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A Skeptical Outsider Becomes Bush's 'Wartime General'
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The third time Paulson was asked, he accepted.
As turmoil in the financial markets escalated, Paulson's influence grew so great that he eclipsed the White House on economic policy. And when Paulson sought new authority from lawmakers to rescue the mortgage markets and financial companies, Bush told him he would "hang back" rather than risk that his poor popularity jeopardize Treasury's efforts on Capitol Hill, according to two sources familiar with the president's discussions with Paulson.
"I think the president of the United States was willing to defer to him and give him authority and liberate him from the constraints that the White House had forced on his predecessors," a senior government official said. "That was hugely important because it made him credible and able to negotiate with Congress."
In the summer, President Bush warned that he would block a landmark housing bill in Congress that in part would revamp the agency regulating Fannie Mae and Freddie Mac. That change was vital to Paulson. He persuaded the president to drop his veto threat, according to senior government officials.
"If you look at Paulson," said Rep. Barney Frank (D-Mass.), one of Paulson's key allies on Capitol Hill, "the one thing that's irreplaceable is his ability to bring George Bush along, and throughout this effort, the work . . . to persuade the president to do things that he otherwise would have resisted was important."
When Paulson went to Capitol Hill in September, asking for the authority to spend $700 billion to bail out financial firms, he said, he never worried that Bush would oppose him, though the plan was an unprecedented intrusion in the marketplace. The measure was initially defeated in the House of Representatives, primarily by Republican votes. But Bush never abandoned the proposal -- officially called the Troubled Asset Relief Program, or TARP, but better known around Washington as the Paulson plan -- instead intensifying lobbying efforts to get it passed.
"When the president stepped up big was when we lost the vote on the House," Paulson said. "He said, 'We will get it done, and we won't change one bit of your TARP. . . . the only thing we'll do is [think of] what sweetener do we have to add, and anything we add, will it gain more votes or lose more votes?' And the only thing he said is, 'We will run that process from the White House.' "
Under the plan, Paulson was granted sweeping discretion to decide how to use the $700 billion and which financial firms would get the money. He could hire firms to manage the program without having to obey the standard government rules for contractors. He could even decide how to place conditions on companies receiving government help, including limits on executive compensation.
In the end, Congress granted Paulson every authority he asked for.
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Paulson acknowledges that such broad powers have a downside. It would be him -- not the White House -- who would be blamed if the emergency response to the crisis went awry.
"We may do things that are unpopular," Paulson said. "We may do things that we are forced to do. There may be things we have to do to respond to a systemic event, and there is no other authority to deal with it other than TARP. Then I will take one for the nation and take the criticism."
