By Michael Abramowitz
Washington Post Staff Writer
Friday, September 19, 2008
When newly appointed White House chief of staff Joshua B. Bolten tried to shake up the Bush administration in the spring of 2006, he spent weeks wooing Goldman Sachs chief executive Henry M. Paulson Jr. to be Treasury secretary. Bolten had personal reasons for thinking Paulson might be a good pick -- Bolten himself had worked for the influential investment bank in Europe in the 1990s -- and Paulson eventually gave in to his persistent lobbying.
"I had always trusted him," Paulson once said of Bolten in an interview. "I felt a bond and a sense of trust."
Paulson and Bolten are just two of the onetime Goldman figures who find themselves managing perhaps the biggest financial crisis since the Great Depression. After Paulson took over at Treasury in May 2006, he turned to Goldman colleague Robert K. Steel to help him oversee financial markets. Steel left recently to run Wachovia, but several other Goldman alumni remain to help Paulson deal with the ongoing market turmoil.
Such heavy reliance on the most prestigious Wall Street investment firm has become something of a bipartisan Washington tradition in recent years; Clinton Treasury Secretary Robert E. Rubin was also a co- chairman of Goldman Sachs, as was Bush economic adviser Stephen Friedman. But if the Wall Street meltdown continues, the tradition may come under scrutiny, especially if Goldman eventually needs the kind of government assistance granted Bear Stearns or American International Group.
From the right, prominent voices question Paulson's use of taxpayer dollars to help rescue private firms, while liberal and labor groups attack the ideological orientation of the Treasury secretary and other officials hailing from Goldman.
"Goldman culture has prided itself on creating sort of financial statesmen who would come to Washington as well as operate in the highest realm of finance," said Robert Borosage, president of the Institute for America's Future, a liberal think tank. "What's clear is that these people in both parties -- whether it's Rubin or Paulson -- have been leading promulgators of the deregulation that has gotten us in this hole."
Jeffrey E. Garten, who worked on international economic matters in several administrations, took a different view. "If we are going to have a highly skilled revolving door, I don't think you can do better than look at the top ranks of Goldman Sachs and bring them into government," he said.
"They are brutally effective. They waste absolutely no time. They are not lone rangers. They surround themselves with a lot of people and seek as much advice as they can," said Garten, who now teaches international trade and finance at Yale University. "They are masters at getting at the heart of a problem in lightning speed."
Asked why presidents turn to Goldman, White House spokesman Tony Fratto said it was more a question for Goldman than for the administration. "It's part of the culture up there at Goldman that they appreciate public service," he said.
Fratto said Bolten, who worked on legal and government affairs at Goldman in the 1990s, has no reason to recuse himself from matters concerning the firm because he worked there years ago and has no continuing financial interest. Paulson has recused himself from issues directly affecting Goldman, though he can seek a waiver if the White House counsel and Office of Government Ethics deem it appropriate, Fratto said.
The résumés of Bolten and Paulson illustrate the revolving door between Washington and Goldman Sachs. Both went to Goldman after working in government -- Bolten as counsel to the U.S. trade representative during the George H.W. Bush administration and Paulson at the White House and Pentagon in the Nixon administration -- before returning to federal service at a very senior level.
Other Bush administration officials have followed similar paths. After he resigned as deputy secretary of state in 2006, Robert B. Zoellick worked briefly at Goldman Sachs before being named by Bush as president of the World Bank. Dina Habib Powell, former White House personnel chief and assistant secretary of state, now oversees Goldman's charitable and philanthropic activities.
Democrats have turned to Goldman alumni including Rubin and Gary Gensler, a Goldman partner who served in top positions in the Clinton Treasury Department. Another former chief executive, Jon S. Corzine, went on to serve in the Senate and is now the Democratic governor of New Jersey.
Political contributions suggest a Democratic tilt at Goldman; of the $4.3 million so far contributed to campaigns this year by employees or by the firm's political action committee, roughly three-quarters has gone to Democrats, according to the Center for Responsive Politics.
The contributions suggest how attuned the firm is to Washington, where actions on regulation and other policies can affect the bottom line. Said one former Treasury official: "They see long-term strategic advantage in being involved in the intersection of public policy and finance, not just here but also Brussels and other capitals."
Researchers Julie Tate, Madonna Lebling and Alice Crites contributed to this report.