Hank Paulson Mastered Wall Street and Washington, and Now He Trusts Neither

The man who served as Treasury secretary during the most recent financial crisis blames both the public and private sectors for economic collapse. 

Former U.S. Treasury Secretary Hank Paulson at a hearing before the Federal Crisis Inquiry Commission in 2010. (Reuters)

Hank Paulson might be the closest thing America has to an economics movie star. The former Treasury secretary has been portrayed by prominent actors in two dramatizations of the 2007-2008 financial crisis, and last year, he starred in a documentary about his own life. As the man who presided over the biggest market meltdown in recent U.S. history, he has become a symbol of two worlds colliding—he's the Goldman Sachs CEO who came to Washington and then had to bail out his old friends on Wall Street.

Here's what I learned during a recent Atlantic screening of Hank: Five Years From the Brink and interview with Paulson. He loves his wife, Wendy, who keeps it real: She once made her husband return a new winter coat from Bergdorf Goodman because she thought it would be too ostentatious for him to own two coats. He used to ride a private jet, but now he flies commercial like everybody else (thanks again, Wendy). And after six years in government and 32 years in banking, he has learned to be cautious about both the public and private sectors.

"I was always suspicious of people who came out of their mother's womb knowing they wanted to be investment bankers."

"I was always suspicious, when I ran Goldman Sachs, of people who came out of their mother's womb knowing they wanted to be investment bankers," he says in the film. He graduated from Harvard Business School in 1970, but he claims he didn't really know what investment banking was until after he started at Goldman in 1974. After taking over as CEO 1998 and spending almost a decade in New York, he was tapped to become George W. Bush's third Treasury secretary—in fact, he had to be asked three times before he said yes. When he finally accepted and started getting to know his new boss, he discovered a shared spirit of distrust.

"Bush did not like Wall Street or anything about it when he showed up as president," Paulson said in the interview. But the new Treasury secretary knew that he needed to form a strong relationship with the president, and he eventually gained his boss's trust. "You're my wartime general," Paulson recalled Bush telling him a few months into his tenure.

And wartime it would soon be. A little more than a year after Paulson became secretary, a large French bank, BNP Paribas, reported problems calculating the value of a few of its funds, all of which held assets from the U.S. sub-prime mortgage market. From then on, the Department of Treasury was in crisis mode. The next few years saw the fall of Fannie and Freddie, the collapse of Lehman Brothers, and lots of bailouts: of banks, the housing sector, car companies.  As much as Paulson still believes government intervention was the right way to rescue the American economy, he also blames poor policies for creating the crisis.

"If you look at any financial crisis from the beginning of time, the roots are in flawed government policy," he said in his interview. In particular, he called out the Congressional inaction that has created a sense of déjà vu in Washington: Every few months, Democrats and Republicans fight the same fights about the debt ceiling, taxing, and spending. "I'm concerned with the divisiveness in our country, how the people on the hard right have their own set of facts ... and people on the left have theirs," he said.

Even though Paulson seems to have learned a lot from living life as a constant crisis manager during his time at Treasury, he says he learned some of his most important professional lessons early on in his career. During his first stint in government in the early 1970s, he worked at the Pentagon, helping the agency manage a bailout of security firm Lockheed Martin.

"Even then," Paulson reflected, "bailouts were very unpopular."