Treasury Secretary Hank Paulson

WHAT, ME WORRY? Paulson charms Washington but has done a terrible job as Treasury secretary.

Image: Getty Images

1 of 3 NEXT

When President Bush announced in May 2006 that he was naming Hank Paulson as Treasury secretary, the appointment was greeted with great fanfare—and relief—in both Washington and New York. The two previous secretaries of the Treasury had proved to be problematic, to say the least. Paul O’Neill, the former head of Alcoa, was prone to rash statements that sent the markets reeling. John Snow, the accomplished chairman of the railroad company CSX, was considered ineffectual in government, and rumors swirled for months about when he would be replaced.

Paulson seemed cut from better cloth. As the head of Goldman Sachs, the most prestigious of the brokerage houses, he was the latest in a long line of Goldman men turned statesmen: Republicans like Steve Friedman, Bush’s director of the National Economic Council; John Whitehead, a major figure in the Reagan State Department; and Democrats like Clinton Treasury secretary Robert Rubin and New Jersey governor Jon Corzine. Unlike O’Neill or Snow, who both hailed from rust-belt industries, Paulson was thought to be, in the mold of Rubin, a market whisperer who could soothe a jittery financial world. Jim Cramer, the Goldman trader turned television star, said Paulson would rank with Rubin and might prove to be as great as the first Treasury secretary, Alexander Hamilton. The Senate confirmed his appointment unanimously. (View slideshow.)

Paulson is the kind of man Washington likes to this day, even as the economy suffers. He may have been known as a tough and demanding leader at Goldman, but the capital sees him less as a hard-ass and more as a courtly and preternaturally bipartisan official. Democratic senator Chuck Schumer, chairman of the Joint Economic Committee, is one of his most ardent supporters. (Although he’s a Republican, Paulson has been a Schumer contributor.) When I asked Barney Frank, the liberal Massachusetts Democrat who chairs the House Financial Services Committee and has worked closely with Paulson on the credit and housing mess, he positively kvelled, saying, “I think he’s been a very good partner. We’ve worked very closely with him and his staff. It’s totally different” from the relationship with Snow and O’Neill. Aside from having an amiable mien—the devout Christian Scientist doesn’t drink—Paulson also scores points inside the Beltway for being, well, not an ideological nut job. He’s a Republican and an environmentalist, a former chairman of the Nature Conservancy and even a serious bird-watcher. Everyone I spoke to for this piece calls him a pragmatist. Most important, Paulson made his name on Wall Street, which is what Washington wants from its Treasury secretaries these days.

1 of 3 NEXT