By Michael A. Fletcher and Paul Blustein
Washington Post Staff Writers
Wednesday, May 31, 2006
President Bush named Goldman Sachs Group Inc. Chairman Henry M. Paulson Jr. as Treasury secretary yesterday, turning to a prominent Wall Street insider to lead his economic team and become the chief promoter of the administration's fiscal policies.
The nomination, announced in a brief Rose Garden ceremony, marked the first time Bush has chosen a chieftain from the world of finance to head the Treasury after the Cabinet post was occupied by two industrial-sector executives who struggled to hold sway with Bush's inner circle. Although Bush has shown mistrust of financiers, he hailed Paulson's service as head of "one of the most respected firms on Wall Street" who has "an intimate knowledge of financial markets and an ability to explain economic issues in clear terms."
The move culminated a months-long recruitment during which Paulson rebuffed several White House overtures, according to administration officials and people familiar with Paulson's decision making. White House Chief of Staff Joshua B. Bolten renewed the effort in recent weeks and persuaded his former Goldman Sachs colleague to meet with Bush at the White House earlier this month. It was then, after a long Saturday meeting 11 days ago, that Bush persuaded Paulson to take the job.
In the meeting, Paulson sought assurances that the post, which at times has been seen as subordinated by the White House, would have the proper kind of stature.
"He was curious about what was myth and what was reality when it came to the inner workings of the job," said a top Bush adviser with close knowledge of the selection process. "I think he was reassured by understanding how the job operates."
If confirmed by the Senate, Paulson, 60, will replace Treasury Secretary John W. Snow, who in December told the White House that he wanted to step down after three years in the job. Although a loyal booster of Bush's policies, Snow suffered from the widespread perception in markets and on Capitol Hill that he was an advocate rather than a key policymaker.
The White House sought Paulson even though he and his wife contributed nearly $1 million to an environmental organization that has been harshly critical of the president.
Paulson's nomination comes as the economy is exhibiting robust growth and strength, but also some troubling signs. While the economy grew at its fastest rate in 2 1/2 years during the first quarter of 2006 and unemployment remains low, public opinion polls show that a majority of Americans think the economy is in fair or poor shape. Rising gasoline prices and a median household income that, adjusted for inflation, has fallen during the Bush years have fanned public anxiety.
"Everything is going great in the economy until you look at the people in it," said Jared Bernstein, senior economist with the liberal-leaning Economic Policy Institute.
In brief remarks, Paulson said 32 years on Wall Street have given him a keen sense of the power that markets have in fostering economic growth and efficiency. "Our economy's strength is rooted in the entrepreneurial spirit and the competitive zeal of the American people, and in our free and open market," Paulson said as Bush looked on. "It is truly a marvel, but we cannot take it for granted."
In choosing Paulson, Bush defied skeptics who predicted that late in his presidency he would be unable to attract a Wall Street heavy hitter for a position that up to now has held little power in his administration. As chief since 1999 of one of Wall Street's wealthiest investment-banking firms, Paulson brings high-caliber financial credentials that contrast with Bush's previous Treasury chiefs -- Paul H. O'Neill, who ran Alcoa aluminum, and Snow, of the CSX railroad.
The White House was eager to find a candidate with credibility among investors. Markets have turned highly volatile in recent weeks, with the biggest dips coming in commodities and stocks in Asia, Latin America and Eastern Europe. U.S. stocks, which have also dropped sharply from recent highs, sank anew yesterday, with the Dow Jones industrial average shedding 184.18 points, mainly because of a rise in oil prices and a report showing a decline in consumer confidence. With Alan Greenspan having recently left the Federal Reserve Board in the untested hands of a new chairman, Ben S. Bernanke, the administration was in danger of lacking a figure with deep experience in market downturns -- such as the Asian flu of the late 1990s -- that could undermine the international economy.
"We have a very strong economy, a very strong banking system, but these things do happen, just like hurricanes," said Stephen Friedman, the former director of Bush's National Economic Council and a predecessor of Paulson's at Goldman Sachs. "Hank is someone with a superb background, who understands markets in his bones. That's something the White House was very aware of."
Paulson worked in the Pentagon as a young man, after his graduation from Dartmouth College in 1968 and Harvard Business School in 1970. He began at Goldman Sachs in 1974 and worked his way up to chairman and chief executive, a job that brought him a compensation package in 2005 of $38.8 million.
An ardent conservationist, Paulson is the outgoing chairman of the Nature Conservancy, an environmental group. Paulson donated to the presidential campaigns of Sen. John McCain (R-Ariz.) and former senator Bill Bradley (D-N.J.). In 2003, he gave $2,000 to Bush's reelection effort. Since 1998, he and his wife, Wendy, have given $980,000 to a political organization affiliated with the League of Conservation Voters, which has slammed Bush, saying he is on the way to "compiling the worst environmental record of any president in the history of the United States."
On economic policy, however, Paulson apparently is more in sync with the president. He has supported tax cuts as a way to stimulate the economy, said Tony Snow, Bush's press secretary.
Paulson's nomination stirred no immediate objections in the Senate. Sen. Charles E. Grassley (R-Iowa), chairman of the Finance Committee, said he looked forward to meeting the nominee. A Democratic member of the Finance Committee, Charles E. Schumer (N.Y.), said he spoke with Paulson yesterday and pledged his "full support for his nomination."
According to sources familiar with the events who spoke on the condition of anonymity because conversations were confidential, Paulson had long planned to pursue his passion for the environment when he retired. Even when Bolten called him in mid-May and urged him to reconsider after rebuffing the original White House overtures, Paulson rejected a request that he meet with Bush, saying he did not want to waste the president's time.
Bolten persisted, and Paulson eventually agreed to meet with Bush. During his long White House session May 20, Paulson "wanted to make sure that he would get access to the president, and he wanted to make sure he understood how the president viewed the job, and he was satisfied with the answers," a source said.
Research editor Lucy Shackelford contributed to this report.