Henry Paulson became Treasury secretary 28 months ago, when he was at the top of the financial world: Wall Street’s best-paid chief executive officer,capping his career with a high-profile sojourn in public service.
Today, two months before he leaves office, some say Paulson is a reduced figure, damaged by the financial-market meltdown that happened on his watch and by the government’s struggles to respond to it.
Like many others who have served in President George W. Bush’s administration — among them former Secretary of State Colin Powell and former Treasury chief Paul O’Neill — Paulson, 62, will leave office casting a smaller shadow than when he arrived.
“Paulson’s credibility has certainly been substantially diminished,” said Peter Wallison, who was general counsel at the Treasury under former President Ronald Reagan and is now a fellow at the American Enterprise Institute in Washington. “There has been a lot of shifting back and forth and he clearly hasn’t thought through much of these policies. He has lost a lot of confidence from the market from all of this.”
The latest blow was his announcement last week that the Treasury is abandoning his plan to buy devalued mortgage assets — the one he unveiled dramatically just eight weeks ago, and defended against congressional and market skeptics.
“This is a flip-flop, but on the other hand, when they first proposed the thing,they didn’t really know what they were doing,” said Bill Fleckenstein,president of Fleckenstein Capital in Seattle and author of the book Greenspan’s Bubbles. Paulson has pushed some “cockamamie schemes,” he said. “So one has to ask, does he have any clue?”
“This is not something he’s going to be proud to put on his résumé,” said James Cox,a law professor at Duke University in Durham, N.C., who has testified on securities regulation before Congress and served on legal advisory panels for the New York Stock Exchange and National Association of Securities Dealers. “It does tarnish Paulson’s image, because it shows that a lot of political capital was spent on something that most of us thought was not a good idea to begin with.”
Only history will render a final verdict on Paulson’s handling of this year’s cascading economic crises. But he surely couldn’t have wanted to spend his final days in office this way: spearheading the massive government intervention in the banking, insurance and mortgage industries;fielding requests to bail out automakers and even heating-oil retailers.
“He’s ended up really in kind of a hair-on-fire thing,” said Stephen Stanley, chief economist at RBS Greenwich Capital. “Particularly in his position, of somebody who was going to be a government official for a very short time and then ride off into the sunset, it’s been very different from what he had in mind.”
The Treasury chief last week said he had no regrets over reversing his plans for the bailout program. “I will never apologize for changing a strategy or an approach if the facts change,” Paulson said at a press briefing.
In an interview with Bloomberg Television, he said “the original plan was a good plan. What changed was our understanding of the magnitude of the problem.”[...]