Barack Obama will have to take office without a Treasury Secretary after Senate confirmation hearings for Tim Geithner were postponed yesterday amid disclosures that he paid taxes late and employed a housekeeper whose work permit had expired.

The decision to block a fast-track confirmation for Mr Geithner until after the inauguration on Tuesday is the latest stumble for Mr Obama who, until this month, had been gliding to the White House through one of the smoothest presidential transitions in recent history.

He has already lost another key member of his economic team with Bill Richardson, the Governor of New Mexico, quitting as Commerce Secretary-designate pending a federal investigation into how his state awarded lucrative contracts to a company that had made donations to his campaigns.

Other Senate hearings are also mired in more controversy than might have been expected, though Hillary Clinton is expected to emerge unscathed from intense scrutiny of her husband's foreign financial ties and to be confirmed as Secretary of State this week.

Eric Holder, who has been nominated for the post of Attorney-General, will face tough questioning today over his role in the pardoning of the fraudster Marc Rich on the final day of Bill Clinton's Administration eight years ago. And Mr Obama has had to apologise to senior members of the Senate Select Committee on Intelligence who criticised him for nominating Leon Panetta as the director of the CIA without consulting them.

The Senate Finance Committee notified members that its hearing on Mr Geithner, which was scheduled for tomorrow, had been scrapped at the request of John Kyl, a senior Republican who cited "scheduling difficulties”. The meeting will now be held on Wednesday, the day after Mr Obama is sworn in.

Mr Geithner was huddled with members of the committee on Tuesday afternoon explaining why — despite being president of the New York Federal Reserve and a recognised authority on the economy — he had failed to pay more than $34,000 (£23,000) in federal taxes in past years. He also faced questions about the employment and immigration status of a former housekeeper.

“My expectation is that Tim Geithner will be confirmed,” Mr Obama told reporters. “Is this an embarrassment for him? Yes,” he added. “It has been corrected. He paid the penalties.”

It is understood that Mr Geithner expressed regret for his failure to pay appropriate taxes for social security and Medicare on his income from 2001 to 2004 when he was a senior official at the International Monetary Fund. His aides described it as common mistake for US employees of global organisations, which do not automatically withhold payroll taxes for their US employees.

After Mr Obama's vetting team discovered the mistake Mr Geithner paid back the taxes and interest even though this was not legally required under the stature of limitations for such errors. As Treasury Secretary he would have responsibility for the Internal Revenue Service.

Senators suggested, however, that the impact on his prospects for confirmation was unlikely to be fatal. Orrin Hatch, a Republican, said: “I'm not happy with what happened but I don't think we should discard a man of his ability because of an honest mistake.”

Chuck Grassley, the ranking Republican on the committe, said that he was reserving judgment.

Mr Obama and his team have spent much of this week trying to overcome scepticism in the Senate over releasing the second half of the $700 billion bailout package for financial institutions agreed last year.

On Tuesday the President-elect went in person to plead with fellow Democrats before dining with conservative commentators. Rahm Emanuel, his chief of staff, and Larry Summers, his economic adviser, were on Capitol Hill reaching out to Republicans.

Mitch McConnell, the Republican minority leader, said: “While I feel strongly that we must continue to stabilise the economy, I would find it exceedingly difficult to support additional taxpayer funds without serious assurances from the incoming administration that the taxpayers will be protected.”

The presidential transition is also being distracted by the sideshows over filling vacant Senate seats. Roland Burris, who was picked by Rod Blagojevich to replace Mr Obama, is expected to be sworn in today after overcoming objections from Democrats who were appalled by the Illinois Governor's alleged efforts to sell the seat to the highest bidder.

The vast crowds at Mr Obama's inauguration next week are continuing to put strain on the municipal and security apparatus in Washington. It is expected to cost more than £160 million, making it the most expensive inauguration in US history, and President Bush has declared the city to be in a state of emergency, qualifying it for unlimited federal funding.

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