notion as raising taxes. “I’m getting it from all sides,” he confided.
To make matters worse, it was a presidential election year. On Monday, a day after the Bear Stearns deal was announced, Democratic candidate Senator Hillary Clinton, who at the time had a slight lead in national polls, criticized the bailout, going so far as to link the Bush administration’s rescue of Bear Stearns to the problems in Iraq.
Barney Frank, the Democratic chairman of the House Financial Services Committee, was every bit as harsh. He, too, turned the deal into an indictment of Paulson’s boss, President Bush. “All these years of deregulation by the Republicans and the absence of regulation as these new financial instruments have grown have allowed them to take a large chunk of the economy hostage,” Frank complained. “And we have to pay ransom, like it or not.”
While attacking the rescue plan was one of the few completely bipartisan affairs in town, the Republicans hated it for different reasons. The conservatives believed that the marketplace would take care of everything, and that any government intervention was bound to make things worse. “First, do no harm!” they’d say, quoting Hippocrates’
Everyone was calling it a “bailout”—a word Paulson hated. As far as he was concerned, he had just helped save the American economy. It was a bailout in the literal sense of bailing water out of a sinking boat, not a handout. He didn’t understand why no one in Washington could see that distinction.
At some level, though, he knew there would be hell to pay, no matter how correct his prognosis proved to be. While the president publicly praised him and the deal, Bush, privately, was livid. The president understood the necessity of the bailout, but he also appreciated how it would be politicized. “We’re gonna get killed on this, aren’t we?” he had asked Paulson, knowing full well that the answer was yes.
Paulson didn’t need to be reminded where the president stood on the issue. The Wednesday before the Bear deal, Paulson had spent the afternoon in the Oval Office advising Bush on the speech he would give that coming Friday to the Economic Club of New York at the Hilton Hotel. Bush had included a line in his remarks asserting that there would be no bailouts.
“Don’t say that,” Paulson insisted, looking over the draft.
“Why?” Bush asked. “We’re not going to have a bailout.”
Paulson broke the bad news to him: “You may need a bailout, as bad as that sounds.”
All in all, the situation had become Paulson’s worst nightmare: The economy had turned into a political football, his reputation was on the line, and he was stuck playing by Washington rules.
Henry Paulson’s understanding of how things worked in the nation’s capital was part of the reason he had turned down the job of Treasury secretary not once, but twice in the spring of 2006. He knew Washington; his first job after college had been at the Defense Department, and he had worked in the Nixon White House for a number of years after that. So he appreciated the risks that the job presented. “I will get down here and I won’t be able to work with these people, and I’ll leave with a bad reputation. Look at what people said about Snow and O’Neill!” he said. His predecessors, John Snow and Paul O’Neill, had both come to Washington as wizards of their respective industries but had departed with their legacies tarnished.
He agonized for months before making his decision. As far as he was concerned, he already had the best job in the world: CEO of Goldman Sachs, the most revered institution on Wall Street. As its chief executive, Paulson traveled around the world, focusing much of his attention on China, where he had become something of an unofficial U.S. Ambassador of Capitalism, arguably forging deeper relationships with Chinese leaders than had anyone in Washington, including the secretary of State, Condoleezza Rice.
Joshua Bolten, President Bush’s new chief of staff, was pushing especially hard for Paulson to come on board. He had convinced the president that Paulson’s close ties in China could be a huge plus, given the rapid and geopolitically significant rise of the Chinese economy. Professionally, Bolten knew Paulson well. A former Goldman Sachs insider himself, he had worked for the firm as a lobbyist in London in the 1990s and served briefly as the chief of staff to Jon Corzine, when he headed the firm.
But Bolten wasn’t making any headway with Paulson—or the Paulson family, for that matter. It didn’t help that Paulson’s wife, Wendy, could not stand the president’s politics, even though her husband had been a “pioneer” for Bush in 2004—a designation given to those who raised more than $100,000 for the president’s reelection campaign. His mother, Marianna, was so aghast at the idea that she cried. “You started with Nixon and you’re going to end with Bush? Why would you do such a thing?” she sobbed. Paulson’s son, a National Basketball Association executive, and daughter, a reporter for the
Another key doubter was Paulson’s mentor, John Whitehead. A former Goldman chairman and a father figure to many at the bank who had served in the State Department under Reagan, Whitehead thought it would be a big mistake. “This is a failed administration,” he insisted. “You’ll have a hard time getting anything accomplished.”
In an interview in April, Paulson was still dismissing talk that he was a candidate for Treasury secretary, telling the
Meanwhile, Bolten kept pushing. Toward the end of April, Paulson accepted an invitation to meet with the president. But Goldman’s chief of staff, John F. W. Rogers, who had served under James Baker in both the Reagan and G.H.W. Bush administrations, urged him not to attend the meeting unless he was going to accept the position. “You do not go to explore jobs with the president,” he told Paulson. Rogers’s point was impossible to dispute, so Paulson awkwardly called to send his regrets.
Paulson and his wife, however, did attend a luncheon at the White House that month for President Hu Jintao of China. After the meal they took a stroll in the capital, and as they walked past the Treasury Building, Wendy turned to him.
“I hope you didn’t turn it down because of me,” she said. “Because if you really wanted to do it, it’s okay with me.”
“No, that’s not why I turned it down.”
Despite his reluctance, others believed Paulson’s decision was not quite final, and Rogers, for one, thought his boss secretly did want the job. On the first Sunday afternoon of May, he found himself fretting in his home in Georgetown, wondering whether he had given Paulson bad advice. He finally picked up the phone and called Bolten. “I know Hank told you no,” he told him, “but if the president really wants him, you should ask him again.”
