WHEN he first got into politics, US Treasury secretary Henry Paulson was no doubt prepared to be called some unpleasant things by his opponents. But it is unlikely he anticipated being attacked as a "communist" by some erstwhile friends. Yet in one
short week, the hurricane blowing through the US financial markets has seen the 62-year-old transformed from staunch Republican and lifelong free-marketeer to "new communist" in the eyes of an increasingly sceptical public. In the immediate aftermath of the collapse of Lehman Brothers, his $700bn deal to buy up a mountain of bad mortgage debt has been hailed by President Bush as a lifesaver for capitalism. Within days, it had metamorphosed into a betrayal of everything America stands for.
On Tuesday, a venture capitalist took out a full-page advertisement in the New York Times, showing Bush, Paulson and Federal Reserve chairman Ben Bernanke planting a flag bearing the hammer and sickle with "private enterprise" and "capitalism" marked on tombstones behind them. Then on Friday, as Republicans refused to back the bailout during a seven-hour White House summit, Paulson was reduced to dropping to one knee (albeit in a self-mocking manner) to plead with his Democrat rivals not to reveal how badly the meeting had gone.
It was a bizarre position for the former chief executive officer of investment banking group Goldman Sachs to find himself in: to be pleading for a socialist-style takeover that ignores "moral hazard", the unwritten rule which says bailing out reckless businesses only encourages future recklessness.
Paulson has continually stressed the undesirability of his proposal, but insisted it is the only way to unfreeze the credit markets. "It's very unpleasant for me, but it's a lot more attractive than the alternative," he said. Or as Bush put it: "If money isn't loosened up, this sucker could go down."
So who is the man Newsweek crowned "King of America"; the man on whom the future of the global economy rests? Paulson was born into a middle-class family in the Barrington Hills in Illinois. His father Henry Merritt Paulson was a wholesale jeweller and he was raised a Christian Scientist. He was sporty and fiercely intelligent, and there was scarcely a blip in his educational trajectory: a champion wrestler and football player, he moved seamlessly from Barrington High School to Dartmouth College to Harvard Business School, picking up awards and honours – such as membership of the prestigious Phi Beta Kappa Society – along the way.
From an early age, he combined his aptitude for business with a love of wildlife, a passion he shares with his wife Wendy, a Wellesley graduate. Shortly after their wedding, they bought five acres of land and built a house where they raised their two children – Merritt, now the owner of minor league sports teams in Portland, and Amanda, a reporter with the Christian Science Monitor – along with a menagerie, which included racoons, lizards, snakes and even alligators.
At the same time, Paulson rose through the ranks of Goldman Sachs in Chicago, becoming a partner in 1982. From 1990-94, he was the co-head of Investment Banking, before being made chief operating officer – a move that finally saw him leave the Windy City for New York. In 1999, he succeeded Jon Corzine (now Democrat governor of New Jersey) as the company's chief executive officer. During his time there, he led Goldman's transition to a publicly traded company and forged a close alliance with China, visiting the country more than 70 times.
Teetotal and a non-smoker, he spurned the high-society party lifestyle of other CEOs. "Paulson was seldom thought of as pal, a charmer or particularly charismatic," says Charles Ellis, in his book The Partnership: The Making Of Goldman Sachs, "but he was noted for self-discipline, focus on controlling risk and mastery of detail."
Paulson has always been a Republican ("a Rockefeller", rather than "a DeLay" Republican, as Newsweek put it), but a capitalist rather than a conservative ideologue. A natural philanthropist, he was at home with Goldman Sachs' ethos on supporting civic causes. He has spent $100m of his own money on environmental campaigns – an achievement that lead him and his wife to be ranked 18th on The Chronicle of Philanthropy's list of America's Most Generous Donors in 2006 – and he has pledged his entire $700m fortune to conservation on his death.
Indeed, so all-consuming is his interest, that on one occasion the 6ft 2ins executive tested the patience of Goldman Sachs shareholders by overseeing the corporate donation of 680,000 acres of forest in Tierra Del Fuego. When he and his wife lived in a condo in Manhattan, Wendy led bird walks in Central Park.
Paulson is one of the few members of the current administration to back moves to cut down on greenhouse gases – a stance that puts him at odds with Bush, who rejected the Kyoto international global warming treaty negotiated during Clinton's presidency. On being sworn in as US Treasury secretary in July 2006, Paulson distinguished himself from his two predecessors by putting the widening gap between the rich and poor on his list of the country's four long-term economic issues to be addressed. And – as the housing bubble burst – he helped create the Hope Now alliance to help struggling homeowners meet mortgage payments.
Even so, he was slow to grasp the scale of the financial crisis that was enveloping the US. Right up until the end of August, he was reassuring the public that everything was under control. But in the last few weeks, he has found himself at the forefront of a small group of people playing God: deciding which troubled companies would be underwritten – Fannie Mae, Freddie Mac and AIG; which sold – Bear Stearns; and which abandoned – Lehman.
There are those, though, who believe his endorsement of the bailout is less than philanthropic, as it is designed to aid financial institutions, including, incidentally, Goldman Sachs, by stabilising their share prices. Fearful of a conflict of interest, they point out that Paulson is unlikely to survive the election. If he goes back to his old world, then he will benefit from the measures he spearheaded.
Paulson's biggest obstacle in pushing through his plan, however, has not been convincing outsiders, but those within his own party, who last week brought negotiations to a halt. Now a deal has finally been struck, he faces more nail-biting moments as America waits to see if it is enough to stave off the biggest financial crisis the world has seen since the Great Depression. As an investment banker, he is used to risk and speculation, but any way you look at it, his unprecedented bailout proposal is the mother of all gambles.
