Washington ? Shakeup: President Bush ousts treasury secretary, economic adviser

Unemployment: Jobless rate soars to 6 percent, matching eight-year high

Wall Street: Dow falls 2.8 percent for week to snap eight-week winning streak

President Bush pushed Treasury Secretary Paul O’Neill and economic adviser Larry Lindsey from their jobs Friday in a Cabinet shakeup designed to control political damage from the ailing economy.

Following plans laid weeks ago, Bush will quickly name successors and unveil a new tax-cut package, said advisers eager to portray the changes as a fresh start for the economy. New unemployment figures matched an eight-year high, underscoring the economic situation.

“I appreciate Paul O’Neill’s and Larry Lindsey’s important contributions,” Bush said in a brief written statement. White House officials said the president sought their resignations through chief of staff Andrew Card.

“I hereby resign my position as secretary of the treasury,” O’Neill said in a terse 46-word statement. Associates said he was tired of Washington, and might have left without a shove from Bush.

“Firing its economic team is an overdue admission by the Bush administration that its economic policies have failed,” said Senate Democratic leader Tom Daschle. During the midterm election campaign, Daschle had called for a shakeup of Bush’s economic team as Democrats tried unsuccessfully to link the economic slump to GOP policies.

The changes heartened investors, sending stocks higher despite the discouraging employment report. The Dow Jones Industrial average, however, was down for the week.

“There’s been a general feeling that the Bush White House economic team has not been on top of things,” said Ed Peters, chief investment officer at PanAgora Asset Management in Boston.

After Friday's resignation of Treasury Secretary Paul O'Neill, President Bush plans several changes designed to stimulate the flagging U.S. economy. They include a new tax-cut package and new economic leaders. Although shoppers are crowding the stores at the holidays, jobless numbers remain high and Wall Street remains anxious.

Prompted by politics

Despite the impressive Election Day showing for GOP candidates, Bush and his political advisers had concluded the economy may be the president’s biggest vulnerability when he seeks re-election in 2004.

Thus, the White House launched a secret search for O’Neill’s replacement in October and quietly began urging Lindsey to find a new job, officials said on condition of anonymity. More recently, Card was drafted to open talks with O’Neill and Lindsey and secure their resignations.

Lindsey’s replacement is expected to be Stephen Friedman, a former chairman of Goldman Sachs, two White House officials said.

Bush already has a nominee in mind to replace O’Neill, but no offer has been extended, several officials said. The tentative pick is known on Wall Street, and has experience with both the economy and government -but is not necessarily a household name, according to two senior White House officials.

O’Neill frequently ran afoul of the White House for voicing views that ran contrary to Bush’s economic plans. Lindsey was viewed as a poor administrator, strategist and spokesman for presidential policy.

But officials said it was politics more than policy that prompted the shakeup: Bush wants to be sure voters see him as dealing aggressively with their economic woes, and he believes a change will reinvigorate his team.

The departures came a month after Harvey Pitt resigned under pressure as Securities and Exchange Commission chairman, his handling of corporate accounting scandals threatening to undermine Bush’s political standing.

O’Neill’s resignation takes effect in several weeks.

Time for change

The weeks after midterm elections are generally a time for presidents to make changes and for officials to leave public service.

Daschle said the departures were only a start.

“If they don’t have a good plan, it doesn’t matter which team they’ve got,” he said.

The White House has been at work for months on a new economic package centered on additional tax cuts for lower- and middle-income individuals, playing down the administration’s earlier focus on business-side tax proposals to stimulate investment.

Other ideas on the table would be designed to encourage individual investors in the volatile stock market.

The White House is considering announcing the plan in connection with the new economic team members, possibly including the new SEC chief.