Bush picks Paulson as shock choice for US Treasury post

In a notable coup that could revive his flagging administration, President George Bush has persuaded Henry "Hank" Paulson, the chairman of Goldman Sachs, to become the US Treasury Secretary.

The announcement, which took the markets and most financial analysts by surprise, was made by Mr Bush at the White House during a ceremony attended by Mr Paulson and John Snow, the outgoing Treasury Secretary, who signalled his intention to step down just before the Memorial Day weekend.

The changeover is the latest, and perhaps the most important, step in the makeover of the Bush administration since Joshua Bolten took over as the President's chief of staff six weeks ago. Since then a new CIA director and a new White House spokesman have been installed, while the powers of Karl Rove, Mr Bush's top political adviser, have been reined back.

Mr Bush described Mr Paulson yesterday as a man with "a lifetime of business experience" and an "intimate knowledge of securities markets". That positive sentiment was echoed by both political parties here, making his speedy confirmation by the Senate a certainty.

Charles Schumer, a member of the Senate Finance Committee, was just one senior Democrat who promised to support Mr Paulson, praising the nominee as "the best pick America could have hoped for". The 60-year-old, an avid nature lover who has led Goldman Sachs since 1999, will need all the qualities attributed to him in his new job - that will pay barely $200,000 (£107,000) a year compared with his remuneration of $38m last year at the helm of arguably the world's most powerful investment bank.

He hinted yesterday at the difficulties ahead, noting the current robust growth of the US economy, but warned that "we cannot take it for granted". America, Mr Paulson said, had to take steps to maintain its competitive edge. Although GDP expanded by a 5 per cent annual rate in the first quarter of 2006, that pace is likely to slow. US consumer confidence slipped last month, while inflationary threats are growing, not least because of soaring energy and commodity prices. The biggest long-term problem, however, will be managing - and if possible reducing - America's huge "twin deficits": the federal budget deficit of some $350bn, but above all the deficit of $800bn as measured by the current account, the broadest overall guide to US financial dealings with the rest of the world.

The external deficit is financed by massive purchases of US securities by the Chinese, Japanese and other foreign central banks. The fear is of a possible dollar sell-off that could destabilise the global financial system. The dollar fell against most major currencies yesterday before recovering slightly on the news that Mr Paulson - and not Donald Evans, the former commerce secretary - had accepted the job. Analysts said that the arrival of Mr Paulson will not affect the unspoken Bush administration policy of allowing the currency to fall gently, as the best means of restoring US competitiveness.

Mr Paulson's likely successor at Goldman Sachs is the bank's chief operating officer, Lloyd Blankfein, and analysts said they expected a smooth transition as soon as Mr Paulson is confirmed at the Treasury. Mr Blankfein is another Goldman lifer, having joined the bank in 1982. He was head of the company's trading businesses until his appointment as Mr Paulson's No 2 in 2004.

His elevation to chief executive would cap the growth of Goldman's trading divisions, which have eclipsed the bank's work giving financial advice. The trading divisions accounted for 66 per cent of net revenues in the first quarter of the year.

Goldman's lifer with task of putting America's economy back on even keel

Hank Paulson told Goldman Sachs staff in an internal memo that answering the President's call to become Treasury Secretary had not been an easy decision. That's hardly surprising, really, as he has given 32 years of his life to the investment bank.

All the signs were that he was initially reluctant to make the move to Washington, and it wouldn't just have been because of the risk he is joining at the fag-end of an administration that has little remaining political capital.

He was reluctant enough to uproot from his native Illinois in 1994 after being appointed to the No 2 job at Goldman Sachs. Before that, he and his wife, Wendy, had built a life on a five-acre site carved out of the family farm, where the couple raised raccoons, alligators and turtles among a menagerie of other animals, as well as two children. Now he will also have to forego the bird-watching rambles the couple take in New York's Central Park before he heads into the office in the morning.

In a parallel life, he would have been a park ranger, he says. Indeed, he has indulged his love of wildlife even while climbing to the top of Goldman. He will often show off birds of prey in the company's offices, and harangue colleagues and business associates into donating to the Nature Conservancy, the environmental group of which he is vice-chairman. Having turned 60 earlier this year, his thoughts were already turning to a retirement which would probably have included ploughing his fortune - which was augmented by $38m (£20m) in pay and bonuses last year - into additional charity work.

His green credentials have led Mr Paulson into controversy recently. Goldman shareholders criticised the bank's donation of 680,000 acres of ecologically sensitive land on the Chilean island of Tierra del Fuego to the Wildlife Conservation Society, a charity to which Mr Paulson's son Merritt is an adviser. His lifelong advocacy of environmental issues will also make Mr Paulson stand out in a sceptical Bush Cabinet.

Mr Paulson is also a surprising choice for Treasury Secretary for another reason. While heading Goldman makes him undoubtedly the pre-eminent banker on Wall Street, he is not known as the smooth public speaker the job would apparently require, and shuns the cocktail party circuit beloved of more social chief executives. His forte is behind-the-scenes power-broking.

He emerged victorious in the power struggle with Jon Corzine, who was forced out as joint chief executive with Mr Paulson in the run-up to Goldman Sachs' flotation in 1999. And two years ago, he was instrumental in ousting Dick Grasso as chairman of the New York Stock Exchange, and installing his protégé, John Thain, as a replacement with a brief to modernise the exchange.

Mr Grasso still refers to Mr Paulson as a "snake". Mr Paulson says snakes are among his favourite animals.

Stephen Foley in New York

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee