Outlook: Magoo gets his marching orders as Bush tires of the gaffes

United Airlines / House of Fraser

By most accounts, Paul O'Neill was a perfectly good, if somewhat lacklustre, chief executive of Alcoa, the US aluminium company he once headed, but as US Treasury Secretary he was a complete buffoon. I know that the contrary thing to say is that beneath the Mr Magoo exterior, there lay common sense and a homespun, businessman's approach to economics that has served the US well during a turbulent couple of years, but the reality is that Mr O'Neill was ineffective, accident prone and politically naive.

Everyone's got their favourite O'Neillisms, but mine is the one where opining on the safety record of nuclear power, he said that it was absolutely excellent, except for Three Mile Island and Chernobyl. We all knew what he meant, but somehow it just didn't come out right.

On another occasion, the Bush administration received an official complaint from the Brazilian embassy after Mr O'Neill said there would be no new IMF money for Brazil because it would all end up in Swiss bank accounts. More damagingly, he said that the value of the dollar was completely up to the markets to decide, while everyone else in the Administration appeared to be sticking to the old policy of a strong dollar.

Most businessmen are in favour of a weak currency because it helps them sell more exports, so the markets took his words to be deliberate. Somehow I doubt it. The man was just stating his creed and making the obvious point that you cannot ultimately buck the markets. To think that he was deliberately trying to manipulate the currency down is to credit him with too sophisticated an approach to power politics. In fact Mr O'Neill is a simpleton.

The man seemed to have no sense of occasion, and he had a penchant for the inappropriate. The collapse of Enron, he said, was all "part of the genius of capitalism". What he meant was that the markets will punish and destroy the ill disciplined, but again it just seemed the wrong thing to say to people who had just lost their jobs, pensions and savings. Only once have I had the privilege of hearing him speak, but he didn't disappoint. Half way through, he departed from the prepared script and instead wandered incoherently on to one of his favourite hobby horses ­ the wasteful nature of overseas aid and Third World debt cancellation.

Just because you are poor, he said, doesn't mean you are uncreditworthy. Being poor was no barrier to borrowing money, and then warming to his theme, some of the most creditworthy people he knew were also the poorest. The fact that the poor are not able to borrow very much, however creditworthy they are, was not something that seemed to bother him, if indeed he had thought about it at all. Eventually he was persuaded to accompany the Irish rock star and Third World campaigner, Bono, on a whistle-stop tour of Africa, where he was photographed wearing silly native hats and beads. It didn't change his views.

Mr O'Neill's supporters ­ there are a surprising number of them - would claim he's a victim of elitist Washington snobbery. The record, they say is fine. Despite the end of the dot.com boom, the business downturn, 11 September, Enron and all the rest, there has been no recession in the US, which remains today the strongest growing economy in the Western world. Not that this has very much to do with Mr O'Neill. The policy response was the correct one, but that's down to the tax-cutting agenda of the Bush administration as a whole, and to pre-emptive action by the Federal Reserve, not Mr O'Neill.

The position of US Treasury Secretary is more of a representative one than the Chancellor occupies in Britain. He doesn't have a huge amount of power, but he is the Administration's spokesman on matters economic, and in this regard Mr O'Neill has made a terrible successor to the market savvy and economically literate figures of Robert Rubin and Larry Summers.

All kinds of meanings will no doubt be read into the first significant sackings of the Bush administration. But at this stage it looks like no more than the long overdue removal of someone who had become a recurring embarrassment. We'll miss his gaffes, as well as his optimism and his unfaltering faith in the power of markets to set the world to rights. In the immediate aftermath of 11 September Mr O'Neill predicted that by now the Dow Jones Industry Average would once again be challenging new heights. No, this was not the man to have in charge as the Bush administration embarks on a wide ranging, root-and-branch reform of the US tax system.

United Airlines

THE BLOODCURDLING prediction "we may perish", uttered by United Airlines chief executive shortly after the atrocities of 11 September has come to pass. James Goodwin paid for the remark with his job, and now it his successor, Glenn Tilton, who has the unenviable task of attempting a reincarnation of the world's second biggest carrier.

United's demise became inevitable after the US government refused to grant the airline a $1.8bn loan. It did so on the grounds that United's business plan was not sufficiently robust to guarantee that it would not be back cap in hand again in six months' time. There will doubtless be quiet smiles of satisfaction among United's US rivals, all of whom lobbied the Bush administration hard to refuse the loan guarantee. But their celebrations are almost certainly premature and ill-founded.

United has not gone bust. It has gone into Chapter 11 bankruptcy protection which is an altogether different thing. For United this is a first, but for some of its competitors, like Continental, Chapter 11 has become an old friend, so frequently have they filed for its protections.

Unlike insolvency, Chapter 11 is a ill wind that blows no-one any good, particularly when it happens to an airline. Protected from their creditors, airlines in Chapter 11 tend to be run for cash. Fares are slashed and rather than resulting in the necessary shrinkage of capacity, everything is pulled out of the hanger and put into the air. That may not happen to such a great extent this time around because of the parlous state of the air travel market post-11 September. But the risks of United dragging its fellow carriers into a destructive and ultimately futile price war remain high.

It is not only the likes of American, Delta and North West who need to worry. The last thing a renaissant British Airways wants is a transatlantic competitor with every incentive to fill seats at whatever cost.

The world airline industry is already looking at losses of $9bn this year on top of the $8bn clocked up in 2001. Furthermore, it is groaning under so much debt that a fresh drama in the aviation sector could quickly turn into a crisis for the banking sector. General Electric alone is reckoned to have a $4.4bn exposure to the two bankrupt US airlines, United and USAirways.

Add in the prospect of a war in Iraq come the New Year and the ever constant threat of another terrorist outrage on American soil and it is easy to see how United may not be the last airline to fall from the sky.

House of Fraser

HOUSE OF Fraser is often referred to in the City as the House of Failure and it is not hard to see why. Stripped of its crown jewels, Harrods, and loaded up with debt by its previous owner Mohamed al Fayed, the company staggered on to the stock market in the mid-1990s. It has been struggling ever since. Yesterday's 85p-a-share bid from Tom Hunter of Sports Division fame is little more than half the level the shares were floated at, and yet still he might succeed. Half the high street seems to be disappearing into private hands, and what's more, they all seem to be buddies and business associates of Philip Green, the retail entrepreneur who has already bagged BhS and Arcadia. There's no grand design, they all say, it's just coincidence. We'll see.

jeremy.warner@independent.co.uk