Henry Paulson is a former investment banker who served as secretary of the United States Treasury under President George W. Bush. Paulson became best known for his efforts to support the U.S. financial system during the 2007-2008 financial crisis.
Paulson is also the author of books that include On The Brink: Inside the Race to Stop the Collapse of The Global Financial System (2010) and Dealing With China: An Insider Unmasks the New Economic Superpower (2015).
Key Takeaways
- Henry Paulson served as U.S. Treasury secretary in the George W. Bush administration and during the 2007-2008 financial crisis.
- He is the author of a number of books and co-author of Firefighting: The Financial Crisis and Its Lessons with Ben Bernanke and Timothy Geithner.
- Paulson was instrumental in implementing the Troubled Assets Relief Program (TARP) in 2008, among other government initiatives.
Early Life and Education
Henry “Hank” M. Paulson Jr. was born in Palm Beach, Florida, in 1946, and raised in Barrington, Illinois. He earned a bachelor’s degree in English from Dartmouth College in 1968 and an MBA from Harvard Business School in 1970. Paulson began his career on the White House Domestic Council as a staff assistant before joining Goldman Sachs in 1974. He would remain at Goldman Sachs for 32 years, eventually becoming its chairman and CEO.
Appointment as Treasury Secretary
Nominated by President George W. Bush on June 19, 2006, and confirmed by the Senate on June 28, 2006, Paulson was sworn into office on July 10, 2006, as the 74th U.S. secretary of the Treasury. In his role, Paulson acted as the president’s leading policy advisor on a broad range of domestic and international economic issues, most notably during the financial crisis of 2007-2008.
The 2007-2008 Financial Crisis
On Wednesday, Feb. 7, 2007, just seven months into Paulson’s tenure, HSBC Bank USA announced losses linked to U.S. subprime mortgages. This event signaled the beginning of what became the 2007-2008 financial crisis, regarded as the worst economic disaster in the U.S. since the Great Depression of the 1930s.
As months passed, and defaults grew, Paulson initially took a wait-and-see approach, attributing the trouble to a correction within the housing market. From hedge funds at Bear Sterns to insurance giants like AIG, many major players in the financial industry held a piece of the looming losses. Paulson, along with Federal Reserve Chair Ben Bernanke, would ultimately devise a series of bailouts and rescue packages to try to temper the growing crisis.
In their book, Firefighting: The Financial Crisis and Its Lessons, Paulson, Bernanke, and Timothy Geithner, chair of New York’s Federal Reserve in 2008, wrote, “Epic financial infernos don’t happen often. Usually, turmoil in financial markets burns itself out. Markets adjust, firms fail, and life goes on. Sometimes, financial fires get so serious that policymakers need to help put them out.”
In March 2008, Paulson oversaw the merger of Bear Stearns with JPMorgan Chase, a deal that also provided $29 billion in government financing. Paulson and Bernanke were criticized in some quarters for this major move by the U.S. Treasury to curb the financial crisis. The Republican right was opposed to any tampering with the free market, and the Democratic left was outraged by the government rescue of Wall Street’s wealthy elite.
But when Lehman Brothers, a major underwriter of subprime mortgage-backed securities, declared bankruptcy on Sept. 15, 2008, and the government did not intervene, its collapse affected global financial markets for weeks, vindicating the more activist approach in the eyes of many.
Before the end of 2008, Henry Paulson would oversee the nationalization of mortgage giants Fannie Mae and Freddie Mac, support Bank of America as it absorbed Merrill Lynch, provide an $85 billion government rescue package to insurer AIG, institute government guarantees for more than $3 trillion worth of money market funds, and gain congressional approval of a $700 billion arsenal of government support for the entire financial system.
The Treasury, during Paulson’s tenure, also established the Troubled Assets Relief Program (TARP). The program began in 2008 and ended in 2010. During its active two years, TARP helped prevent the collapse of the American auto industry, restart the secondary credit markets to keep credit flowing to households and businesses, and stabilize the U.S. banking system following the financial crisis.
The Paulson Institute
As U.S. Treasury secretary, Paulson helped improve U.S. economic relations with China as well as its trading relationships with Panama, Colombia, South Korea, and Peru.He also worked to modernize the system for issuing U.S. Treasury bonds, helped enhance the national security review process to spur foreign investment in the United States, and launched a program to fight the funding of terrorism.
At the end of his time with the Treasury Department, Paulson founded the Paulson Institute at the University of Chicago in 2011. Focused on sustainable economic growth and preserving the natural environment in the United States and China, the nonpartisan institute is a think tank and learning center. It also initiated the Paulson Prize for Sustainability, which has been awarded annually since 2013 “to projects in China that provide innovative and scalable solutions, at the intersection of economics and environment, to tackle the most pressing twin crises of climate change and biodiversity loss.”
How Did Henry Paulson Affect Policies With China During His Tenure As Treasury Secretary?
As Treasury secretary, Paulson created the Strategic Economic Dialogue with China, a framework for managing a bilateral economic relationship on a long-term strategic basis.
What Is Henry Paulson’s View of Regulation in the Banking Industry?
Paulson has often proposed strengthening regulations to prevent further financial crises. He has suggested that “a regulator can step in and has the power to liquidate an institution, to liquidate and let it fail in a manner so that it doesn’t hurt the American people.”
What Is “Straight Talk With Henry Paulson”?
Straight Talk With Henry Paulson is a series of podcasts initiated as part of the Paulson Institute. Paulson speaks with leaders and educators around the globe in his series.
The Bottom Line
As Treasury secretary from 2006 to 2009, Henry Paulson played a major role in managing the U.S. economy, particularly during the financial crisis of 2007-2008, one of the worst in U.S. and world history. Today, through his Paulson Institute, he continues to work on economic and environmental issues.
