Paulson was the designated leader of the Bush Administration's efforts in 2008 to nationalize the cost of bad loans made by financial institutions.
Through unprecedented intervention by the U.S. Treasury, Paulson led government efforts which he said were aimed at avoiding a severe economic slowdown. He pushed through the conservatorship of government agency mortgage giants Fannie Mae and Freddie Mac. Working with Federal Reserve Chairman Ben Bernanke, he influenced the decision to create a credit facility (bridge loan & warrants) of US$85 billion to American International Group so it would avoid filing bankruptcy.
In late September 2008, Paulson, along with Federal Reserve Chairman Ben Bernanke, led the effort to help financial firms by agreeing to use US$700 billion dollars to purchase bad debt they had incurred.[23] He faced criticism from economists for initially refusing to consider injecting large amounts of cash into financial institutions directly by purchasing stock, an option which other countries in similar circumstances have pursued.[24] This was the option favored by Federal Reserve Chairman Bernanke, and the one that was eventually followed. [25]
On September 19, 2008, Paulson called for the U.S. government to use hundreds of billions of Treasury dollars to help financial firms clean up nonperforming mortgages threatening the liquidity of those firms.[26] Because of his leadership and public appearances on this issue, the press labeled these measures the "Paulson financial rescue plan" or simply the Paulson Plan.[27]
With the passage of H.R. 1424, Paulson became the manager of the United States Emergency Economic Stabilization fund.
As Treasury Secretary, he also sat on the newly established Financial Stability Oversight Board that oversees the Troubled Assets Relief Program.
[edit] Conflict of interest claims
It has been pointed out that Paulson's plan could potentially have some conflicts of interest, since Paulson was the former CEO of Goldman Sachs, a firm that may benefit largely from the plan.[28] Questions remain about Paulson's interest, despite the fact that he had no direct financial interest in Goldman, since he had sold his entire stake in the firm prior to becoming Treasury Secretary, pursuant to ethics law.[29] The Goldman Sachs benefit from AIG bailout was recently estimated as USD 12.9 billion and GS was the largest recipient of the public funds from AIG. [30] Creating the collateralized debt obligation (CDO's) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO[31]. An investigation into whether the creators of these debts had failed to disclose their underlying risk -- likely in civil damage suits arising out of AIG's failure -- would necessarily involve scrutiny of Paulson's own role. The fact that his sale of his Goldman Sach's interest was tax-deferred, netting him nearly $200 million in tax benefits, resulted in questions about the motives of his joining the government. [32]
Opponents argued that Paulson remained a Wall Street insider who maintained close friendships with higher-ups of the bailout beneficiaries. If passed into law, the proposed bill would give the United States Treasury Secretary unprecedented powers over the economic and financial life of the U.S. Section 8 of Paulson’s original plan stated: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."[33]. For this reason, many bloggers referred to Mr. Paulson as "King Henry." [34] Some time after the passage of this bill, the press reported that the Treasury was now proposing to use these funds ($700 billion) in ways other than what was originally intended in the bill.[35].
Henry Paulson - Wikipedia, the free encyclopedia