Seven days that brought Paulson to his knees

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The Independent US

"After reading this proposal, I can only conclude that it is not only our economy that is at risk, Mr Secretary, but our constitution as well." So said the chairman of the Senate's banking committee, Christopher Dodd, as Hank Paulson, the Treasury Secretary, squirmed under questioning. That hearing, on Tuesday, was when Mr Paulson realised he had made a terrible miscalculation.

Just a week ago, this multimillionaire former banker appeared to be single-handedly holding up the world's financial system when he presented Congress with a simple, three-page bailout plan that would have handed him unprecedented personal power, free from judicial or congressional oversight, to spend $700bn (£380bn) of taxpayer money buying and selling Wall Street's disastrous mortgage investments. By the end of the week, he was on his knees, begging Nancy Pelosi, the Democrat Speaker of the House, to keep his proposal alive. The image of the brick-built Treasury Secretary literally on one knee in the White House Roosevelt Room succinctly captures Mr Paulson's humiliation.

Despite a personal fortune estimated at $500m a couple of years back, Mr Paulson has cut an engaging, self-effacing figure. A lifelong environmentalist, who raises raccoons, alligators and turtles on the family farm back in Illinois, he looked an ill-fitting choice for the Bush administration as Treasury Secretary. He initially resisted going to Washington, knowing full well that its modus operandi is different from the world of investment banks that he knew at Goldman Sachs. Here, a chief executive's word is law, and even a three-page document would be regarded as too much red tape.

To the conservative right, he has betrayed the free-market, anti-government orthodoxies. To the American public, he is the architect of a plan to bail out his fat-cat friends on Wall Street. And to the bigwigs of finance, he has been just about the worst possible advocate of a plan that could be the only hope of avoiding a prolonged recession. Business commentators raged that he was unable to translate Wall Street gibberish into plain English, watching him try to explain to Congressmen how the government might used reverse auctions to value collateralised debt obligations, instead of saying: this plan is about saving jobs, allowing Americans to buy homes and saving small businesses.

Mr Paulson has not improved as a public speaker in his two and a half years at the Treasury. Even at Goldman Sachs he used to say, "I am not an inspirational leader, I'm just not." Never has that been more true – and more disappointing and dangerous – than in these past seven days.