Henry Paulson

Henry M. Paulson
74th United States Secretary of the Treasury
In office July 3, 2006 – January 20, 2009
President	George W. Bush
Preceded by	John W. Snow
Succeeded by	Timothy Geithner
Born	March 28, 1946 (1946-03-28) (age 64) Palm Beach, Florida
Political party	Republican Party
Spouse(s)	Wendy Paulson
Children	Henry Merritt Paulson III Amanda Clark Paulson
Alma mater	Dartmouth College (B.A.) Harvard Business School (M.B.A.)
Profession	Investment Banker
Religion	Christian Science
Signature

Henry Merritt "Hank" Paulson, Jr. (born March 28, 1946) served as the 74th United States Treasury Secretary. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.

In 2008, Time named Paulson as a runner-up for its Person of the Year 2008, saying, with reference to the Global Financial Crisis of 2008: "if there is a face to this financial debacle, it is now his."^[1]

He is currently a fellow at Johns Hopkins University's School of Advanced International Studies (SAIS).

Early life and family

Paulson was born in Palm Beach, Florida, to Marianna (née Gallauer) and Henry Merritt Paulson, a wholesale jeweler.^[2] He was raised in Barrington Hills, Illinois, as a Christian Scientist.^[3] Paulson attained the rank of Eagle Scout in the Boy Scouts of America.^[4][5]

A star athlete at Barrington High School, Paulson was a champion wrestler and stand-out football player, graduating in 1964. Paulson received his B.A. in English from Dartmouth College in 1968;^[6] at Dartmouth he was a member of Phi Beta Kappa and Sigma Alpha Epsilon and he was an All-Ivy, All-East, and honorable mention All American as an offensive lineman.

He met his wife Wendy Judge, a Wellesley College graduate, during his senior year. The couple have two adult children, sports-team owner Henry Merritt Paulson III, more commonly known as Merritt Paulson, and journalist Amanda Paulson. The Paulsons became grandparents in June 2007. They maintain homes in Washington, DC and Barrington Hills.

Paulson received his Master of Business Administration degree from Harvard Business School in 1970.^[7]

Early career

Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972.^[8] He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973, during the events of the Watergate scandal for which Ehrlichman was convicted, and sentenced to prison.

Goldman Sachs

He joined Goldman Sachs in 1974, working in the firm's Chicago office under James P. Gorter. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998;^[9] eventually succeeding Jon Corzine (who went on to become a United States Senator and then Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US $37 million in 2005, and US $16.4 million projected for 2006.^[10] His net worth has been estimated at over US $700 million.^[10]

Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: "Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country more than 70 times."^[11]

In 2004, at the request of the major Wall Street investment houses—including Goldman Sachs, then headed by Paulson—the U.S. Securities and Exchange Commission agreed unanimously to release the major investment houses from the net capital rule, the requirement that their brokerages hold reserve capital that limited their leverage and risk exposure. The complaint put forth by the investment banks was of increasingly onerous regulatory requirements—in this case, not U.S. regulator oversight, but European Union regulation of the foreign operations of US investment groups. In the immediate lead-up to the decision, EU regulators also acceded to US pressure, and agreed not to scrutinize foreign firms' reserve holdings if the SEC agreed to do so instead. The 1999 Gramm-Leach-Bliley Act, however, put the parent holding company of each of the big American brokerages beyond SEC oversight. In order for the agreement to go ahead, the investment banks lobbied for a decision that would allow "voluntary" inspection of their parent and subsidiary holdings by the SEC.

During this repeal of the net capital rule, SEC Chairman William H. Donaldson agreed to the establishment of a risk management office that would monitor signs of future problems. This office was eventually dismantled by Chairman Christopher Cox, after discussions with Paulson. According to the New York Times, "While other financial regulatory agencies criticized a blueprint by Treasury Secretary Mr. Paulson proposing to reduce their stature — and that of the S.E.C. — Mr. Cox did not challenge the plan, leaving it to three former Democratic and Republican commission chairmen to complain that the blueprint would neuter the agency."^[12]

In late September 2008, Chairman Cox and the other Commissioners agreed to end the 2004 program of voluntary regulation.

U.S. Secretary of the Treasury

Paulson (right) with President George W. Bush as his nomination to become Treasury Secretary is announced.

Paulson was nominated on May 30, 2006, by U.S. President George W. Bush to succeed John Snow as the Treasury Secretary.^[13] On June 28, 2006, he was confirmed by the United States Senate to serve in the position.^[14] Paulson was officially sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.

Each of Paulson's three immediate predecessors as CEO of Goldman Sachs — Jon Corzine, Stephen Friedman, and Robert Rubin — left the company to serve in government: Corzine as a U.S. Senator (later Governor of New Jersey), Friedman as chairman of the National Economic Council (later chairman of the President's Foreign Intelligence Advisory Board) under President George W. Bush, and Rubin as both chairman of the NEC and later Treasury Secretary under President Bill Clinton.^[15]

Paulson identified the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed, highlighting the issue in one of his first public appearances as Secretary of Treasury.^[16]

Paulson conceded that chances were slim for agreeing on a method to reform Social Security financing, but said he would keep trying to find bipartisan support for it.^[17]

He also helped to create the Hope Now Alliance to help struggling homeowners during the subprime mortgage crisis.^[18]

Paulson was known to have persuaded President George W. Bush to allow him to spearhead U.S.-China relations and initiated and led the U.S.-China Strategic Economic Dialogue, a forum and mechanism under which the two countries addressed global areas of immediate and long-term strategic and economic interest.

Notable statements

In Spring 2007, Secretary Paulson told an audience at the Shanghai Futures Exchange that "An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention."^[19]

In August 2007, Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.^[20]

On July 20, 2008, after the failure of Indymac Bank, Paulson reassured the public by saying, “it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”^[21]

On August 10, 2008, Secretary Paulson told NBC’s Meet the Press that he had no plans to inject any capital into Fannie Mae or Freddie Mac.^[22] On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.^[23]

Credit Crisis of 2007-2009

Lehman's bankruptcy

The support given by Federal Reserve Board, Under Ben Bernake and Treasury, with Paulson at helm, in acquiring of Bear Stearns by J.P Morgan and $200bn facility made available to Fannie Mae and Freddie Mac. There was a great deal of criticism of this decision in congress by both Republicans and Democrats.^[24] When Barclay's Bank required support for acquiring Lehman Brothers, both Geithner and Paulson were reluctant. Instead, they pressured Lehman's into chapter 11 bankruptcy, believing the effect wasn't systemic.^[25]

"Well, as you know, we're working through a difficult period in our financial markets right now as we work off some of the past excesses. But the American people can remain confident in the soundness and the resilience of our financial system." ^[26]
This proved to be a colossal miscalculation, as the money markets began to free-fall between September 15, 2008 and September 19, 2008.

U.S. government economic bailout of 2008

Paulson was the designated leader of the Bush Administration's efforts in 2008 to nationalize the cost of bad loans made by financial institutions.

Through unprecedented intervention by the U.S. Treasury, Paulson led government efforts which he said were aimed at avoiding a severe economic slowdown. He pushed through the conservatorship of government agency mortgage giants Fannie Mae and Freddie Mac. Working with Federal Reserve Chairman Ben Bernanke, he influenced the decision to create a credit facility (bridge loan & warrants) of US$85 billion to American International Group so it would avoid filing bankruptcy.

In late September 2008, Paulson, along with Bernanke, led the effort to help financial firms by agreeing to use US$700 billion dollars to purchase bad debt they had incurred.^[27] He faced criticism from economists for initially refusing to consider injecting large amounts of cash into financial institutions directly by purchasing stock, an option which other countries in similar circumstances had pursued.^[28] This was the option favored by Bernanke, and the one that was eventually followed.^[29]

On September 19, 2008, Paulson called for the U.S. government to use hundreds of billions of Treasury dollars to help financial firms clean up nonperforming mortgages threatening the liquidity of those firms.^[30] Because of his leadership and public appearances on this issue, the press labeled these measures the "Paulson financial rescue plan" or simply the Paulson Plan.^[31]

With the passage of H.R. 1424, Paulson became the manager of the United States Emergency Economic Stabilization fund.

As Treasury Secretary, he also sat on the newly established Financial Stability Oversight Board that oversees the Troubled Assets Relief Program.

Documents obtained by government watchdog group Judicial Watch reveal that in an October 13, 2008, meeting with executives from 9 major American banks, Paulson told bankers that they would be forced to accept government bailout money, whether they wanted it or not.^[32] One of the documents, a talking points memo, gave bankers the ultimatum: "If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance." The logic was that if everybody were forced to accept the money, then doing so would destigmatize the process in an attempt to avoid threatening the already-eroded market confidence in some of the weaker banks.

During the financial crisis, Paulson found time to enjoy a ski vacation in Colorado, where he conducted work involving the nation’s financial crisis over the telephone.^[33]

Conflict of interest claims

It has been pointed out that Paulson's plan could potentially have some conflicts of interest, since Paulson was a former CEO of Goldman Sachs, a firm that may benefit largely from the plan. Economic columnists called for more scrutiny of his actions.^[34] Questions remain about Paulson's interest, despite the fact that he had no direct financial interest in Goldman, since he had sold his entire stake in the firm prior to becoming Treasury Secretary, pursuant to ethics law.^[35] The Goldman Sachs benefit from AIG bailout was recently estimated as USD 12.9 billion and GS was the largest recipient of the public funds from AIG.^[36] Creating the collateralized debt obligations (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO. Opponents argued that Paulson remained a Wall Street insider who maintained close friendships with higher-ups of the bailout beneficiaries. If passed into law as originally written, the proposed bill would have given the United States Treasury Secretary unprecedented powers over the economic and financial life of the U.S. Section 8 of Paulson’s original plan stated: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."^[37] Some time after the passage of a rewritten bill, the press reported that the Treasury was now proposing to use these funds ($700 billion) in ways other than what was originally intended in the bill.^[38]

Career after public service

Since leaving his role as Treasury Secretary, Paulson has joined the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University as a distinguished visiting fellow, and a fellow at the university's Bernard Schwartz Forum on Constructive Capitalism.^[39] His memoir, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, was published by Hachette Book Group on February 1, 2010.^[40]

Civic activities

Paulson has been described as an avid nature lover.^[41] He has been a member of The Nature Conservancy for decades and was the organization's board chairman and co-chair of its Asia-Pacific Council.^[8] In that capacity, Paulson worked with former President of the People's Republic of China Jiang Zemin to preserve the Tiger Leaping Gorge in Yunnan province.

Paulson is also on the Board of Directors of the Peregrine Fund; was the founding Chairman of the Advisory Board of the School of Economics and Management of Tsinghua University in Beijing; and, previously served as chairman of the influential trade group, the Financial Services Forum.

Notable among the members of Bush's cabinet, Paulson has said he is a strong believer in the effect of human activity on global warming and advocates immediate action to decrease this effect.^[42]

During his tenure as CEO of Goldman Sachs, Paulson oversaw the corporate donation of 680,000 acres (2,800 km²) on the forested Chilean side of Tierra del Fuego, bringing criticism from Goldman shareholder groups.^[43] He further donated to conservancy causes US$100 million of assets from his wealth, and has pledged his entire fortune for the same purpose upon his death.^[44]

Further reading

• Fortune Magazine: Hank Paulson's secret life
• Vanity Fair: Todd S. Purdum on Henry Paulson
• Stewart, James B., "Eight Days: the battle to save the American financial system", The New Yorker magazine, September 21, 2009.
• Paulson, Hank, On the Brink. London, Headline, 2010. ISBN 9780755360543

References

External links

• Paulson's biography from the Treasury Department
• Paulson on China: October 2007, November 2007
• Project Vote Smart - Secretary Henry M. Paulson Jr.
• Henry Paulson's federal campaign contributions
• Paulson book "On the Brink"

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