WASHINGTON — Henry Paulson became Treasury secretary 28 months ago, when he was at the top of the financial world: Wall Street’s best-paid chief executive, capping his career with a high-profile sojourn in public service.
Two months before he leaves office, Paulson, some say, is a reduced figure, damaged by the financial- market meltdown that happened on his watch and by the government’s struggles to respond to it.
Like many others who have served in the Bush administration — among them former Secretary of State Colin Powell and former Treasury chief Paul O’Neill — Paulson, 62, will leave office casting a smaller shadow than when he arrived.
“Paulson’s credibility has certainly been substantially diminished,” said Peter Wallison, who was general counsel at the Treasury in the Reagan administration and is now a fellow at the American Enterprise Institute in Washington. “There has been a lot of shifting back and forth and he clearly hasn’t thought through much of these policies. He has lost a lot of confidence from the market from all of this.”
The latest blow was his announcement Wednesday that the Treasury was abandoning his plan to buy devalued mortgage assets — the one he unveiled dramatically just eight weeks ago and defended against congressional and market skeptics.
“This is a flip-flop, but on the other hand, when they first proposed the thing, they didn’t really know what they were doing,” said Bill Fleckenstein, president of Fleckenstein Capital Inc. in Seattle and author of the book “Greenspan’s Bubbles.”
Paulson has pushed some “cockamamie schemes,” he said. “So one has to ask: Does he have any clue?”
“This is not something he’s going to be proud to put on his resume,” said James Cox, a law professor at Duke University in Durham, N.C., who has testified on securities regulation before Congress. “It does tarnish Paulson’s image, because it shows that a lot of political capital was spent on something that most of us thought was not a good idea to begin with.”
Only history will render a final verdict on Paulson’s handling of this year’s economic crises. But he surely couldn’t have wanted to spend his final days in office this way: spearheading the massive government intervention in the banking, insurance and mortgage industries; fielding requests to bail out General Motors, Ford, Chrysler and even heating-oil retailers.
“He’s ended up, really, in kind of a hair-on-fire thing,” said Stephen Stanley, chief economist at RBS Greenwich Capital. “It’s been very different from what he had in mind.”
The Treasury chief on Wednesday said he had no regrets over reversing his plans for the bailout program. “I will never apologize for changing a strategy or an approach if the facts change,” Paulson said at a press briefing in Washington.
In an interview with Bloomberg Television on Thursday, he said that “the original plan was a good plan. What changed was our understanding of the magnitude of the problem.”
When Paulson took office in July 2006, the Dow Jones industrial average was near a six-year high and Goldman Sachs was selling at $149 a share, making the former CEO’s stake worth about $485 million. Today the Dow is down by more than a third for the year.
Goldman, which weathered the crisis far better than Lehman Brothers, Merrill Lynch and Bear Stearns, trades at more than 70 percent below its October 2007 peak of $250.70.
Paulson came into office determined to use his credibility and reputation to advance an agenda that included easing regulation of Wall Street — citing concern that too-stringent oversight would drive investors to other markets such as London and Hong Kong — and an overhaul of Social Security to allow for taxpayer-funded private accounts.
Paulson’s defenders say he’s the victim of the worst financial crisis in seven decades and has helped prevent a deeper collapse by using his knowledge and contacts on Wall Street.
“He’s been in a trial by fire,” said Allan Hubbard, former director of Bush’s White House National Economic Council. History will say Paulson “responded as well as one could hope,” under the circumstances, he said.
