Henry Paulson's Long Night Details

¶ … Henry Paulson's Long Night details the author's interactions with Treasury Secretary Henry Paulson over the course of his career from his appointment to the fall of 2009. The time period covers two Presidential administrations, the financial crisis and its aftermath, and the economic and social consequences thereof. The article details the political context surrounding Paulson's appointment and actions. The Treasury Secretary is essentially an apolitical position, and Paulson viewed the role that way when he accepted the job.

Yet, there is a stark contrast between the ways in which the political system works and the ways in which financial institutions -- Paulson's background was at Goldman Sachs -- work. Paulson had ample experience at convincing people and at building consensus, but found that the process worked much differently in political circles. Elected representatives have a wide range of interests that govern their voting and their actions, so the process by which consensus is achieved is unique, requiring a significant adjustment on Paulson's part.

The political elements to the job made it difficult to manage in advance the financial crisis. Although the Federal Reserve had largely anticipated the crisis, its powers were insufficient to address the issue and without a crisis on hand it was difficult to convince lawmakers, particularly hard-line ideologues on both sides, to take action. The difficulties that Paulson had initially faced in dealing with the political system stemmed largely from his social context.

Paulson had not been in the political arena for decades, having spent most of his career in banking. His social context, for the most part, had prepared him to deal with the core financial issues that were evolving. As cracks in the financial system emerged, Paulson was fully capable of understanding the complex issues as this was part of his background. His career and training had given him a lot of contacts that he could leverage, and significant experience in building consensus.

However, the prevailing social norms in politics are different than the social norms in the banking industry. There is a degree of duplicity among many of the players that does not exist in banking. Political actors are accustomed to a culture in which ideology, narrow interests and conflicting interests all contribute to decision-making. Paulson was not accustomed to these elements and as a consequence there was a long adjustment period before he was able to acclimate to the new social milieu and become fully effective.

The economic context was equally challenging. While the lifelong banker was not directly in charge of regulating banks, he understood that there were faults in the banking industry that put the financial system -- and by extension the economy -- at risk. The economy was set for a fall, owing in large part to the ongoing housing bubble. Paulson's social context with regards to the economy guided him in part. As a Republican and a Wall Street executive, his social norms led him to favor free markets and loose regulation.

This context has been criticized by some, notably Paul Krugman, as a variant of the same failed economic ideology that helped create the crisis in the first place. Paulson, to detractors, is a Republican through and through, and therefore incapable of dealing with the banking and financial crises in an effective manner. Purdum's article contrasts this view with a view of Paulson as fostering bipartisan support. This interpretation is consistent with Paulson's social context.

He is at heart a consensus builder, even if some question the objectives of his consensus building. He operates as a non-partisan actor in a heavily partisan political world, and one of his biggest challenges is to find a way to bridge the gap, particularly when he needs to gather votes, such as for his 2008 economic stimulus package. The limitations of Paulson's role also reflect the social and political contexts of his actions.

The role of Treasury Secretary has changed little in decades, and the powers of the office are as such limited. Paulson points out that "innovation precedes regulation," a situation that leaves him in frustration when dealing with Bear Stearns and other impending crises. This reflects another challenge of his job -- at Goldman Sachs he was CEO, with virtually unlimited power. As Treasury Secretary not only does Paulson have a boss, but his powers are constrained because the Treasury is merely one branch of a much larger regulatory machine.

The ways in which powers are portioned out and limited have a significant impact on Paulson's ability to manage such crises. Managing with only limited power requires a different skill set than managing as CEO. Political actors are also expected to be strong communicators. Purdum points out repeatedly that Paulson is not a strong public orator, and this affects his role.

In the world of investment banking, it is not necessary to possess such skills, yet the shift to the political arena brings demand for the ability to convey ideas clearly to a microphone. This has impacted the perception of Paulson in public, something that is a legitimate concern in a social context where public opinion rather than expediency can dictate actions.

Paulson is forced to address criticism, for example, that his actions are a direct reflection of his background as a banker and a Republican, rather than the actions of a financial and economic expert assigned to a largely non-partisan task. In addition to the substantial adjustments Paulson has been forced to make to adjust to the dramatically different social context on the Treasury Secretary job, he has also faced challenging circumstances with respect to the economy and with respect to the political climate.

While his political leanings and social background may give him a baseline ideology, the stark polarization of ideology in the political arena was a contrast to the more practical approach that many on Wall Street take. Given a crisis --.