Making the rounds on the Sunday morning talk shows, Treasury Secretary Henry Paulson repeatedly said today's financial problems were long in the making.
Paulson presided over one of the most profitable runs on Wall Street as chairman and chief executive officer of investment banking titan Goldman Sachs & Co. from 1999 until President Bush nominated him on May 30, 2006, to take over the Treasury Department.
Back then, Bush saw Paulson's Wall Street experience as a plus. “Hank will follow in the footsteps of Alexander Hamilton and other distinguished Treasury secretaries who used their talents and wisdom to strengthen our financial markets and expand the reach of the American Dream,” Bush said at the time.
But with Paulson now seeking virtually unfettered authority to administer the largest bailout of the financial industry in U.S. history, many wonder whether Paulson doesn't come also with enormous potential conflicts of interest.
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That was one reason Democrats on Sunday expressed reluctance to approve the administration's draft legislation that would leave to Paulson virtually all authority over the proposed $700 billion bailout. The legislation would allow him to decide which securities to buy, from whom to buy them, and which outside companies and people to hire to help him do so.
In recent days, there have been few outward expressions of distrust of Paulson in particular. In fact, many said his long reign on Wall Street makes him uniquely qualified to deal with today's problems.
“Hank is the right guy,” New York Mayor Michael Bloomberg, who made his millions providing information to Wall Street traders, told NBC's “Meet the Press.” “If I had to have one person at the helm today, I would pick Hank Paulson.”
But potential conflicts are also visible. Paulson has surrounded himself with former Goldman executives as he tries to navigate the domino-like collapse of several parts of the global financial market. And others have gone off to lead companies that could be among those aided by the bailout.
Paulson's former assistant secretary, Robert Steel, left in July to become head of Wachovia, the Charlotte-based bank that has hundreds of millions of troubled mortgage loans on its books.
In the last annual report at Goldman that Paulson signed off on in November 2005, a year in which he received $38million in compensation, investors were clearly told that the federal government wouldn't be there to save them from bad investments.
“Goldman Sachs, as a participant in the securities and commodities and futures and options industries, is subject to extensive regulation in the United States and elsewhere,” the report said.
But those regulations are designed to protect the interests of clients in the market, it said. “They are not …charged with protecting the interest of Goldman Sachs shareholders or creditors,” it said.
During Paulson's tenure, Goldman was not as big a player in issuing mortgage bonds as two other investment banks that have gone under this year, Bear Stearns and Lehman Brothers.
But the 2005 annual report shows Goldman was still a significant player. Its trading division, which included the mortgage bonds and complex financial instruments called derivatives, reported pre-tax earnings of more than $6.2 billion, up sharply from $3.5 billion in 2003.
The report also shows that Goldman benefited greatly from the wave that is now being deemed a wave of excess.
Goldman's pre-tax earnings rose from $4.4 billion in 2003 to almost $8.3 billion in 2005. Similarly, its investment banking division had pre-tax earnings leap from $207 million to $413 million.
Paulson's personal fortunes also zoomed in those years.
In 2002, Paulson received $12.1 million in compensation, including a $6.3 million bonus – an improvement over the previous three years when Wall Street accounting scandals unsettled investment banks, including a $1.5 billion settlement Goldman and other banks paid for issuing overly bullish research reports that promoted deals the banks themselves were involved in.
Published reports said Paulson received $30 million in compensation and salary in 2003.