Hank Paulson Enjoys Power, Wants More
Back in June 2006, when Hank Paulson agreed to become Treasury Secretary, you had to wonder what he was thinking. Paulson, then the CEO of Goldman Sachs, had one of the most lucrative jobs in the world, and perhaps the most prestigious job in finance. And he was going to an administration that was far closer to its end than its beginning, that was increasingly unpopular and which was about to lose control of Congress. Of course when the President calls and asks you to help, it's hard to say no. Still, Paulson looked like a caretaker at best.
But now Paulson at least thinks he can have an impact. Set aside some still-unspecified regulatory changes he's suggested, since enactment is unlikely in the waning days of W's regime. But he's also seeking to enshrine the Federal Reserve, perhaps the U.S. government's most undemocratic institution, with additional "tools" and "emergency authority."
In his speech yesterday in London, Paulson said:
In my view, looking beyond the immediate market challenges of today, we need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm. To do this, we will need to give our regulators additional emergency authority to limit temporary disruptions. These authorities should be flexible and -- to reinforce market discipline -- the trigger for invoking such authority should be very high, such as a bankruptcy filing. And as part of this process we should consider ways to ensure that costs are imposed on creditors and equity holders. Any commitment of government support should be an extraordinary event that requires the engagement of the Executive Branch. It should be focused on areas with the greatest potential for market instability and should contain sufficient criteria to ensure that the cost to the taxpayers is minimized.The key point here is that Paulson does not seem to be proposing an overall of existing statutes or regulations. That would require the involvement of Congress, the SEC and others. Instead, it seems, he wants to make routine the murky practices the Fed employed in the Bear Stearns situation. And he wants financial firms to give the Fed more information so it can know when to flex its new muscles. At the same time, he wants everyone to understand that bailouts are unlikely.
It sounds like Paulson wants a more powerful and intrusive government that will help the financial community -- but not so much that it will create moral hazard. Apart from the kind of ad hoc measures employed with Bear Stearns, it's unlikely any of this will get done. But it does show that Paulson is getting to enjoy government power and wants more of it.
Photo of Hank Paulson via Wikimedia Commons
