Henry Paulson
Encyclopedia
Henry Merritt "Hank" Paulson, Jr. (born March 28, 1946) is an American banker who served as the 74th United States Secretary of the Treasury
. He previously served as the Chairman and Chief Executive Officer
of Goldman Sachs
.
, to Marianna (née Gallauer) and Henry Merritt Paulson, a wholesale jeweler. He was raised in Barrington Hills, Illinois
, as a Christian Scientist
. Paulson attained the rank of Eagle Scout
in the Boy Scouts of America
.
A star athlete at Barrington High School
, Paulson was a champion wrestler and stand-out football player, graduating in 1964. Paulson received his A.B. in English from Dartmouth College
in 1968; 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 both Barrington Hills and Chicago.
Paulson received his Master of Business Administration
degree from Harvard Business School
in 1970.
from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon
, serving as assistant to John Ehrlichman
from 1972 to 1973.
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; eventually succeeding Jon Corzine
as chief executive. His compensation package, according to reports, was $37 million in 2005, and $16.4 million projected for 2006. His net worth has been estimated at over $700 million.
In January 2003, Paulson was criticized for stating, "I don't want to sound heartless, but in almost every one of our businesses, there are 15 to 20 percent of the people who really add 80 percent of the value. I think we can cut a fair amount and not get into muscle and still be very well-positioned for the upturn." He later issued an apology to all of the company's employees via voice-mail.
Paulson has personally built close relations with China during his career. In July 2008, The Daily Telegraph
reported "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."
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 U.S. investment groups. In the immediate lead-up to the decision, EU regulators also acceded to U.S. 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."
In late September 2008, Chairman Cox and the other Commissioners agreed to end the 2004 program of voluntary regulation.
Paulson was nominated on May 30, 2006, by U.S. President George W. Bush
to succeed John Snow
as the Treasury Secretary. On June 28, 2006, he was confirmed by the United States Senate
to serve in the position. Paulson was officially sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.
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.
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.
He also helped to create the Hope Now Alliance
to help struggling homeowners during the subprime mortgage crisis
.
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. In spring 2007, Paulson warned an audience at the Shanghai Futures Exchange
that China needed to free up capital markets to avoid losing potential economic growth, saying: "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." In September 2008, in light of the economic crisis experienced by the U.S. in the interim, Chinese leaders evidenced hesitation to follow Paulson's advice.
In August 2007, Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.
In May 2008, The Wall Street Journal wrote that Paulson said U.S. financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession. "I do believe that the worst is likely to be behind us," Paulson told the newspaper in an interview.
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.”
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. On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.
, both Geithner and Paulson were reluctant. Instead, they pressured Lehman into chapter 11 bankruptcy, believing the effect wasn't systemic.
"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."
That one statement proved to be a slight miscalculation because an unintended side effect of Lehman's bankruptcy vote was to freeze the assets of clients who could not get their money out of the bankrupt company since there was no 'lights out' plan put into place. Lehman's bankruptcy needed to be approved by their Board before Asia opened. While Paulson was giving his speech, and unbeknownst to him, word spread causing counter parties to start runs (account holders calling their brokers and telling them they wanted their money now) on other banks such as Goldman Sachs, Bank of America/Merrill Lynch, JPMorganChase, freezing credit markets so that companies having nothing to do with banking but needed financing (e.g. General Electric) could not get daily funding requirements which had the effect of sending the US equity/bond markets into turmoil between September 15, 2008, and September 19, 2008.
Through unprecedented intervention by the U.S. Treasury, Paulson led government efforts which he said were aimed at avoiding a severe economic slowdown. After dropping 30% on the Dow Jones and causing turmoil in the global markets, Paulson pushed through the conservatorship
of these 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, after having been told that AIG held teacher pension plans, 401k plans, $1.5 trillion in life insurance plans for Americans, and the French Finance Minister called to let Paulson know that AIG held the interests of many Eurozone countries.
In late September 2008, Paulson, along with Bernanke, led the effort to help financial firms by agreeing to use $700 billion dollars to purchase bad debt they had incurred. 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. This was the option favored by Bernanke, and the one that was eventually followed.
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. 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.
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
.
Paulson agreed with Bernanke that the only way to 'unlock' the frozen capital markets were direct injections into financial institutions (nationalization to republicans and bailouts to democrats) so the banks would have more capital to lend as they "waited" for the bad loans on their asset sheets to rebound. The government would take a non-voting share position, with 5% dividends for the first year on the money 'lent' to the banks and then 9% thereafter until the banks stabilized and could payoff the government loans. According to the book "Too Big To Fail", Paulson, NY Bank Chairman Timothy Geithner, Ben Bernake and Sheila Bair (FDIC Chairman) were at the meeting below on Oct. 13, 2008.
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. 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 (FDIC) regulator will require it in any circumstance." The logic was that if everybody were forced to accept the money, then stakeholders in the market would not be able to identify which banks really needed the money, as opposed to those that did not, thereby making it harder for depositors, investors, or analysts to identify which banks were most vulnerable.
Time
named Paulson as a runner-up for its 2008 Person of the Year, saying, with reference to the global financial crisis, "if there is a face to this financial debacle, it is now his..." before concluding he "is really bad at explaining why he made the choices he did" and that "given the ... realities he faced, there is no obviously better path [he] could have followed".
, a firm that may benefit largely from the plan. Economic columnists called for more scrutiny of his actions. Questions remain about Paulson's interest, despite having 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.
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. 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." 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.
at Johns Hopkins University
as a distinguished visiting fellow, and a fellow at the university's Bernard Schwartz Forum on Constructive Capitalism. 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.
On June 27, 2011, it was announced that Paulson would serve as a senior fellow at the University of Chicago
's Harris School of Public Policy. His five-year appointment took effect July 1, 2011.
for decades and was the organization's board chairman and co-chair of its Asia-Pacific Council. 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.
During his tenure as CEO of Goldman Sachs, Paulson oversaw the corporate donation of 680000 acres (2,751.9 km²) on the forested Chile
an side of Tierra del Fuego
, bringing criticism from Goldman shareholder groups. 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.
in the 2011 HBO film Too Big to Fail
and by James Cromwell
in the 2009 BBC
film The Last Days of Lehman Brothers
.
In the documentary film Inside Job
Paulson is cited as one of the persons responsible for the Economic Meltdown of 2008 and named in Time Magazine as one of the "25 People to Blame for the Financial Crisis".
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
. He previously served as the Chairman and Chief Executive Officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
of Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
.
Early life and family
Paulson was born in Palm Beach, FloridaPalm Beach, Florida
The Town of Palm Beach is an incorporated town in Palm Beach County, Florida, United States. The Intracoastal Waterway separates it from the neighboring cities of West Palm Beach and Lake Worth...
, to Marianna (née Gallauer) and Henry Merritt Paulson, a wholesale jeweler. He was raised in Barrington Hills, Illinois
Barrington Hills, Illinois
Barrington Hills is a village located about northwest of Chicago in the U.S. state of Illinois. It straddles approximately over four counties, Cook, Kane, Lake, and McHenry. The population was 4,209 at the 2010 census...
, as a Christian Scientist
Church of Christ, Scientist
The Church of Christ, Scientist was founded in 1879 in Boston, Massachusetts, USA, by Mary Baker Eddy. She was the author of the book Science and Health with Key to the Scriptures. Christian Science teaches that the "allness" of God denies the reality of sin, sickness, death, and the material world...
. Paulson attained the rank of Eagle Scout
Eagle Scout (Boy Scouts of America)
Eagle Scout is the highest rank attainable in the Boy Scouting program of the Boy Scouts of America . A Scout who attains this rank is called an Eagle Scout or Eagle. Since its introduction in 1911, the Eagle Scout rank has been earned by more than 2 million young men...
in the Boy Scouts of America
Boy Scouts of America
The Boy Scouts of America is one of the largest youth organizations in the United States, with over 4.5 million youth members in its age-related divisions...
.
A star athlete at Barrington High School
Barrington High School (Lake County, Illinois)
Barrington High School is a public four-year high school located in Barrington, Illinois, a northwest suburb of Chicago, Illinois, in the United States. It is part of Barrington Community Unit School District 220.-Original structure:...
, Paulson was a champion wrestler and stand-out football player, graduating in 1964. Paulson received his A.B. in English from Dartmouth College
Dartmouth College
Dartmouth College is a private, Ivy League university in Hanover, New Hampshire, United States. The institution comprises a liberal arts college, Dartmouth Medical School, Thayer School of Engineering, and the Tuck School of Business, as well as 19 graduate programs in the arts and sciences...
in 1968; at Dartmouth he was a member of Phi Beta Kappa and Sigma Alpha Epsilon
Sigma Alpha Epsilon
Sigma Alpha Epsilon is a North American Greek-letter social college fraternity founded at the University of Alabama on March 9, 1856. Of all existing national social fraternities today, Sigma Alpha Epsilon is the only one founded in the Antebellum South...
and he was an All-Ivy
Ivy League
The Ivy League is an athletic conference comprising eight private institutions of higher education in the Northeastern United States. The conference name is also commonly used to refer to those eight schools as a group...
, 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
Merritt Paulson
Henry Merritt Paulson III is the majority owner of Peregrine Sports, LLC which owns the Portland Timbers, a Major League Soccer team based in Portland, Oregon.-Personal:...
, more commonly known as Merritt Paulson, and journalist Amanda Paulson. The Paulsons became grandparents in June 2007. They maintain homes in both Barrington Hills and Chicago.
Paulson received his Master of Business Administration
Master of Business Administration
The Master of Business Administration is a :master's degree in business administration, which attracts people from a wide range of academic disciplines. The MBA designation originated in the United States, emerging from the late 19th century as the country industrialized and companies sought out...
degree from Harvard Business School
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
in 1970.
Early career
Paulson was Staff Assistant to the Assistant Secretary of Defense at The PentagonThe Pentagon
The Pentagon is the headquarters of the United States Department of Defense, located in Arlington County, Virginia. As a symbol of the U.S. military, "the Pentagon" is often used metonymically to refer to the Department of Defense rather than the building itself.Designed by the American architect...
from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
, serving as assistant to John Ehrlichman
John Ehrlichman
John Daniel Ehrlichman was counsel and Assistant to the President for Domestic Affairs under President Richard Nixon. He was a key figure in events leading to the Watergate first break-in and the ensuing Watergate scandal, for which he was convicted of conspiracy, obstruction of justice and perjury...
from 1972 to 1973.
Goldman Sachs
He joined Goldman SachsGoldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
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; eventually succeeding Jon Corzine
Jon Corzine
Jon Stevens Corzine is the former CEO of Goldman Sachs and of MF Global, and a one time American politician, who served as the 54th Governor of New Jersey from 2006 to 2010. A Democrat, Corzine served five years of a six-year U.S. Senate term representing New Jersey before being elected Governor...
as chief executive. His compensation package, according to reports, was $37 million in 2005, and $16.4 million projected for 2006. His net worth has been estimated at over $700 million.
In January 2003, Paulson was criticized for stating, "I don't want to sound heartless, but in almost every one of our businesses, there are 15 to 20 percent of the people who really add 80 percent of the value. I think we can cut a fair amount and not get into muscle and still be very well-positioned for the upturn." He later issued an apology to all of the company's employees via voice-mail.
Paulson has personally built close relations with China during his career. In July 2008, The Daily Telegraph
The Daily Telegraph
The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B...
reported "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."
In 2004, at the request of the major Wall Street investment houses—including Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, then headed by Paulson—the U.S. Securities and Exchange Commission agreed unanimously to release the major investment houses from the net capital rule
Net capital rule
The uniform net capital rule is a rule created by the U.S. Securities and Exchange Commission in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors...
, the requirement that their brokerages hold reserve capital that limited their leverage
Leverage (finance)
In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are:* A public corporation may leverage its equity by borrowing money...
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 U.S. investment groups. In the immediate lead-up to the decision, EU regulators also acceded to U.S. pressure, and agreed not to scrutinize foreign firms' reserve holdings if the SEC agreed to do so instead. The 1999 Gramm-Leach-Bliley Act
Gramm-Leach-Bliley Act
The Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...
, however, put the parent holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
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
William H. Donaldson
William Henry Donaldson was the 27th Chairman of the U.S. Securities and Exchange Commission , serving from February 2003 to June 2005...
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."
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
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
to succeed John Snow
John W. Snow
| image=John W. Snow.jpg|imagesize = 250px| order=73rd| title=United States Secretary of the Treasury| term_start=February 3, 2003| term_end=June 28, 2006| predecessor=Paul O'Neill| successor=Henry Paulson| birth_date=| birth_place=Toledo, Ohio...
as the Treasury Secretary. On June 28, 2006, he was confirmed by the United States Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
to serve in the position. Paulson was officially sworn in at a ceremony held at the Treasury Department on the morning of July 10, 2006.
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.
Paulson conceded that chances were slim for agreeing on a method to reform Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
financing, but said he would keep trying to find bipartisan support for it.
He also helped to create the Hope Now Alliance
Hope Now Alliance
The Hope Now Alliance is a cooperative effort between the US government, counselors, investors, and lenders to help homeowners who may not be able to pay their mortgages. Created in 2007 in response to the subprime mortgage crisis, the alliance claims to have helped over 1 million homeowners avoid...
to help struggling homeowners during the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
.
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. In spring 2007, Paulson warned an audience at the Shanghai Futures Exchange
Shanghai Futures Exchange
The Shanghai Futures Exchange was formed from the amalgamation of the Shanghai Metal Exchange, Shanghai Foodstuffs Commodity Exchange, and the Shanghai Commodity Exchange in December 1999...
that China needed to free up capital markets to avoid losing potential economic growth, saying: "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." In September 2008, in light of the economic crisis experienced by the U.S. in the interim, Chinese leaders evidenced hesitation to follow Paulson's advice.
Notable statements
In April 2007 delivered an upbeat assessment of the economy, saying growth was healthy and the housing market was nearing a turnaround. "All the signs I look at" show "the housing market is at or near the bottom," Paulson said in a speech to a business group in New York. The U.S. economy is "very healthy" and "robust," Paulson said.In August 2007, Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.
In May 2008, The Wall Street Journal wrote that Paulson said U.S. financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession. "I do believe that the worst is likely to be behind us," Paulson told the newspaper in an interview.
On July 20, 2008, after the failure of Indymac Bank
IndyMac Bank
OneWest Bank is a federal savings bank with 82 retail branches in southern California and approximately $14 billion in deposits as of February 2010....
, 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.”
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. On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.
Lehman's bankruptcy
The support given by Federal Reserve Board, under Ben Bernanke, and the US Treasury with Paulson at the helm, in the acquisition of Bear Stearns by J.P. Morgan and the $200bn facility made available to Fannie Mae and Freddie Mac attracted a great deal of criticism in congress by both Republicans and Democrats. When Barclays required support for acquiring Lehman BrothersLehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, both Geithner and Paulson were reluctant. Instead, they pressured Lehman into chapter 11 bankruptcy, believing the effect wasn't systemic.
"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."
That one statement proved to be a slight miscalculation because an unintended side effect of Lehman's bankruptcy vote was to freeze the assets of clients who could not get their money out of the bankrupt company since there was no 'lights out' plan put into place. Lehman's bankruptcy needed to be approved by their Board before Asia opened. While Paulson was giving his speech, and unbeknownst to him, word spread causing counter parties to start runs (account holders calling their brokers and telling them they wanted their money now) on other banks such as Goldman Sachs, Bank of America/Merrill Lynch, JPMorganChase, freezing credit markets so that companies having nothing to do with banking but needed financing (e.g. General Electric) could not get daily funding requirements which had the effect of sending the US equity/bond markets into turmoil between September 15, 2008, and September 19, 2008.
U.S. government economic bailout of 2008
Paulson, acting as US Treasury Secretary, caused outcries from both the Republican and Democratic Parties as well as the general populace as he tried to get the situation under control.Through unprecedented intervention by the U.S. Treasury, Paulson led government efforts which he said were aimed at avoiding a severe economic slowdown. After dropping 30% on the Dow Jones and causing turmoil in the global markets, Paulson pushed through the conservatorship
Conservatorship
Conservatorship is a legal concept in the United States of America, where an entity or organization is subjected to the legal control of an external entity or organization, known as a conservator. Conservatorship is established either by court order or via a statutory or regulatory authority...
of these government agency mortgage giants Fannie Mae and Freddie Mac. Working with Federal Reserve Chairman Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....
, he influenced the decision to create a credit facility (bridge loan & warrants
Warrant (finance)
In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date....
) of US$85 billion to American International Group
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...
so it would avoid filing bankruptcy, after having been told that AIG held teacher pension plans, 401k plans, $1.5 trillion in life insurance plans for Americans, and the French Finance Minister called to let Paulson know that AIG held the interests of many Eurozone countries.
In late September 2008, Paulson, along with Bernanke, led the effort to help financial firms by agreeing to use $700 billion dollars to purchase bad debt they had incurred. 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. This was the option favored by Bernanke, and the one that was eventually followed.
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. 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.
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
Troubled Assets Relief Program
The Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008...
.
Paulson agreed with Bernanke that the only way to 'unlock' the frozen capital markets were direct injections into financial institutions (nationalization to republicans and bailouts to democrats) so the banks would have more capital to lend as they "waited" for the bad loans on their asset sheets to rebound. The government would take a non-voting share position, with 5% dividends for the first year on the money 'lent' to the banks and then 9% thereafter until the banks stabilized and could payoff the government loans. According to the book "Too Big To Fail", Paulson, NY Bank Chairman Timothy Geithner, Ben Bernake and Sheila Bair (FDIC Chairman) were at the meeting below on Oct. 13, 2008.
Documents obtained by government watchdog group Judicial Watch
Judicial Watch
Judicial Watch is an organization that describes itself as "a conservative, non-partisan American educational foundation that promotes transparency, accountability and integrity in government, politics and the law." According to its mission statement, Judicial Watch "advocates high standards of...
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. 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 (FDIC) regulator will require it in any circumstance." The logic was that if everybody were forced to accept the money, then stakeholders in the market would not be able to identify which banks really needed the money, as opposed to those that did not, thereby making it harder for depositors, investors, or analysts to identify which banks were most vulnerable.
Time magazine on Henry Paulson
Time
Time (magazine)
Time is an American news magazine. A European edition is published from London. Time Europe covers the Middle East, Africa and, since 2003, Latin America. An Asian edition is based in Hong Kong...
named Paulson as a runner-up for its 2008 Person of the Year, saying, with reference to the global financial crisis, "if there is a face to this financial debacle, it is now his..." before concluding he "is really bad at explaining why he made the choices he did" and that "given the ... realities he faced, there is no obviously better path [he] could have followed".
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 SachsGoldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, a firm that may benefit largely from the plan. Economic columnists called for more scrutiny of his actions. Questions remain about Paulson's interest, despite having 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.
The Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
benefit from AIG bailout was recently estimated as USD 12.9 billion and GS was the largest recipient of the public funds from AIG. 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
Jurisdiction stripping
Jurisdiction stripping, also called curtailment of jurisdiction or court stripping, refers to the congressional practice of defining the jurisdiction of the United States federal judiciary as to eliminate its ability to hear certain classes of claims, thereby making certain legislative or executive...
and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." 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.
Career after public service
After leaving his role as Treasury Secretary, Paulson spent a year at the Paul H. Nitze School of Advanced International StudiesPaul H. Nitze School of Advanced International Studies
The Paul H. Nitze School of Advanced International Studies , a division of Johns Hopkins University based in Washington, D.C., is one of the world's leading and most prestigious graduate schools devoted to the study of international affairs, economics, diplomacy, and policy research and...
at Johns Hopkins University
Johns Hopkins University
The Johns Hopkins University, commonly referred to as Johns Hopkins, JHU, or simply Hopkins, is a private research university based in Baltimore, Maryland, United States...
as a distinguished visiting fellow, and a fellow at the university's Bernard Schwartz Forum on Constructive Capitalism. 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.
On June 27, 2011, it was announced that Paulson would serve as a senior fellow at the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...
's Harris School of Public Policy. His five-year appointment took effect July 1, 2011.
Civic activities
Paulson has been described as an avid nature lover. He has been a member of The Nature ConservancyThe Nature Conservancy
The Nature Conservancy is a US charitable environmental organization that works to preserve the plants, animals, and natural communities that represent the diversity of life on Earth by protecting the lands and waters they need to survive....
for decades and was the organization's board chairman and co-chair of its Asia-Pacific Council. In that capacity, Paulson worked with former President of the People's Republic of China
President of the People's Republic of China
The President of the People's Republic of China is a ceremonial office and a part of State organs under the National People's Congress and it is the head of state of the People's Republic of China . The office was created by the 1982 Constitution...
Jiang Zemin
Jiang Zemin
Jiang Zemin is a former Chinese politician, who served as General Secretary of the Communist Party of China from 1989 to 2002, as President of the People's Republic of China from 1993 to 2003, and as Chairman of the Central Military Commission from 1989 to 2005...
to preserve the Tiger Leaping Gorge
Tiger Leaping Gorge
Tiger Leaping Gorge is a canyon on the Yangtze River – locally called the Golden Sands River – located 60 km north of Lijiang City, Yunnan in southwestern China...
in Yunnan
Yunnan
Yunnan is a province of the People's Republic of China, located in the far southwest of the country spanning approximately and with a population of 45.7 million . The capital of the province is Kunming. The province borders Burma, Laos, and Vietnam.Yunnan is situated in a mountainous area, with...
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
Tsinghua University
Tsinghua University , colloquially known in Chinese as Qinghua, is a university in Beijing, China. The school is one of the nine universities of the C9 League. It was established in 1911 under the name "Tsinghua Xuetang" or "Tsinghua College" and was renamed the "Tsinghua School" one year later...
in Beijing; and, previously served as chairman of the influential trade group, the Financial Services Forum
Financial Services Forum
The Financial Services Forum is a non-partisan financial and economic policy organization comprising the CEOs of 20 of the largest and most diversified financial services institutions doing business in the United States...
.
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
Global warming
Global warming refers to the rising average temperature of Earth's atmosphere and oceans and its projected continuation. In the last 100 years, Earth's average surface temperature increased by about with about two thirds of the increase occurring over just the last three decades...
and advocates immediate action to decrease this effect.
During his tenure as CEO of Goldman Sachs, Paulson oversaw the corporate donation of 680000 acres (2,751.9 km²) on the forested Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
an side of Tierra del Fuego
Tierra del Fuego
Tierra del Fuego is an archipelago off the southernmost tip of the South American mainland, across the Strait of Magellan. The archipelago consists of a main island Isla Grande de Tierra del Fuego divided between Chile and Argentina with an area of , and a group of smaller islands including Cape...
, bringing criticism from Goldman shareholder groups. 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.
In media
Paulson was portrayed by William HurtWilliam Hurt
William McGill Hurt is an American stage and film actor. He received his acting training at the Juilliard School, and began acting on stage in the 1970s. Hurt made his film debut as a troubled scientist in the science-fiction feature Altered States , for which he received a Golden Globe nomination...
in the 2011 HBO film Too Big to Fail
Too Big to Fail
Too Big to Fail is a television drama film in the United States broadcast on HBO on May 23, 2011. It is based on the non-fiction book Too Big to Fail by Andrew Ross Sorkin. The TV film was directed by Curtis Hanson...
and by James Cromwell
James Cromwell
James Oliver Cromwell is an American film and television actor. Some of his more notable roles are in Babe , for which he earned Academy Award nomination for Best Supporting Actor, Star Trek: First Contact , L.A...
in the 2009 BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
film The Last Days of Lehman Brothers
The Last Days of Lehman Brothers
The Last Days of Lehman Brothers is a British television film, first broadcast on BBC Two and BBC HD on Wednesday 9 September 2009. Filmed in London, it was written by Craig Warner and directed by Michael Samuels...
.
In the documentary film Inside Job
Inside Job (film)
Inside Job is a 2010 documentary film about the late-2000s financial crisis directed by Charles H. Ferguson. The film is described by Ferguson as being about "the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption." In five...
Paulson is cited as one of the persons responsible for the Economic Meltdown of 2008 and named in Time Magazine as one of the "25 People to Blame for the Financial Crisis".
Further reading
- Paulson, Hank and Hu, Fred: "Banking Reform in China: Mission Critical", in: Pamela Mar and Frank-Jürgen RichterFrank-Jürgen RichterFrank-Jürgen Richter is a German entrepreneur and currently the Chairman of Horasis. He has served in that role since he founded the organization.-Business Meetings:...
: China – Enabling a New Era of Changes, New York: John Wiley, 2003, ISBN 0-470-82086-1 - Paulson, HankHenry PaulsonHenry Merritt "Hank" Paulson, Jr. is an American banker who served as the 74th United States Secretary of the Treasury. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.-Early life and family:...
, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, New York: Business Plus , 2010, ISBN 978-0-7553-6054-3 - Purdum, Todd S.Todd PurdumTodd Stanley Purdum is a national editor and political correspondent for Vanity Fair magazine.-Early life and education:Purdum is a son of Jerry S. Purdum, a Macomb, Illinois insurance broker, investor, and realtor, and Connie Purdum. He was graduated from St...
, "Henry Paulson’s Longest Night", Vanity FairVanity Fair (magazine)Vanity Fair is a magazine of pop culture, fashion, and current affairs published by Condé Nast. The present Vanity Fair has been published since 1983 and there have been editions for four European countries as well as the U.S. edition. This revived the title which had ceased publication in 1935...
, October 2009 - Sellers, Patricia, "Hank Paulson's secret life", FortuneFortune (magazine)Fortune is a global business magazine published by Time Inc. Founded by Henry Luce in 1930, the publishing business, consisting of Time, Life, Fortune, and Sports Illustrated, grew to become Time Warner. In turn, AOL grew as it acquired Time Warner in 2000 when Time Warner was the world's largest...
, December 29, 2003 - Sorkin, Andrew RossAndrew Ross SorkinAndrew Ross Sorkin is a Gerald Loeb Award-winning American journalist, author and television personality. He is a financial columnist for The New York Times and a co-anchor of CNBC's Squawk Box. He is also the founder and editor of DealBook, a financial news service published by The New York Times...
, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, New York: Viking Press, 2009, ISBN 978-0-670-02125-3 - Stewart, James B.James B. StewartJames Bennett Stewart is an American lawyer, journalist, and author.-Life and career:Stewart was born in Quincy, Illinois. A graduate of DePauw University and Harvard Law School, James B. Stewart is a member of the Bar of New York and Bloomberg Professor of Business and Economic Journalism at the...
, "Eight Days: the battle to save the American financial system", The New YorkerThe New YorkerThe New Yorker is an American magazine of reportage, commentary, criticism, essays, fiction, satire, cartoons and poetry published by Condé Nast...
, September 21, 2009.
External links
- Biography at the United States Department of the TreasuryUnited States Department of the TreasuryThe Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
- Henry Paulson's federal campaign contributions at NewsMeat
- Paulson on China: October 2007, November 2007