WASHINGTON — When Henry Paulson left his job as chairman of Wall Street powerhouse Goldman Sachs & Co. in July 2006 to go to bitterly partisan Washington, many financial and political analysts wondered why hed give up a $38 million 2005 compensation package for the thankless task of being Treasury secretary.
Paulson was given little chance of accomplishing the ambitious goals he announced, such as overhauling the tax code and putting Social Security on a firm footing. He's got even less of a chance now, with Democrats in charge of Congress and the 2008 elections fast approaching.
Yet his legacy may turn out to be that he was the right guy in the right spot at the right time. A deep knowledge of global financial markets and personal relationships with the heavy hitters on Wall Street and in foreign capitals have served Paulson and the nation well amid recent financial turbulence. His Street credentials helped calm the waters in a way that wouldve been impossible for his two immediate predecessors, both businessmen without strong stock-market ties.
Thank God hes there now. It would have been a real problem if either of his predecessors were there, said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.
In an interview with McClatchy Newspapers, Paulson downplayed such accolades but acknowledged that hes in regular communication with important players on Wall Street and with Federal Reserve Chairman Ben Bernanke.
One of my jobs is staying in touch on a continuous basis with some of the participants in the financial markets to understand what is going on there and to communicate with my counterparts in government, said Paulson, who heads a presidential working group on financial markets.
August was one of the most volatile months ever for stock prices, as the market for subprime mortgages — those issued to the weakest borrowers — essentially closed down. Those problems spread to global credit markets, crimping the ability of corporations to issue short-term debt to fund day-to-day operations. That threatened broader economic activity as well as the jobs and income of all Americans.
As problems deepened, Paulson appeared almost daily on cable news channels, talking up the economy's fundamental strength without downplaying the severity of the problems in the financial markets. The Federal Reserve's half-point rate cut on Sept. 18 restored Wall Street's confidence, but Paulson's performance in a key supporting role won over important decision-makers in Washington such as the cantankerous Frank, hardly a Bush administration admirer.
Frank likes Paulson partly because he had the nerve to turn Bush down when he was first offered the job. Bush was annoyed, muttering that the former Goldman executive should be begging me, according to Dead Certain, a new book on the Bush presidency.
I think thats made him a better secretary. He came in not as a supplicant of the job but as someone who . . . came in independent, Frank said.
In the interview, Paulson presented himself as a team player. He praised his staff, the White House, even the much-maligned Congress. But such political niceties aside, it's clear that Paulson isnt cut from Washington cloth.
While he voiced satisfaction that the work ethic in Washington matches Wall Street's, he expressed faint frustration with one aspect of life in the nation's capital that's absent from the frenzied financial world:
"It just takes more patience, and it takes much longer to get things done in Washington, but I have enjoyed it more than I'd have anticipated," he said. "It's very difficult, very challenging, very engaging, and I get a chance to deal with a different set of issues. I've known all about markets . . . and it's helped me in the job, but there's many other things I've needed to learn."
Walk down the Treasury buildings portrait-lined hallways, and the watchful eyes of secretaries past stare from the canvas. But dip into Paulsons office, and history gives way to the wild. Thats a bat-eared fox, offered Paulson, at age 61 an athletic nature enthusiast, pointing to photos taken on the African Serengeti.
The walls display reptiles in the Brazilian swamp and colorful parrots in the jungles of Central America. A photo of Paulson with Bush is flanked by a shot of a raccoon-like cotamundi. If it werent for the giant oil painting of Alexander Hamilton, youd mistake Paulsons office for the headquarters of The Nature Conservancy, where Paulson served as chairman of the board until last year.
Paulsons wife, Wendy, took the photos; both have been conservationists for decades. Colleagues at the Nature Conservancy say that Paulson was key to creating national parkland in southwestern Chinas Yunnan province, home to three of the worlds great rivers: the Yangtze, the Mekong and the Irrawaddy.
Hank is a very avid birder and a very committed conservationist. I would say he brings the same passion and intensity . . . as he brings in other parts of his life, said Stephanie Meeks, the chief operating officer of The Nature Conservancy.
As Treasury secretary, Paulson has influenced policies that technically are more in the domains of the Environmental Protection Agency and the Interior Department.
I was coming down here not to be head of the EPA or Interior, but secretary of Treasury, he said. One of the surprises for me was that . . . the president is giving me an opportunity . . . to do some things that can make a difference.
Paulson also has gotten involved in negotiations with poor countries to forgive debt in exchange for nature preservation. He's working with development banks to fund environmental initiatives. And Bush tapped Paulson in late September to head an effort to promote and finance new low-carbon technologies, such as clean coal and nuclear energy.
For all that, most of Paulsons time remains focused on Wall Street. Despite the stock market's return to record territory last week, Paulson urged caution.
Things feel better today than they did a number of weeks ago . . . but it will be a while, he said. This will take some time. Its not over yet.
Even Jared Bernstein, a critic of Bush's economic policies and an economist at the Economic Policy Institute, a liberal policy institute, praised Paulsons handling of this summers market volatility.
Ever since (Herbert) Hoover, when you hear a politician say the fundamentals are strong, you should run for the door. I think Paulson is a little more of a straight shooter, he said.
McClatchy Newspapers 2007