He agonized for months before making his decision. As far as he was concerned, he already had the best job in the world: CEO of Goldman Sachs, the most revered institution on Wall Street. As its chief executive, Paulson traveled around the world, focusing much of his attention on China, where he had become something of an unofficial U.S. Ambassador of Capitalism, arguably forging deeper relationships with Chinese leaders than had anyone in Washington, including the secretary of State, Condoleezza Rice.
Joshua Bolten, President Bush’s new chief of staff, was pushing especially hard for Paulson to come on board. He had convinced the president that Paulson’s close ties in China could be a huge plus, given the rapid and geopolitically significant rise of the Chinese economy. Professionally, Bolten knew Paulson well. A former Goldman Sachs insider himself, he had worked for the firm as a lobbyist in London in the 1990s and served briefly as the chief of staff to Jon Corzine, when he headed the firm.
But Bolten wasn’t making any headway with Paulson—or the Paulson family, for that matter. It didn’t help that Paulson’s wife, Wendy, could not stand the president’s politics, even though her husband had been a “pioneer” for Bush in 2004—a designation given to those who raised more than $100,000 for the president’s reelection campaign. His mother, Marianna, was so aghast at the idea that she cried. “You started with Nixon and you’re going to end with Bush? Why would you do such a thing?” she sobbed. Paulson’s son, a National Basketball Association executive, and daughter, a reporter for the Christian Science Monitor, were also initially against his making the move.
Another key doubter was Paulson’s mentor, John Whitehead. A former Goldman chairman and a father figure to many at the bank who had served in the State Department under Reagan, Whitehead thought it would be a big mistake. “This is a failed administration,” he insisted. “You’ll have a hard time getting anything accomplished.”
In an interview in April, Paulson was still dismissing talk that he was a candidate for Treasury secretary, telling the Wall Street Journal, “I love my job. I actually think I’ve got the best job in the business world. I plan to be here for a good while.”
Meanwhile, Bolten kept pushing. Toward the end of April, Paulson accepted an invitation to meet with the president. But Goldman’s chief of staff, John F. W. Rogers, who had served under James Baker in both the Reagan and G.H.W. Bush administrations, urged him not to attend the meeting unless he was going to accept the position. “You do not go to explore jobs with the president,” he told Paulson. Rogers’s point was impossible to dispute, so Paulson awkwardly called to send his regrets.
Paulson and his wife, however, did attend a luncheon at the White House that month for President Hu Jintao of China. After the meal they took a stroll in the capital, and as they walked past the Treasury Building, Wendy turned to him.
“I hope you didn’t turn it down because of me,” she said. “Because if you really wanted to do it, it’s okay with me.”
“No, that’s not why I turned it down.”
Despite his reluctance, others believed Paulson’s decision was not quite final, and Rogers, for one, thought his boss secretly did want the job. On the first Sunday afternoon of May, he found himself fretting in his home in Georgetown, wondering whether he had given Paulson bad advice. He finally picked up the phone and called Bolten. “I know Hank told you no,” he told him, “but if the president really wants him, you should ask him again.”
When Bolten called and repeated his pitch, Paulson wondered whether his resistance to the overtures was really a matter of a fear of failure. At Goldman he was known as someone who “runs to problems.” Was he now running away from them?
Paulson is a devout Christian Scientist and, like most members of the faith, he deeply admires the writings of Mary Baker Eddy, who, seeking to reclaim early Christianity’s focus on healing, founded the First Church of Christ, Scientist, in Boston in 1879. “Fear is the fountain of sickness,” she wrote. Fear “must be cast out to readjust the balance for God.”
Paulson was already having second thoughts about turning down the Treasury job when James Baker followed up on Bolten’s call. Baker, the GOP’s éminence grise, confided to him that he had told the president that Paulson was by far the best candidate for the position. Deeply flattered, Paulson assured him that he was giving the idea serious consideration.
That same week, John Bryan, the chief executive of Sara Lee and a longtime friend, Goldman director, and client of Paulson’s from when he was an investment banker in Chicago, offered him this advice: “Hank, life is not a dress rehearsal,” he said. “You don’t want to be sitting around at eighty years old telling your grandchildren you were once asked to be secretary of the Treasury. You should tell them you did it.”
Paulson finally accepted the position on May 21, but because the White House did not plan to announce the appointment until the following week after running a background check, he was left in the awkward predicament of attending the annual meeting of Goldman partners that weekend in Chicago without being able to tell anyone that he was resigning. (Ironically enough, the guest speaker that day was the junior senator from Illinois, Barack Obama.) But with the newspapers—not to mention his colleagues—still speculating about whether he would join the administration, Paulson hid upstairs in his hotel room throughout the event.
On Wall Street, there are two kinds of bankers: the silky smooth salesmen who succeed based on wits and charm, and those who persist with bulldog tenacity. Paulson was of the latter type, as the White House soon discovered. Before he officially accepted the job, Paulson made certain to see to a few key details. If thirty-two years at Goldman Sachs had taught him anything, it was how to cut the best deal possible. He demanded assurances, in writing, that Treasury would have the same status in the cabinet as Defense and State. In Washington, he knew, proximity to the president mattered, and he had no intention of being a marginalized functionary who could be summoned at Bush’s whim but couldn’t get the chief executive to return his calls. Somehow he even got the White House to agree that its National Economic Council, headed by Allan Hubbard, a Harvard Business School classmate of Paulson’s, would hold some of its meetings at the Treasury Building, and that the vice president, Dick Cheney, would attend them in person.
Hoping to silence any suggestion that he would favor his former employer, he voluntarily signed an extensive six-page “ethics” agreement that barred him from involving himself with Goldman Sachs for his entire tenure. His declaration went far beyond the regular one-year time period required for government employees. “As a prudential matter, I will not participate in any particular matter involving specific parties in which The Goldman Sachs Group, Inc. is or represents a party for the duration of my tenure as Secretary of the Treasury,” he wrote in a letter that served as the agreement. “I believe that these steps will ensure that I avoid even the appearance of a conflict of interest in the performance of my duties as Secretary of the Treasury.” It was an avowal that would certainly hinder his power, given Goldman’s role in virtually every aspect of Wall Street, and one that he would later desperately try to find ways around.
One additional condition came with the appointment: Paulson would have to divest his huge holding of Goldman Sachs stock—some 3.23 million shares, worth about $485 million—as well as a lucrative investment in a Goldman fund that held a stake in the Industrial and Commercial Bank of China. Because new Internal Revenue Service rules allowed executives who entered into government service to sell their interests without a penalty, Paulson saved more than $100 million in taxes. It was perhaps one of the most lucrative deals he ever struck, but for many months prior to the crisis, he watched chagrined as Goldman’s shares rose from about $142, when he sold them, to their high of $235.92 in October 2007.