May 31, 2006

Some Good News: Paulson to Treasury

There's obviously been a lot of mounting dissapointment expressed with the Bush Administration in this space in the past year or so, but Hank Paulson's appointment to Treasury is an excellent, excellent pick. He's the Republican Bob Rubin, if you will (albeit Paulson has less political experience than Rubin did, so his Wash DC learning curve will be a bit steeper). Now, if Robert Zoellick can just be persuaded to stay on at State, we'd be beginning to make some real headway towards strengthening the White House team. Still, however, Rumsfeld's continuing presence at the Pentagon is a massive liability, positively screaming out for remedial action. And, of course, Cheney's mounting post 9/11 Addingtonism remains a festering sore too.

But, for today, let's us praise the President for avoiding a crony pick, or a somewhat wanting 'Main Street' style salesman personage (a la John Snow), and instead going for the real cream of the crop at Treasury. Global markets are very likely going to be in for a hugely bumpy ride in the next few years (yes, count B.D. as a bear, of sorts), and having a top Wall Street pro at the helm of Treasury will help during what will likely prove to be very challenging times indeed (I wonder how many of Paulson's colleagues were surprised he took the job!).

The Foreign Policy 'Passport' blog has more. And Bloomberg asks the key question:

The question is whether Bush will give the Goldman Sachs Group Inc. chief executive officer the leeway to run Treasury and shape policy like Rubin, Bill Clinton's top economic adviser.

Under Bush, no one has been allowed to take that role. Outgoing Treasury Secretary John Snow and his predecessor, Paul O'Neill weren't part of the president's inner circle and were relegated to being salesmen of White House ideas. No sooner had Paulson been nominated yesterday than administration officials were insisting he would have a seat at the table.

``You don't bring in a Treasury secretary as a PR man,'' White House spokesman Tony Snow told reporters. ``You bring in a Treasury secretary as being one of your key economic aides.''

That hasn't been the case in the first 5 1/2 years of the Bush administration. Some officials who came to Washington with glittering corporate or Wall Street reputations left as diminished figures, as White House political operatives dominated decision-making. Those officials include former National Economic Council Director Stephen Friedman, also a one-time Goldman Sachs chairman, and O'Neill, Bush's first Treasury secretary, who once ran Alcoa Inc.

Economic decisions have been run through the filters of national security, foreign policy and domestic politics, former administration officials said....

...With Cheney and Deputy Chief of Staff Karl Rove taking on prominent roles fashioning Bush's agenda, it has been difficult for anyone to emerge as a policymaker with the clout of Rubin in the Clinton administration, Richard Darman under President George H.W. Bush, or James Baker in the Reagan administration.

In tapping O'Neill, Bush picked a candidate who had prior experience in government and years as head of a multinational company -- a background that, on paper, qualified him to be the top economic adviser. Instead, O'Neill often found himself at odds with other economic aides in the White House who were closer to Bush.

Snow replaced O'Neill in February 2003 and was a loyal spokesman for the administration, traveling the country in the 2004 election campaign to promote Bush's efforts to cut taxes and convince the public the economy was doing well.

With Paulson, Bush has embraced a Wall Street executive, a departure for the president, who has shown a proclivity for trusting only a handful of longtime aides from his home state of Texas.

Still to be determined is whether Paulson will be more than a figurehead and can wield the kind of power that Rubin did.

``They view the decision-making process on most issues to be more at the White House level than at the Treasury level,'' Robert Sinche, head of global currency strategy at Bank of America Corp. in New York, said of the Bush administration. ``The question will be the relationship between the president and the secretary.''

A lack of closeness to the president has proved the downfall of not only the two previous Treasury secretaries but of such heavyweights as former Secretary of State Colin Powell.

We'll see....but for now, let's rejoice in an unimpeachably good pick. The issue is, as Bloomberg highlights, will Paulson be allowed to emerge as a real player? I hope so, and think he's far too smart to have taken this job without bona fide assurances that will be the case. Yes, even if this means a dimunition in the power of the Veep, Rove, and others. Here's hoping.

P.S. More on Paulson, from a more personal angle, here.

P.P.S.: FT:

Mr Paulson’s appointment could address criticism that Mr Bush’s economy policy team lacks heavyweights. He has the chance to position himself as the leading voice on the US economy, at a time of rising volatility in the international financial markets, and while Ben Bernanke, chairman of the Federal Reserve, has yet to acquire the decisive authority of his predecessor.

Josh Bolten, Mr Bush’s chief of staff and a former Goldman employee, was an influential figure in courting Mr Paulson. Dana Perino, White House spokeswoman, said Mr Bush met Mr Paulson earlier this month....

...Mr Paulson has remained at the helm of Goldman for longer than many had expected, but his appointment still came as a shock to the bank’s executives who for weeks had expressed confidence that he would continue to rebuff entreaties from Washington.

Many top managers did not learn of Mr. Paulson’s decision until Monday afternoon, one insider said. Mr Paulson had previously turned the Treasury post down, others said.

It rings true to me that Josh Bolten was likely the key figure in successfully wooing Paulson to decamp from 85 Broad to the Treasury. It's a real coup, and the biggest accomplishment of Bolten's tenure as Chief of Staff yet, not least given that Paulson was persuaded to make this move late in the Bush Presidency, and, as I said, during a time that will likely see very, very choppy economic conditions. With Bernanke still getting his feet wet (putting aside the risible Money Honey dinner chit chat leakage, a sign of a frothy and incestuous navel-gazing market that depresses somewhat), the Paulson appointment comes at a very good time indeed.

Posted by Gregory at May 31, 2006 10:49 AM | TrackBack (0)