December 14, 1981 12:00 PM

At a White House dinner last spring, Ann Regan buttonholed the President of the United States with a tongue-in-cheek query about her esteemed husband’s sanity. As chairman of the world’s largest diversified investment firm, Merrill Lynch & Co., Donald Regan had had a job to make any bear bullish. Then last January he gave it up to become Secretary of the Treasury, with 125,000 subordinates and as many headaches. His wife expressed her mock chagrin. “You probably think you got a smart businessman,” she told President Reagan. “But if he’s so smart, why did he give up a $950,000 salary, a six-week vacation, a company plane and a situation where people said, ‘Yes, sir’ when he gave an order? Now they say, ‘Why?’ ”

At that point the Treasury Secretary, a millionaire many times over, was probably wondering about the decision himself. After taking an $880,000 pay cut and watching his beloved golf game go to pieces, he found his star eclipsed by the headline-grabbing fiscal whiz kid David Stockman. Regan, 62, who frequently clashed with Stockman at White House meetings, learned that his 35 years of experience on Wall Street was no match for Stockman’s statistical sleight-of-hand. “Arguing with Dave is like trapping a flea,” he muttered. “Every time you think you’ve got him, he bounces up somewhere else.” Last month, however, Stockman’s stock plummeted after he revealed his doubts about Administration policy in a series of interviews with a writer for the Atlantic Monthly. That left Regan in the role he had frankly coveted all along: that of the Administration’s economic czar. “Until Dave can rehabilitate himself,” confirms one top presidential adviser, “Don is going to be No. 1 on the economy. Everybody agrees on that.”

The new “No. 1” is a curious blend of Irish charm, Harvard polish and Marine Corps toughness. His twinkling eyes and easy smile camouflage a traplike mind and a volcanic temper. He is a driven man who has been known to chew out employees unmercifully, but who has also signaled an affectionate greeting to his six grandchildren by tugging on his ears during nationally televised news shows. Regan once described himself modestly as “a good family man” and “a hard worker,” but the reality is scarcely that simple. “You’re so egotistical,” his exasperated wife told him not long ago, “that I bet you think you can walk on water.” Regan paused a moment before turning his broker’s intelligence loose on the challenge. “I can,” he replied finally, “if it’s frozen.”

Regan’s climb to the summit of American economic power began in a working-class neighborhood of Cambridge, Mass., a Democratic bastion now represented in Congress by the Secretary’s archcritic, House Speaker Tip O’Neill. Regan’s father was a state policeman when the Boston police staged a historic strike in 1919. Calvin Coolidge, then Governor of Massachusetts, discharged every striker. State police, including William F. Regan, were ordered to replace them. Regan refused and was fired himself. Despite the memory of that family trauma, his son, Donald Regan, unhesitatingly endorsed President Reagan’s decision to fire the striking air traffic controllers this summer. “They broke the law and violated their oath,” Regan says evenly. “It’s black and white to me.”

Regan took his first step on the path of upward mobility by winning an academic scholarship to Harvard—an institution just across town but worlds removed from his background. A classmate of John F. Kennedy, Regan majored in English and demonstrated his eye for a dollar by organizing fellow students as tourist guides, a scheme that netted him more than $5,000 before he graduated in 1940. After two months at Harvard Law School, he dropped out to join the Marines prior to Pearl Harbor. At Officer Candidate School in Quantico, Va., a friend offered to fix him up with a blind date and asked Regan his preference in women. “A tall blonde,” he replied, and he got one. A year later Regan married his tall blond blind date—Ann Gordon Buchanan, daughter of a socially prominent Washington family. Their honeymoon was brief: Regan left for the Pacific in 1942. After leading troops in battle at Bougainville, Guam and Okinawa, he was put in charge of OCS at Camp Lejeune, N.C. and rose to the rank of lieutenant colonel before his discharge in 1946. With two children to support, he decided not to return to law school and instead took a job as an account executive trainee with Merrill Lynch. “I like money,” he explains simply. “For me, it’s a vocation and an avocation.”

Successfully combining business with pleasure, Regan scaled Merrill Lynch’s corporate ladder in record time. Surely not handicapped by his friendship with the firm’s founder, Charles Merrill, or by the fact that Ann’s uncle Winthrop Smith was a full partner in the business, Regan worked his way from broker to partner in only eight years. In 1968 he was named the youngest president in the company’s history, and three years later became its chairman and chief executive officer.

His rise to wealth and power was not accomplished without breaking some eggs. His explosions of temper became legendary at Merrill Lynch. Once a delegation of subordinates appeared in his office to report on an experimental new system of cash management. “They told me it wasn’t going to work,” Regan remembers. “It was too complicated, too expensive, too much trouble. I took their report and ripped it in half right in front of them and told them to make it work—and if they didn’t do it, I’d find somebody who could.” The idea has proved extremely profitable for Merrill Lynch, but such eruptions gave Regan the reputation of a hard man to work for—as witnessed by the dizzying turnover among his associates. “I chewed up an awful lot of executives,” he admits. Still, he rejects the image of himself as an unyielding autocrat with no tolerance for dissent or sharing the spotlight. “I’m demanding, but I’m not tough,” he says. “Tough means keeping on somebody’s back, riding them and yakking at them, harassing them. That’s not my style. I set high standards and I expect people to live up to them. When they don’t, I get rid of them.”

Despite his phenomenal success on Wall Street, Regan’s nomination to the Treasury post surprised many observers. He was not a member of the Reagan inner circle; neither was he considered a staunch conservative. Insiders, however, knew that Regan had lobbied vigorously for the post. Disappointed after failing to win a job in the Nixon and Ford Administrations, Regan had carefully cultivated the friendship of GOP bigwigs like William Casey. Onetime head of the Securities and Exchange Commission, Casey later became Ronald Reagan’s campaign manager and is now CIA director. With Casey in his corner, Regan beat out front-runner Walter Wriston, chairman of Citibank, for the job at Treasury.

Once he had the job, Regan started out slowly, fueling speculation that he was no match for Washington’s seasoned bureaucratic infighters. The Administration’s economic chores were split up, with Stockman in charge of budget cuts and Regan handling tax cuts. Early press reports described Stockman as almost totally overshadowing Regan. “Dave got out of the gate first and grabbed the inside lane,” agrees one White House aide. Yet Regan professed to be unconcerned about finding himself in the unfamiliar position of also-ran. “Look at the situation in two, three, four months,” he said. “See who is the economic spokesman then. I’ve been promised the job and I’ll have it.” Citibank’s Wriston, for one, believed it. “Some morning,” he said, “Don Regan is going to wake up and have David Stockman for breakfast.”

Sure enough, the fierce private rivalry between Regan and Stockman finally erupted into public disharmony. Last May Stockman contradicted the Treasury Secretary’s statement that the Administration would not compromise on its decision to cut income taxes 10 percent for three consecutive years. Regan furiously called reporters into his office. “This is where you’ll hear about Administration tax thinking,” he barked. “If you hear something different from someone else, then it’s wrong.”

Stockman won a limited victory on that issue; the Administration did compromise. Yet Regan’s public profile—and stock inside the White House—went steadily higher.

In October the Treasury Secretary lambasted the Federal Reserve Board for monetary policies that were keeping interest rates too high. “We cannot be content to see the economy stay flat quarter after quarter,” he said. “We want a growing economy that is producing jobs.” Fed Chairman Paul Volcker quickly defended his—and President Reagan’s—policies, arguing that increasing the money supply would help fuel inflation. The Fed relaxed its position only slightly, yet Regan claims to have won that fight, pointing to the fact that interest rates are dropping. He attributed the victory to his “sheep dog” theory. “A sheep dog has hair over its eyes and it can’t see very well,” he explained. “But if you hit him over the head, you get his attention, and then he does exactly what you want him to do.”

In his next major battle with Stockman, Regan won. Stockman wanted tax increases to reduce an awesome budget deficit-in-the-making. Regan countered that tax increases would stifle economic recovery. Barely a week after the President sided with Regan, Stockman eviscerated himself in print, and Regan emerged as the economic power he had promised he would be. As modest in victory as he is immodest in combat, Regan evinces a healthy respect for what he still has to learn about Washington politics. “At Merrill Lynch, it’s all profit-oriented, but in government, nothing is black and white,” he says. “There are numerous shadings in everything that’s done, many different ways to do something. In private industry, we discuss a matter privately, but once a decision is made, nobody questions it. That’s clearly not the case in Washington.”

What is the case involves harder and longer hours than Regan ever spent on Wall Street. He leaves his $1.1 million estate in Mount Vernon, Va.—the 17th home that he and Ann have owned in their 40-year marriage—by 7 in the morning and does not return until 8 p.m. He has escaped to the golf course only seven times since taking the job, and has suffered as his respectable 11 handicap climbed to an ominous 14. Yet there are obvious compensations. During the recent budget impasse, when many “nonessential” government workers were briefly laid off after a presidential veto of a congressional spending bill, Regan received a phone call from the President himself. Smiling broadly, he returned to a staff meeting. “I’m pleased to report,” he announced, “that the President has declared me an essential employee.”

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