The Most Urgent Problem

The transition from the Bush-Cheney administration to the Obama-Biden administration is well underway. The president-elect has reportedly asked Rahm Emanuel to serve as his chief of staff. On Thursday, Obama will start to receive intelligence briefings.

That's a good start. Given Obama's methodical, no-drama style, we probably shouldn't expect hasty announcements of Cabinet secretaries. After all, the 11-week transition period offers plenty of time to mull over names and vet candidates. And with incumbent secretaries and other officials eager to hold on to their jobs in this punk market, Obama won't need to have a full slate ready on Jan. 20, 2009. The departments of Transportation and Health and Human Services will continue to chug along, even if Obama waits until February or March to choose new leaders. But in the area of economic and financial policy, the transition must start in an instant. On CNBC, John Harwood this morning said that Obama might wait until about Thanksgiving to announce a new Treasury secretary. (The smart money says it'll be Larry Summers. The stupid money—i.e., mine—is on Tim Geithner.) That's not soon enough. It may be poor form, but Obama and his team need to get involved in economic policymaking yesterday. Here's why.

In most areas of policy, there's little that the White House can do in the final weeks of a term: just last-minute pardons, executive orders, and efforts to scotch regulations. Washington never uses the last days of a presidency to expand health care or reform the Federal Aviation Administration. So it's usually fine to follow protocol and let departing White House staffers and members of Congress enjoy their final days with a minimum of interruption.

But 11 weeks is a lifetime in the financial markets. In the past 11 weeks, we've experienced a series of vital political decisions related to finance—the nationalizations of Fannie Mae and Freddie Mac, the bailout of AIG, the decision to let Lehman Bros. fail, the passage of a bailout for the financial sector, the expansion of deposit insurance, the Treasury Department amassing a portfolio of preferred banks shares, and efforts by the Federal Reserve to backstop the money-market and commercial paper markets.

It's possible that further dramatic efforts won't be necessary in the next 11 weeks simply because, with all the bailouts, there's nobody left to fail. But plenty of other things could go wrong. We've given the Treasury secretary unprecedented powers to make life-or-death decisions about large financial institutions and to enter into financial arrangements that will last for several years. Given that Obama's team will be dealing with the decisions Paulson made in August and that they'll have to deal with the decisions Paulson makes in November and December, it's imperative for them to get into the rooms where those decisions are being made—now. Think of it this way: If you're slated to assume control of a mutual fund—say, one that has a concentrated portfolio in large financial companies—in January, and if you're going to be held accountable for its performance, wouldn't you want to sit in on the investment committee meetings right now?

There's also the potential for mischief (albeit less of it) in Congress, which is slated to convene in a lame-duck session. The likelihood that the House and Senate, already controlled by Obama allies (and whose number includes Obama himself), would do anything radical is rather slim. But there are some urgent items that could be on the agenda, including aid for automakers and a second stimulus package. Any legislation passed by Sen. Obama in the next couple of months would appropriate tens of billions of dollars that a President Obama would prefer to dole out himself. Of course, those clamoring for an automotive bailout or a stimulus package will declaim loudly about the fierce urgency of now. All the more reason for an Obama economic team to get together, organize, and formulate a set of proposals that it can get behind.

Obama will soar into office with expanded Democratic majorities in the House and Senate and a massive popular mandate. But he'll also be weighed down by the huge fiscal handcuffs. His ability to enact his ambitious agenda—expanded health care, new investments in infrastructure, funds for education and clean energy—is already likely to be hamstrung by the government's recent financial commitments. Getting a head start on the economic transition could help avoid further setbacks.