the campaign, and to resist attempts by members of Congress to tack on "targeted" tax cuts for their pet projects.
In an early sign of infighting on the President's economic team, National Economic Council chairman Larry Lindsey sent a January 25th memo to White House Chief of Staff, Andrew Card, attacking the performance of the Treasury Department's nonpartisan Office of Tax Analysis. The memo had a not-so-hidden-subtext: O'Neill's Treasury was not sufficiently loyal to the new President, while Lindsey was dutifully carrying forward Bush's agenda. O'Neill scrawled an angry reply in the margin: "Larry: This is bureaucratic chicken----. You must have something better to do with your time than send me memos such as this one."
Donald Rumsfeld, President Bush's Secretary of Defense, moved swiftly in the first weeks of the administration to call for a massive increase in Pentagon funding. To buttress his case, he sent a strategic memo to senior officials outlining the dire security threats he believed the United States was facing in the 21st century. Eight months before Sept. 11, Rumsfeld wrote that "the risk to US and alliance security is increasing as the US fails to respond effectively and decisively to asymmetric threats likely to characterize the first quarter of the 21st century." This, and other ideas in this early memo -- including the need "to dissuade other countries from challenging our interests" -- laid foundations for the doctrine that would later be called "pre-emption."
On most mornings, O'Neill received a package of documents from his aides to prepare him for the day's meetings. His papers for February 1, 2001, included an agenda for an NSC meeting to be held in the White House Situation Room that afternoon on U.S. policy in the Persian Gulf. The agenda, which refers to a classified paper on a "Political-Military Plan for Post-Saddam Iraq," is one of several memos that showed how regime change in Iraq and handling the post-war nation dominated discussions of foreign policy in the first days of the administration.
In the first months of the administration, O'Neill and EPA administrator Christie Todd Whitman, the Republican former governor of New Jersey, both became engaged in carrying forward the President's campaign promise to limit emissions of carbon dioxide, the gas that causes global warming. President Bush asked O'Neill in their first meeting to get him an action plan on global warming. This February memo from Treasury official John Hambor shows the department acting on the assumption that the administration would remain engaged, in some fashion, in Kyoto.
A core group of Republican Senators, led by Chuck Hagel of Nebraska, spearheaded Congressional opposition to limits on greenhouse gas emissions. In February, 2001, Hagel was concerned that Clinton holdovers within the new administration might continue to conduct international negotiations that would bind the U.S. to climate controls. On March 1, 2001, Secretary of Commerce Don Evans faxed a package of documents to Secretary O'Neill that alerted the Treasury secretary to Hagel's worries. The package included an anonymous letter on State Department stationery warning that two Clinton administration holdovers "are seeking to box the Bush administration into a corner where it will have to choose between a bad deal and international embarrassment." Both men were gone within five months.
In late February, 2001, Paul O'Neill sent a memo to the President explaining how he thought the administration should proceed on the sensitive issue of global warming. While many of the president's supporters opposed the Kyoto treaty on principal -- believing that global warming concerns were either overstated or a hoax -- O'Neill opposed Kyoto because he felt it was poorly negotiated and too weak. Its impact, he wrote to President Bush, would be "trivial." A more effective global response to the threat of climate change was needed. O'Neill recommended that the president convene an ecumenical panel of experts to devise a better way to tackle the issue of climate change.
Some of the opposition to President Bush's 2001 tax cut came from within his own party. On March 13, 2001, Secretary O'Neill was scheduled to meet with a group of centrist senators that included several moderate Republicans who had qualms about the size of the tax cut. The secretary needed to pull off a delicate balancing act: placate the GOP moderates without actually committing to any changes in the president's plan. The memo, preparing O'Neill for his meeting, spelled out the administration's strategy. "You should demonstrate to them that the lines of communications are open between Capital Hill [sic] and the Treasury, and listen to their ideas. However, it is not time to negotiate." O'Neill -- who'd spoken candidly at his confirmation that the $1.6 trillion tax cut would bring little immediate stimulus to the economy -- did negotiate. He felt a stimulus was needed, and suggested a $125 billion tax rebate, angering many in the White House, who feared it would be seen as a replacement for the larger tax cut. A rebate of $100 billion was eventually enacted, giving the economy a well-timed boost.
In early 2001, an energy crisis plunged California into turmoil. Prices skyrocketed, and several utilities teetered on the brink of insolvency. The Bush administration studied a wide variety of responses to the crisis. On Feb. 1, the White House requested that Treasury study the possibility of a bailout of the state's utilities, similar to the Chrysler bailout in 1980.
Shortly after taking office, the Bush administration grudgingly agreed to extend a Clinton-era order that required energy companies to sell gas to California's cash-strapped utilities. In the middle of its energy crisis, a cut-off of gas supplies could have crippled the nation's largest state. Energy companies, however, including Goldman Sachs subsidiary J. Aron, feared they would never be repaid for the gas they were forced to provide. Goldman Sachs CEO Hank Paulson sent an angry note protesting the orders to Energy Secretary Spencer Abraham, copied to Paul O'Neill. "Paul," wrote the CEO, "This is hardly the new administration's finest hour!" The orders were allowed to expire after the California state legislature approved a bond issue to support the state's utilities.
Michele Davis, an assistant secretary of the Treasury, had the thankless, and futile, chore of trying to keep O'Neill on-message in his public appearances. The Treasury secretary rarely kept to the talking points favored by the White House political operation headed by Karl Rove and Karen Hughes. Before the unveiling of the President's budget, on Feb. 27, Davis pleaded with O'Neill to stick to the script. "This event, more than anything you've participated in to date, requires that you be monotonously on-message."
A few words from Alan Greenspan can plunge the markets into chaos or propel them to new highs. In public pronouncements, the Chairman of the Federal Reserve is famously judicious. In private, however, Greenspan often takes contentious positions. In a memo written March 4, 2002, Greenspan mounts a scathing critique of corporate governance in America, using simple declarative sentences the public almost never hears from the chairman. "Absent a fundamental change in the perception of the duty to disclose, firms will continue to have incentives to continue to game the accounting system," he wrote. "Changes in critical areas of governance to align CEO interests more closely with those of shareholders in our judgment are essential and, indeed, overdue."
In February, 2002, Secretary O'Neill sent the president a memo recommending major changes to corporate governance in America. The memo represented the conclusions of the President's working group on corporate governance that had been chaired by O'Neill. Among many suggestions, the group called for firms to be required to disclose all relevant financial information, not just the minimum necessary under accounting rules. "Corporate leaders should disclose the kind of information that occupies their days, and that keep them up at night," O'Neill wrote. "There must be a proactive obligation to disclose information sufficient to enable investors to make informed investment decisions."
The White House was concerned about O'Neill's 10-day trip to Africa with U2 star Bono. A February, 2002 memo from under secretary John Taylor laid the thematic groundwork for the trip, which highlighted the problems of poverty and AIDs.
After giving the keynote speech at a conference in Washington hosted by the George Bush School of Government and Public Service, a part of Texas A&M University, Secretary O'Neill received a thank-you note from the 41st president. The two men had known each other during the Ford administration, when Bush headed the CIA and O'Neill worked at OMB. O'Neill had advised Bush while he was President, and supported his raising taxes to shrink the deficit.
Upon return from his trip to Africa with Bono, O'Neill reported his findings to the President. Progress on fighting poverty and disease on the continent, O'Neill wrote, was much too slow. "A significant amount of the foreign aid that has been spent in the last three decades has failed to achieve strong results," he wrote. "It seems to me that aid donors and recipients alike need to set our goals higher, demand more in terms of measurable results, and expect those results to be achieved sooner." He pushed for funding for AIDS and initiatives to provide clean water.
In the summer of 2002, below-forecast tax receipts forced the Bush administration to ask Congress to raise the federal government's debt ceiling. Without the leeway to borrow more, the government would run out of cash. A June 10, 2002, memo to O'Neill outlines the "state of play" on the request to raise the debt ceiling, and prepares the secretary for a meeting with the President to discuss the issue. Only a year earlier, the government had been in surplus, but tax cuts, war, and a slowing economy had turned the surplus into deficit. In a draft memo to the President, O'Neill warned that the consequences of failing to raise the debt ceiling "are too serious to comtemplate."
The hands-off policy towards the Israeli-Palestinian conflict that the President set in his first NSC meeting, was abandoned by the fall of 2002. The "road-map," a plan for gradually resuming the peace process and establishing a Palestinian state, was drafted by the quartet of the US, Russia, EU and UN, but its publication was delayed throughout the fall and winter. In a memo dated November 12, 2002, under secretary John Taylor discusses the timetable for publication of the roadmap and other aspects of U.S. policy in the region, including the finances of the Palestinian Authority, a particular area of concern for the Treasury Department. The memo reported that putting the roadmap on hold "could undermine the President's credibility with key allies (all of whom are looking to the US for leadership on this issue) and is therefore not a desirable option." The quartet eventually decided to postpone publication of the roadmap until after the Israeli elections in 2003, at which point it was released and largely ignored by both Arabs and Israelis.