Paulson's Powers of Persuasion Tested
Saturday, September 27, 2008
Behind closed doors at an early breakfast this summer, Federal Reserve Chairman Ben S. Bernanke shared his concerns with Henry M. Paulson Jr. about the treasury secretary's plans for a massive bailout of a troubled segment of the financial markets: Could he really get a Democratic Congress to grant broad new powers to a lame-duck Republican administration?
Paulson said he was confident. About two weeks later, Congress indeed handed Paulson sweeping authority to rescue ailing mortgage financiers Fannie Mae and Freddie Mac.
Now, as Congress considers a second request from Treasury -- this time for broad discretion to spend $700 billion to buy troubled assets from distressed Wall Street firms -- Paulson again confronts the liability of working for an administration in its twilight. Only this time, he's discovering that it's harder to get what he wants.
Paulson is also finding his credibility questioned after having told lawmakers two months ago that he had no intention of using his new authority to rescue Fannie Mae and Freddie Mac, ultimately putting taxpayer dollars on the line to do so.
After Bernanke heard Paulson's self-assured response at their breakfast, the Fed chairman replied: ''I'll back you up. Do everything you can to get it,'' according to Paulson, who recently recounted the meeting.
This week, Bernanke has again given Paulson his full support as the two men press Congress on their ambitious bailout of the financial system. But so far, even Bernanke's stature has not been enough to persuade Capitol Hill to approve the measure over widespread voter objections.
"We don't deal only with Wall Street. We deal with Wall Street, but we also deal with Main Street," Senate Majority Leader Harry M. Reid (D-Nev.) said at a news conference yesterday. "And Secretary Paulson, fine man that he is, has learned a lot about how we serve our constituents. And so these obstacles can be overcome, but those appointed officials, like Paulson and Bernanke, are going to have to become more realistic."
This week has been a "roller coaster" for Paulson and rougher for him than he may have expected, said one federal official who knows him well. Last weekend, he pushed lawmakers in the House to have an agreement in place before financial markets opened on Monday, fearing that indecision by Congress would further roil Wall Street.
By Friday, despite a flurry of meetings on Capitol Hill and late-night phone calls, a deal had still escaped him. Meanwhile, conditions in the credit markets continued to worsen, making it difficult for corporations to get money and threatening to pull some down.
Paulson had been worried in the days before announcing the plan about putting such a weighty proposal in the hands of Congress, according to Treasury officials. But they said he saw little choice after the credit markets that provide funding to a wide range of U.S. corporations nearly grinded to a halt.
Some lawmakers have openly wondered whether Paulson, a creature of the financial markets who was shaped by his decades at the investment bank Goldman Sachs, understood the politics of putting so much taxpayer money on the line for Wall Street firms.
"I think that there's been some degree of amazement from the White House, and certainly Secretary Paulson and Chairman Bernanke, that people who run for elective office have constituencies that they have to take care of," Reid said yesterday.