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A Conversion in 'This Storm'
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"Unlike most 60-year-olds, he came to Washington with less formed views on policy," said one senior government official who is close to Paulson. "So if you wanted to be generous, you could say he has developed policy responses that fit each problem, that he is pragmatic. If you wanted to be critical, you would say these are policy responses that are without rhyme or reason. And I think there's some truth in both of those."
Paulson said he never imagined when he took the post that he would end up proposing far-reaching regulatory programs.
And in the coming weeks, he is planning to announce a valedictory set of proposals to modernize Washington's aging regulations and extend their reach into matters that traditionally have fallen beyond the purview of federal officials.
Paulson said he will urge Congress and the administration to grant the Fed broad discretion to examine the books of any firm, regulated or unregulated. This would require large hedge funds, private-equity firms and other now-unregulated financial entities to accept a charter from the Fed and open their financial records to its officials.
He added that executive compensation for financial firms also needs substantial reform, which could be accomplished partly through banking regulation.
Paulson said he pushed the five major federal banking agencies over the past weeks to release a guidance document that would require firms to eliminate compensation that encourages risky behavior by traders and executives.
Paulson said the document, which was issued last week, has not "gone far enough" in reforming executive compensation but he was optimistic that the document "creates a vehicle" to tackle the issue in the future.
Moreover, he said he is also working on a proposal that would grant the federal government broad new powers to take over a wide range of financial firms whose collapse could endanger the financial system. Currently, this authority exists only for banks.
The companies could be required to contribute to a fund that would help cover the cost of closing them in an orderly fashion if they cannot be saved.
Paulson said Congress would have to define which companies meet the criteria and determine how much they would contribute.
None of these measures, however, will be as much debated by history as his most significant legacy: the $700 billion rescue for the financial system. Paulson said he regretted that his tenure "will be viewed as so controversial" because of this program.
But the allies he has won in Washington -- including fellow regulators and some lawmakers from both sides of the aisle -- predicted that he would be judged more kindly.
"If the rescue does work, that will be a huge part of his legacy," said Bair, the FDIC chairman. "Even if it doesn't and we have to do other measures . . . I think history will view him favorably as someone who tried programs and took some risks and tackled this crisis with the best information that was available to him."
