Mixed Reviews on the Paulson Nomination

On Monday, May 30, President Bush nominated Henry M. Paulson Jr., CEO of Goldman Sachs, as Secretary of the Treasury to replace John Snow.

So what does it mean, for the dollar, for economic policy, and for the administration?

In the London Times Gerard Baker sees his role as essentially defensive. Given that income tax reform and Social Security reform look to be dead, the only place where he can make a mark is on the dollar.

Will Mr Paulson be content to go along with the odd twin-track approach of the past few years — publicly expressing support for a “strong dollar” while in practice happily acquiescing in the US currency’s decline?

A Wall Street man may not like having the dollar depreciate on his watch.

In fact his main task may be to prevent the dollar decline turning into a rout.

But the MSM is ready to cheer. In Time Mike Allen echoed the White House line that they had “landed a whale.”

In the strict sense, he is right. Goldman Sachs today sits at the pinnacle of Wall Street. But can he make a difference as the Bush administration tries to deal with the triple threat of high oil prices, declining dollar, and rising interest rates?

The conservative base is sounding an alarm. In Human Events Robert B. Bluey notes that while Paulson has contributed to Republicans his wife Wendy is a financial supporter of Democrats and Hillary Clinton.

And there is the question of the Nature Conservancy. Both Paulsons are active in this conservation group that buys up land to transmit to the federal government. But there have been questions about the Nature Conservancy. That Hank Paulson is

chairman of the board of the Nature Conservancy, which is under investigation for financial misdealings that benefited some of its officers and donors, should automatically disqualify him for the top Treasury job.

Goldman Sachs also has dealings with the mortgage giant, the Federal National Mortage Assocation.

According to last week's report by the Office of Federal Housing Enterprise Oversight (OFHEO), Fannie Mae managers engaged in a series of questionable transactions, including two with Goldman Sachs, which improperly pushed $107 million of Fannie Mae earnings into future years.

Maybe all this explains why the markets took a dive on the day that Hank Paulson was nominated to be Treasury Secretary.