|
Understanding Politics & Wall Street
Who is Henry Paulson?
Tom Eley, at WSWS, 23 September 2008
[see also Global
Priority: Feed the Markets, Starve the Hungry - Devinder Sharma and
Understanding Financial Mania
and Systemic Risk - 'Leveraged Buy Outs', 'Private Equity', 'Hedge Funds' -
An interview with Damon Silvers ]
 The
plan to rescue the US financial industry arrogates virtually unlimited money and
power over the financial affairs of the state to the office of Treasury
Secretary Henry Paulson. Paulson is a figure with a long history of intimate
connections to the political and financial elite.
In 1970, fresh from the Masters program of the Harvard Business School, Paulson
entered the Nixon administration, working first as staff assistant to the
assistant secretary of defense. In 1972-73, Paulson worked as office assistant
to John Erlichman, assistant to the president for domestic affairs. Erlichman
was one of the key figures involved in organizing President Richard Nixon’s
notorious “plumbers” unit that carried out illegal covert operations against the
president’s political opponents, including espionage, blackmail, and revenge.
Ehlichman resigned in 1973, and in 1975 he was convicted of obstruction of
justice, perjury, and conspiracy, and was imprisoned for 18 months.
Utilizing his connections, Paulson went to work for Goldman Sachs in 1974. In a
2007 feature, the British newspaper the Guardian wrote, “Not only was he well
connected enough to get the job [in the Nixon White House], but well connected
enough to resign in the thick of the Watergate scandal without ever getting
caught up in the fallout. He went straight to Goldman back home in Illinois.”
Paulson rose through the ranks of Goldman Sachs, becoming a partner in 1982,
co-head of investment banking in 1990, chief operating officer in 1994. In 1998
he forced out his co-chairman Jon Corzine “in what amounted to a coup,”
according to New York Times economics correspondent Floyd Norris, and took over
the post of CEO.
Goldman Sachs is perhaps the single best-connected Wall Street firm. Its
executives routinely go in and out of top government posts. Corzine went on to
become US senator from New Jersey and is now the state’s governor. Corzine’s
predecessor, Stephen Friedman, served in the Bush administration as assistant to
the president for economic policy and as chairman of the National Economic
Council (NEC). Friedman’s predecessor as Goldman Sachs CEO, Robert Rubin, served
as chairman of the NEC and later treasury secretary under Bill Clinton.
Agence France Press, in a 2006 article on Paulson’s appointment, “Has Goldman
Sachs Taken Over the Bush Administration?” noted that, in addition to Paulson,
“[t]he president’s chief of staff, Josh Bolten, and the chairman of the
Commodity Futures Trading Commission, Jeffery Reuben, are Goldman alumni.”
“But the flow goes both ways,” the article continued, “Goldman recently hired
Robert Zoellick, who stepped down as the US deputy secretary of state, and
Faryar Shirzad, who worked as one of Bush’s national security advisors.”
Prior to being selected as treasury secretary, Paulson was a major individual
campaign contributor to Republican candidates, giving over $336,000 of his own
money between 1998 and 2006.
Since taking office, Paulson has overseen the destruction of three of Goldman
Sachs’ rivals. In March, Paulson helped arrange the fire sale of Bear Stearns to
JPMorgan Chase. Then, a little more than a week ago, he allowed Lehman Brothers
to collapse, while simultaneously organizing the absorption of Merrill Lynch by
Bank of America. This left only Goldman Sachs and Morgan Stanley as major
investment banks, both of which were converted on Sunday into bank holding
companies, a move that effectively ended the existence of the investment bank as
a distinct economic form.
In the months leading up to his proposed $700 billion bailout of the financial
industry, Paulson had already used his office to dole out hundreds of billions
of dollars. After his July 2008 proposal for $70 billion to resolve the
insolvency of Fannie Mae and Freddie Mac failed, Paulson organized the
government takeover of the two mortgage-lending giants for an immediate $200
billion price tag, while making the government potentially liable for hundreds
of billions more in bad debt. He then organized a federal purchase of an 80
percent stake in the giant insurer American International Group (AIG) at a cost
of $85 billion.
These bailouts have been designed to prevent a chain reaction collapse of the
world economy, but more importantly they aimed to insulate and even reward the
wealthy shareholders, like Paulson, primarily responsible for the financial
collapse.
Paulson bears a considerable amount of personal responsibility for the crisis.
Paulson, according to a celebratory
2006 BusinessWeek article entitled “Mr. Risk Goes to Washington,” was “one
of the key architects of a more daring Wall Street, where securities firms are
taking greater and greater chances in their pursuit of profits.” Under Paulson’s
watch, that meant “taking on more debt: $100 billion in long-term debt in 2005,
compared with about $20 billion in 1999. It means placing big bets on all sorts
of exotic derivatives and other securities.”
According
to the International Herald Tribune, Paulson “was one of the first Wall
Street leaders to recognize how drastically investment banks could enhance their
profitability by betting with their own capital instead of acting as mere
intermediaries.” Paulson “stubbornly assert[ed] Goldman’s right to invest in,
advise on and finance deals, regardless of potential conflicts.”
Paulson then handsomely benefited from the speculative boom. This wealth was
based on financial manipulation and did nothing to create real value in the
economy. On the contrary, the extraordinary enrichment of individuals like
Paulson was the corollary to the dismantling of the real economy, the
bankrupting of the government, and the impoverishment of masses the world over.
Paulson was compensated to the tune of $30 million in 2004 and took home $37
million in 2005. In his career at Goldman Sachs he built up a personal net worth
of over $700 million, according to estimates.
After Paulson’s ascension to the treasury, his colleagues at Goldman Sachs
carried on the bonanza. At the end of 2006, Paulson’s successor Lloyd Blankfein
was handed over a $53.4 million year-end bonus, while 11 other Goldman Sachs
executives raked in $150 million in year-end bonuses combined. That year, the
top investment firms Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman
Brothers, and Bear Stearns handed out $36 billion in bonuses. At the end of
2007, the executives of the same firms, excepting Merrill, were handed another
$30 billion. |
