As his time as Treasury secretary draws to a close, it remains unclear Henry Paulson '68 will be remembered as a prescient problem solver or a contributor to the current financial crisis. One thing is certain: Paulson's actions have greatly expanded the power of the Treasury Department and generated a substantial amount of controversy.
Federal authorities, under Paulson's direction, invested in major banks and converted the troubled mortgage giants Fannie Mae and the Freddie Mac from private organizations with government guarantees into fully public entities.
"The level of the intervention in the economy is unprecedented since the 1930's," Dartmouth government professor Linda Fowler said in an interview.
After the September collapse of Lehman Brothers and the rapid decline of the U.S. economy, Paulson's quick organization of a federal bailout plan was widely commended, with leaders of both parties praising him and Newsweek magazine dubbing him, "King Henry, the new face of American capitalism."
Recently, however, his management of the crisis has garnered criticism from the news media, liberal and conservative commentators, lawmakers on Capitol Hill and members of the business community. Much of the criticism concerns a perception that Paulson has not been fully transparent in how the bailout appropriations are being spent.
"It appears that you seem to be flying a $700 billion plane by the seat of your pants," Rep. Gary Ackerman, D-N.Y., told Paulson, as reported by The Financial Post in November.
Forbes magazine president and CEO Steve Forbes called Paulson "the worst Treasury secretary we've had in modern times" in a November interview with CNN. Forbes said he takes issue with the government's handling of the housing crisis and wants federal authorities to be more accountable for how the bailout funds are used to keep Fannie Mae and Freddie Mac from failing.
Public opinion about Paulson's performance will likely not improve regardless of how Paulson justifies his decisions now, Fowler said.
"People are already second-guessing what he has done, and of course, if things continue to get worse, he'll be blamed for not having done enough or having done the wrong things," she said. "If things get better, he probably won't get much credit either, and people who favor private markets may even accuse him of delaying the recovery. He deserves criticism for being slow to recognize the emergence of a crisis during the spring and for sending very mixed messages about what he intended to do about it."
It is probably premature to define Paulson's legacy, particularly as the financial crisis continues to unfold, economics professor Douglas Irwin wrote in an e-mail to The Dartmouth.
"I think that it is impossible to say at this point whether Paulson's response to the financial crisis will be viewed as successful or not," Irwin wrote. "It almost entirely depends on how the economy responds in coming months. If we begin to see the financial system stabilize in coming months, he will probably get some of the credit. If there is further deterioration, he will probably be viewed as having been ineffective."
Paulson addressed concerns about his impact and legacy in an interview with Time magazine, which recently named him a runner-up to President-elect Barack Obama for the magazines's Person of the Year for 2008.
"I don't think we've made mistakes on the major decisions," Paulson said in the interview, when asked if he pays attention to or is bothered by the widespread criticism. "We've done the right things."
The government's financial decision-makers made the only acceptable choices, given the circumstances of this summer and fall, Paulson told Time. Although government actions did not prevent an economic downturn, they averted total disaster, he added.
"The alternative we were looking at was a cascade of failing institutions," he told Time. "We were looking at a downward spiral or a free fall."
The Treasury Department did not respond to requests for comment by press time.
