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To: ~digs who wrote (1141)	6/10/2006 5:55:03 AM
From: ~digs	Respond to of 3198

conversely, ------- Why We Should Be Glad Henry Paulson Said Yes: Kevin Hassett quote.bloomberg.com June 5 (Bloomberg) -- Henry Paulson, chairman and chief executive officer of Goldman Sachs Group Inc., heads to Washington as the most anticipated new Treasury secretary in recent history. The back story could hardly be more delicious. Paulson reportedly declined the job at first, but reconsidered after a long meeting with the president. Why would a man like Paulson, on top of the world as the leader of perhaps America's most prestigious firm, give that up to come to Washington? What did George W. Bush say to persuade Paulson to take a $38 million pay cut? Having discussed this issue with individuals familiar with the White House selection process, I feel there is really only one reason: Bush appealed to Paulson's patriotism and convinced him that his country needs him. That gives us a strong indication of what Paulson and Bush believe the months ahead have in store for U.S. economic policy. Think of it this way. If the president told you to give up your job and come to work as the White House janitor, all the while appealing to your patriotism, you might hesitate. Any number of individuals could handle the job. Why would the president need you and you alone? Clearly, Paulson came to feel that the move was his duty because there was a compelling argument made that he possesses specific, irreplaceable skills that make him the man for the job at this point in history. It's doubtful that adding his gravitas to the Bush team, and potentially giving Republicans a political boost, had anything to do with it. No, a man like Paulson makes a decision like this because he worries about the good of the country. Not for Taxes Tax-cutting Republicans have fantasized that a strong Treasury secretary will make an ambitious tax agenda possible next year. But that can't be the main issue driving Paulson, for one simple reason. Political futures markets right now have the probability of Republicans losing the House of Representatives at 56 percent. Would you give up your life on Wall Street in exchange for a coin flip's chance of making a difference next year? No way. So what else is there? I think there are a number of possibilities, and I expect they each received ample weight in Paulson's decision. The first is that he is convinced that shockingly large global imbalances combined with accelerating inflation and a potentially collapsing U.S. housing market expose the world economy to an unacceptably high risk of financial crisis. In a financial crisis, the kind of strength we would expect from Paulson can make all the difference. Dealing With Iran I sleep better at night knowing a man like Paulson will be at the helm in the coming months, and Paulson wouldn't have to be an egotist to recognize that markets probably would as well. Second, there's no question that the greatest threat our country faces at this moment is the possibility of a nuclear Iran. Iran seems to be inching toward the negotiating table, likely because the Iranians believe that the possibility of stiff economic sanctions is real. But such sanctions have a spotty success record. It's so easy to use shell games and financial intermediaries to avoid them. But imagine if the rocket scientists at Goldman Sachs were in charge of concocting enforceable sanctions with teeth? One could hardly think of a team more qualified to give the Iranians nightmares. This must have been discussed. Paulson will probably enlist some of his best people to help on this. `The Best Pick' Third, there's the related issue of terrorist funding. Terrorist organizations use complicated financial webs to funnel money to the fanatical suicide bombers around the world and to the insurgents in Iraq. Once again, bringing the financial SWAT team to the Treasury is probably giving al-Qaeda's financiers fits. The last consideration relates back to fiscal policy. Goldman Sachs is New York Senator Chuck Schumer's No. 1 contributor. It's the No. 2 contributor to his fellow New York Democrat, Senator Hillary Clinton. While Paulson is hardly a partisan Democrat, he is widely respected among Democratic leaders. Schumer called Paulson ``the best pick America could have hoped for'' the Treasury. Americans rightly feel that our politicians have avoided our biggest problems because they are so distracted by partisan enmity. If Bush wants to accomplish anything in the next two years, he will do it not because Republicans win the election, but rather because Democrats and Republicans work together to do the people's business. One wonders if Paulson and former Treasury Secretary Robert Rubin haven't already talked about this. If they have, it changes the fiscal policy arithmetic considerably. There might be a higher chance of real reform even if the Republicans lose in November. Given all this, it makes sense that a patriotic Paulson would accept this charge. He clearly made the right decision.