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 Known as "Hank the Hammer" when he led Goldman Sachs, Paulson is winning praise for using hard-nosed bargaining tactics to strike deals seen as critical to coping with the worst crisis to face financial markets since the savings and loan crisis of the early 1990s.
Paulson heads the President's Working Group on Capital Markets, which briefed President Bush at the White House on Monday. He said the president was "quite pleased" with the results of the marathon negotiations over the weekend that resulted in a deal for the sale of troubled investment house Bear Stearns Cos. to JPMorgan Chase & Co.
The hurry-up sale was seen as a way of keeping the impending collapse of Bear Stearns from dragging down other big Wall Street firms and perhaps plunging the country into a deep recession.
The sales agreement, announced late Sunday, occurred after Paulson and another former Goldman Sachs executive, Treasury Undersecretary Robert Steel, combined forces with Federal Reserve Chairman Ben Bernanke and other Fed officials. Under the deal, JPMorgan would take over Bear Stearns with financial backing from the Fed.
Paulson kept Bush informed through the weekend of the discussions including the Fed's increased efforts to bolster credit markets. Paulson and Bernanke have continued the practice of past Treasury and Fed leaders of holding weekly breakfast meetings and conferring more often during times of crises.
While the administration still insists it is adhering to its free-market principles, those principles did not stop Paulson from getting actively involved when it looked like the collapse of Bear Stearns was imminent.
That pragmatic approach is winning kudos for Paulson, who is seen as a vast improvement from Bush's first two Treasury secretaries. Paul O'Neill, the former head of Alcoa, and John Snow, the former head of railroad giant CSX Corp., lacked the depth of Wall Street expertise that Paulson brought to the job and had little sway on policy matters inside the administration.
Paulson insisted as a condition of joining the Cabinet that he would have a much bigger say in policy development. The administration agreed, believing that Paulson's financial background could come in handy if there were any periods of market turmoil in the administration's final two years.
"He turned out to be the right man at the right moment," said David Jones of DMJ Advisors. "It is like being an airplane pilot. When a crisis hits, there is no time for on-the-job training. If Bear Stearns had been allowed to fail, it could have led to a major market meltdown."
When he left Goldman Sachs after more than three decades to join the administration, Paulson's net worth was estimated at more than $700 million. He owned 3.23 million shares of Goldman Sachs stock, which was valued at the time at around $480 million.
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 Under ethics rules, he was required to sell off his Goldman Sachs stock as well as agree to divest any other financial company stock or asset that would present a conflict of interest as Treasury secretary.
Paulson has had some missteps in his handling of the credit crisis, which first surfaced a year ago with rising defaults on subprime mortgages, loans made to borrowers with weak credit histories.
Before global financial markets were roiled last August when fears arose over multibillion-dollar losses on subprime mortgages, Paulson kept insisting that "the strongest global economy that I have seen in my lifetime" would help cushion the shocks from the slowdown in housing.
Paulson also initially resisted an idea that the administration ended up endorsing in December: Encouraging the mortgage industry to freeze for up to five years the rates on certain subprime mortgages.
Even with the rapid conclusion of the Bear Stearns sale, the administration and Paulson are continuing to be criticized for failing to do enough to protect millions of homeowners still in danger of defaulting on their mortgages.
Paulson insisted again on Monday that he believed the voluntary industry initiatives that the administration is supporting will help address the problem, but he said lawmakers were offering some "interesting ideas."
Senate Banking Committee Chairman Chris Dodd, D-Conn., and House Banking Committee Chairman Barney Frank, D-Mass., are pushing an effort to avert foreclosures by having the Federal Housing Administration insure more home loans.
Paulson has also won praise for being able to quickly strike a deal with the Democratic-controlled Congress on a $168 billion economic stimulus package. The Internal Revenue Service announced Monday that the first checks will be mailed on May 2 with the goal of having 34 million payments made within the first three weeks.
"Paulson has done a pretty good job," said David Wyss, chief economist at Standard & Poor's in New York. "They are trying to calm markets down, but markets are still worried about whether there are more problems out there."
[Associated
Press; By MARTIN CRUTSINGER]
Copyright 2008 The Associated
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