Goldman's chief to take on Treasury
Paulson nominated by President Bush to succeed John Snow as secretary, boost public perception of performance.
By Chris Isidore, senior writer

NEW YORK ( - President Bush on Tuesday named Goldman Sachs CEO Henry Paulson to be the next Treasury Secretary, succeeding John Snow.

Bush made the announcement at a brief White House ceremony, flanked by Paulson and Snow, whose resignation had been widely expected.

John Snow (left), President Bush and Henry Paulson at the White House Tuesday morning.
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In his remarks, Bush said the Treasury Secretary would be the leading force on his economic team, as well as the chief spokesman for his economic policies, and he praised Paulson's experience and integrity.

"He has a lifetime of business experience, he has an intimate knowledge of financial markets, and an ability to explain economic issues in clear terms," Bush said. "He's earned a reputation for candor and integrity. And when he is confirmed by the Senate, he'll be a superb addition to my Cabinet."

Bush could use a new spokesman for his economic record. The president is suffering from very low approval ratings, even in his handling of the U.S. economy, despite reports showing solid growth.

The nation's economy grew at a 5.8 percent annual rate in the first quarter. While that pace of growth is widely expected to slow, many economists see the economy remaining strong despite the impact of higher interest rates and energy prices. The unemployment rate stands at 4.7 percent and average hourly wages are improving slightly faster than measures of consumer prices.

Still the most recent poll on Bush's approval rating conducted May 16 and 17 for CNN for Opinion Research Corp. showed only 36 percent of Americans approved of his job performance overall. Only 34 percent approved of his handling of the economy - even though a poll conducted earlier in the month found that 52 percent believe the economy is either very good or somewhat good.

"I don't think the economy is the biggest problem for Bush. The economy is doing pretty well," said David Wyss, chief economist for Standard & Poor's. "Paulson can be a better spokesman just in the sense that he's new. He's got a chance to make a better case. But Paulson has not been a real out-front guy. He's not courted a lot of public attention and I'm not sure he will in this job."

Wyss said the pressure on the dollar will be a major problem facing the Treasury Secretary, and that Paulson is probably better qualified than his successors to deal with those issues. Before their stints at Treasury, Snow headed a transportation company, CSX (Research), and O'Neill ran the aluminum producer Alcoa (Research).

"He'll have a better understanding of international financial markets. It's becoming increasingly important because the U.S. has become more reliant on foreign capital," said Wyss.

Surprise pick

There had been speculation in the press, including a Saturday report in the New York Times, that Paulson wasn't interested in taking the job because of the limited role that Snow and his predecessor, Paul O'Neill, had in shaping administration policy.

Some other reports over the weekend suggested that former Commerce Secretary Don Evans or Stephen Friedman, the president's former chief economic adviser, were leading contenders to replace Snow.

"I think getting Paulson is a bit of a coup for the Bush administration," said Jeoff Hall, the chief U.S. economist for Thomson Financial. "You've got enough academics at the Fed right now. You need someone with a little Wall Street credibility."

Paulson's influence in the White House might be helped by the fact that Josh Bolten, the new White House chief of staff, served as executive director of legal and government affairs for Goldman Sachs' London office for five years before joining the Bush campaign for president in 1999.

In financial markets, the dollar pared early losses Tuesday after it became clear the Goldman (Research) executive was taking the job, only to move lower again after news that consumer confidence fell in May.

"I think any time you have a change in a cabinet position like that, you have the potential to roil the markets," said Hall. "But I don't know that one person is going to bring about a stronger dollar. It's about fundamentals and policy."

Wyss said even with greater expertise in the field, he would expect the dollar to continue its recent declines under Paulson, unless there are moves to cut the Federal budget deficit and the nation's trade gap with other countries.

"I like tax cuts as much as anyone, but some control over the government spending would be nice. The administration is coming around to that, but I don't think they have enough control over the Congress to get that done," said Wyss. "I see the dollar continuing to decline for the foreseeable future. You're running a $900 billion trade deficit. It's hard to see how it can't decline."

Ashraf Laidi, the chief currency analyst with MG Financial Group, agreed that the dollar will likely be under pressure in coming years, but he thinks the decline could be slower because of Paulson's selection.

"We regard his appointment more of a defensive measure to prevent the dollar's downtrend from accelerating into an uncontrollable pace," he wrote in a note Tuesday. "Secretaries with considerable experience in Wall Street have supported or served during a period of a strong dollar, which is in line with shoring up foreign interest in U.S. assets. Treasury Secretaries emerging from an industrial background, or those with considerable policy experience, have generally preferred a weaker dollar so as to boost the priorities of local industry and employment."

Leaving Goldman on top

Paulson, 60, is leaving Goldman while the firm is riding high.

The company had earnings in 2005 of $5.6 billion up 24 percent from a year earlier. Earnings per share have handily beat Wall Street forecasts in six of the last eight quarter, meeting forecasts once and missing only once. Its shares have outperformed its Wall Street competitors over the last 12 months, rising more than 50 percent in value during that time.

His compensation last year reflected that performance.

Paulson made more $38 million in 2005, according to Goldman's proxy statement, with most of that, $30.1 million, coming from restricted stock awards, and stock options valued at $7.3 million. He got $29.2 million in stock grants in 2004 and $20.8 million in 2003, on top of his base pay of $600,000 each of the last three years.

His Goldman stock holdings at the end of 2005 were worth just under $700 million at current prices, not including the value of his stock options. But those prices were somewhat lower Tuesday, as Goldman shares lost about 1.5 percent on news it is losing its CEO.

The pay for the post of Treasury secretary is currently $175,700 a year, or less than what Paulson earned in two days last year, based on his total compensation. If Paulson's confirmed, American taxpayers will be paying him just a bit more than the $153,931 that Goldman Sachs paid to provide him with a car and driver in 2005.

"I want to thank Hank for his willingness to leave one of the most rewarding jobs on Wall Street to serve the American people," Bush said. "Hank's going to make an outstanding Secretary of the Treasury."

Paulson has been chairman and CEO of Goldman Sachs since May 1999. Before that he shared the top job with Jon Corzine, who was forced out of the firm just after Goldman went public that year.

Corzine went into politics following his departure from Goldman, serving first in the Senate, and now as governor of New Jersey. Unlike Paulson, Corzine is a Democrat, as is another former Goldman CEO, Robert Rubin, who served at President Clinton's Treasury Secretary.


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