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On the Money at Treasury
Bush convinced Paulson, whose 32 years at Goldman Sachs included seven as chairman and chief executive, that he would play a pivotal role in making policy. In particular, Paulson was expected to manage economic relations with China, a nation he had visited dozens of times in his career.
Accepting the nomination, Paulson described his mission in lofty language, referring to the "competitive zeal of the American people," staking out a broad role overseeing global relationships and trying to ensure America's place in the 21st-century economy.
But among his first actions as Treasury secretary were steps to prepare the department for a financial crisis.
Snow had shut down a "markets monitoring room" to save money. Paulson re-opened the space, where five staff members now analyze data on the stock, bond and currency markets all day, and notify senior Treasury officials when they behave oddly.
The President's Working Group on Financial Markets, created after the 1987 stock market crash to coordinate response to a financial crisis, had rarely been meeting. Some of the key staffers from different agencies didn't even have one another's cellphone numbers. Paulson scheduled quarterly meetings of its lead members, including himself and the directors of the Federal Reserve, Securities and Exchange Commission, and Commodity Futures Trading Commission. He also directed the various agencies to develop contingency plans for a crisis, according to people who were in the meetings.
The group conducted "tabletop exercises," which essentially were financial war games, going through the mechanics of how each agency might act in the event of, say, a 1,000-point one-day drop in the Dow Jones industrial average.
Staffers traded cellphone numbers and drew up phone trees. They set up conference call lines and figured out how to get announcements to the media. (All the agencies would use the Treasury Department press room.)
The system got its first test Feb. 27, after the Chinese stock market tanked and the Dow appeared to fall 546 points. Using the new communication system, the agencies involved rapidly found out that part of the decline was caused by a computer glitch, so the damage was not as severe as it looked. Panic averted. The system tested that day has been in near constant use in the past four months, keeping key decision makers in touch through the roller coaster ride in financial markets.
Meanwhile, Paulson, a relative neophyte at Washington politics, cultivated relationships on Capitol Hill. When Frank mentioned to him that a constituent was being detained in China over a passport dispute, Paulson asked a senior Chinese official about the case on his next visit there. The constituent, Frank said, was quickly allowed to return home. Frank calls Paulson "reasonable and flexible."
"All of my training was to look at facts," Paulson said. "I didn't have political training because facts aren't political. Facts are facts."
But he has adapted. "The best idea in the world, if you can't sell it, you can't persuade people, it isn't any good."
Staff researcher Richard Drezen contributed to this report.