O'Neill watch. (Off The News).

White House political officials admit to being a bit stunned during the summer at a meeting on economic policy (with the President not in attendance). Treasury Secretary Paul O'Neill was offering several observations. At the completion of his remarks, National Economic Council Chairman Lawrence Lindsey continued the discussion and, according to White House political staffers, ended by offering the suggestion that the President might be better served if the Treasury notified the White House before any public pronouncements potentially affecting financial markets.

Bristling with indignation over this suggestion, Mr. O'Neill is said to have shot back: You'll be told what I'm going to say "on a need-to-know basis."

The summer of 2002 has hardly been smooth sailing for the Treasury chief who is blamed for at least two major public misstatements which roiled financial markets in Brazil, precipitating at least in part the need for a major I.M.F. bailout package. Indeed, one of Washington's newest pasttimes is to discuss how someone with O'Neill's superb record in business and earlier government service could now be so out of step with the movement of markets on policy issues.

Perhaps the best explanation is that the Treasury chief is an absolute superb micro analyst and an equally miserable macro analyst. Put another way, when addressing almost any issue, the Treasury Secretary almost invariably sees things through the lens of the C.E.O. "When I ran Alcoa" seems to be his favorite introductory phrase when addressing almost any and all issues. Of course, managing the "theater" of global financial markets as the head of the U.S. Treasury tends to involve more macro skills, including anticipating large-scale changes in capital flows based on perceptions of the future.

Another explanation points to the Secretary's past expertise. When you closely examine O'Neill's business record both at International Paper Company and Alcoa, his real talent was as a likeable cutter-taking bloated companies, trimming the fat and making everyone involved happy to boot. "That's why he would have been a much better President of the World Bank," a former U.S. trade official said, adding, "The White House missed it. That's where he should have gone. He'd be riding high."

As for a replacement, the betting is that any O'Neill transition is likely to unfold similar to the way former Federal Reserve Chairman William Miller was replaced in the late 1970's. By 1978, the financial markets essentially forced the appointment of then New York Federal Reserve President Paul Volcker onto a reluctant Carter White House. Miller's replacement became inevitable. The question today is whether markets would coalesce around one individual in a similar way. One complication is that virtually all Republican-leaning U.S. private financial leaders would risk brutal political scrutiny by a Democratically-controlled Senate out for political blood after the Enron and other financial accounting scandals. Thus a replacement, if it happens, would more likely be a current or former government official (Bush adviser Lindsey, New York Federal Reserve President William McDonough and former CEA Chairman Martin Feldstein are the names most often mentioned) without the potential political baggage.