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President Bush Taps Goldman Sachs Chief for Treasury Secretary

May 30, 2006 at 5:45 PM EST
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GWEN IFILL: A new economic report out today found that consumer confidence declined this month, falling from April’s four-year high. That’s the good news and the bad news that dogs the White House as it seeks to balance evidence of a fast-growing economy against consumer anxiety over high gas prices and higher interest rates.

All eyes turn now to Henry Paulson, the Goldman Sachs CEO who today became President Bush’s choice to succeed John Snow as treasury secretary. The new nominee’s first challenge, the president made clear, will be to turn the state of the nation’s economy from a liability into a benefit.

Both men spoke today at the White House.

GEORGE W. BUSH, President of the United States: The American economy is powerful, productive and prosperous. And I look forward to working with Hank Paulson to keep it that way. As treasury secretary, Hank will be my principal adviser on the broad range of domestic and international economic issues that affect the well-being of all Americans.

HENRY PAULSON, Treasury Secretary-Designate: The whole world is dependent upon the U.S. economy as a major engine of its growth. And our economy’s strength is rooted in the entrepreneurial spirit and the competitive zeal of the American people and in a free and open market.

It is truly a marvel, but we cannot take it for granted; we must take steps to maintain our competitive edge in the world.

Is Paulson right man for the job?

Robert Hormats
Goldman Sachs International
He's perfect for a global economy, because he spent a great deal of time dealing with issues relating to other countries, China in particular. And, in this new global economy, you need an internationalist who understands international markets.

GWEN IFILL: Henry Paulson joins a list of at least 10 former Goldman Sachs executives who have left the private sector to work for presidents, dating back to Lyndon Johnson.

What will he bring to the post? For that, we turn to one of Mr. Paulson's colleagues, Robert Hormats. He's vice chairman of Goldman Sachs International.

And Diane Swonk, senior managing director and chief economist for Mesirow Financial, a Chicago financial services firm.

So, Bob Hormats, you know Henry Paulson as well as anyone. Is he the man for the job?

ROBERT HORMATS, Vice Chairman, Goldman Sachs International: Absolutely. I think he is a great choice.

First of all, he's got a lot of Wall Street experience. Second, he grew up as an investment banker in Chicago, working with manufacturing companies, industrial companies, so he knows the industrial sector and the productive sector of this economy very well.

Three, he's perfect for a global economy, because he spent a great deal of time dealing with issues relating to other countries, China in particular. And, in this new global economy, you need an internationalist who understands international markets. Hank is that guy.

GWEN IFILL: He has a reputation also, because of his leadership of the Nature Conservancy, of being something of an environmentalist. Kind of obsessive was the word I read somewhere today about that. How does that fit in with this administration?

ROBERT HORMATS: Well, he clearly is very committed to the environment. And, you know, a lot of Republicans in the past have been. Teddy Roosevelt, we shouldn't forget, was very much an environmentalist.

And I think you can believe in the free market forces, as Hank does, and also believe that we have to do something about our environment, and he's been very active on that front.

And I think it gives him a credibility in dealing with global and domestic issues that he really cares passionately about the environment. And he understands how you can use market forces to enhance environmental practices, which is a good combination.

Must keep U.S. competitive edge

Diane Swonk
Mesirow Financial
The economy in its aggregate adds up to a very robust economy. But we've really seen a very strong bifurcation of the U.S. economy. If you're a wage-earner today, your wages have not kept up with energy prices for the most part.

GWEN IFILL: Diane Swonk, out in Chicago, away from New York and Washington, how has Henry Paulson's nomination been received?

DIANE SWONK, Chief Economist, Mesirow Financial: Well, I think it's very welcome news. And one of the most important issues is not just how this administration sells its message to the American public, but more importantly something Paulson alluded to in his very first comments, and that is the treasury secretary has responsibility for policy in keeping the U.S. with a competitive edge.

And that means selling Congress on policy initiatives. This is something that, you know, we've seen less focus on in recent years. The focus has been more a sense that Snow was just parroting what the administration wanted.

Paulson comes across much more assertive, in terms of actually talking policy, and especially his experience in China. A critical time for Congress in dealing with China and trade issues; this is really going to be very important, in terms of the course of the economy going forward.

In fact, most economists today are very confident about the U.S. economy and its ability to be self-sustaining. The real threat is either political, external, through military actions or a loss, another energy shock, which could be politically-driven, or our own government regulating the economy, taking away some of the free market beauty and the ability to be flexible, which allows us to absorb some of these body shocks we have, unlike our neighbors in Europe or Japan.

There are much more brittle economies. We need to keep that flexibility to stay competitive.

GWEN IFILL: But, Diane Swonk, you talk about confident economists are about the state of the economy. Americans by and large don't seem to be as confident. Where is the disconnect there? And what can a treasury secretary do about that?

DIANE SWONK: Well, I think there's a very important disconnect. And it's easy to see why economists are confident and why people on Wall Street scratch their head.

The economy in its aggregate adds up to a very robust economy. But we've really seen a very strong bifurcation of the U.S. economy. If you're a wage-earner today, your wages have not kept up with energy prices for the most part.

And, in fact, you've either -- many people have seen a reduction in their standard of living, as a result of both energy prices, and are having to shoulder more of the burden of not only their own pension costs, a fear that maybe their pensions will not be or the promises they got from their firms will not be fulfilled, but also shouldering more of the burden of their health care costs, along with those energy costs.

So you feel higher interest rates on top of it, and you can see why those people feel uncertain.

At the same time, it's not just the rich have been getting richer in this economy; more people are wealthy. We have a whole new wealthy class in the U.S. economy that are conspicuous consumers.

They're much less sensitive to oil price shocks. They don't make up the majority, but they're helping to keep spending buoyed at that time when many individual families don't feel as good about the situation, even though they still have the same job they did a year ago. And there's more of those jobs around.

Paulson must handle budget deficit

Robert Hormats
Goldman Sachs International
The previous two treasury secretaries were very good people, but it was not clear to the financial markets or to the Congress that they really had the president's ear. I think Hank will have the president's ear.

GWEN IFILL: Bob Hormats, if Henry Paulson is confirmed, he will be President Bush's third treasury secretary. Why is that job important? And why can't one person hang on to it?

ROBERT HORMATS: Well, it's very important. It's important for a variety of reasons.

One of the important things that the president said was that Paulson would be his principal adviser on economic and financial issues; that in itself confers a high degree of importance to the job.

You're the person the president goes to, and he's very much going to be the go-to guy, the go-to guy in the White House and I think in the Congress.

The previous two treasury secretaries were very good people, but it was not clear to the financial markets or to the Congress that they really had the president's ear. I think Hank will have the president's ear. He'll be the guy that the people work with in the Congress.

The second thing is that you need to continue to give this economy the kind of support that's required through market-oriented measures and through dealing particularly with the budget deficit.

Hank is very strong on addressing questions relating to the budget deficit and I think will be a strong advocate of spending restraint, which is something Washington really needs to focus on to a much greater degree. And those are the kind of things he can do.

Credibility in the corporate world

Diane Swonk
Mesirow Financial
To have someone who is actually being deemed as the go-to man in the White House, it's something we've not seen for a while, in terms of economic powerhouse and that this White House is putting the economy as a priority, as well.

GWEN IFILL: But both of those former treasure secretaries, including Bob Rubin -- not including Bob Rubin, President Clinton's treasury secretary, who came from Goldman Sachs, as well -- they all came from the corporate world. What is it about the corporate world which can inform government service?

ROBERT HORMATS: Well, I think that they were from the corporate world and they were very good people.

I think Hank has an advantage, in the sense that he is two things: one, he's part of the financial community and he has a great deal of credibility in the financial community; but, two, he also has, as the other two did, a lot of credibility in the corporate world, because he's worked with corporations, worked with CEOs, so he brings this very positive blend.

And the third, that Diane and I have both mentioned, is that he has, as a result of his experience at Goldman Sachs, a great deal of experience in the global financial markets.

And if there's one set of issues that's going to have to be addressed to a greater and greater degree, it's how we bring the emerging economies into the global economy in a constructive way, how we deal with currency issues, trade issues, intellectual property issues.

And this enables him to use his financial background, his corporate background, as well as his broad international experience, and that, I think, is an advantage that perhaps he has in addressing the kinds of challenges he's going to be facing. He'll be the go-to guy for the Congress and the president on all of these issues.

GWEN IFILL: Diane Swonk, is it possible for this treasury secretary or any treasury secretary to also be the go-to guy for public opinion? Is someone in that job capable of swaying public opinion?

DIANE SWONK: Well, certainly, if they can sway it in a negative way. We saw that, although I agree the two past treasury secretaries were very good people. I knew them personally; I do not know Hank personally.

But with that said, they can do things that mess up the image of the presidency and the image that goes with the treasury secretary. But beyond that, I think you have to take it, at the end of the day, people really care what's in their wallets.

And the best thing for people over the long term, the way to get the expansion to reach all income strata, and for people to feel good about it, is to have a really long expansion. That was the lesson of the 1990s.

And to keep the expansion going is one of the critical issues, without inflation, keeping a measured pace of growth, rather than, say, raising interest rates out there. That's the key. And he really does get that, obviously, from his comments.

Also, the critical issue is, as Bob already mentioned, the global economy. We are at a very, very big impasse here where we could make a very big misstep in the global economy if we re-regulate, close our borders, everything from immigration issues to trade issues, very delicate time, not only going into midterm elections, but going into an '08 election year, as well, a new presidency.

All of these issues very important. And to have someone who is actually being deemed as the go-to man in the White House, it's something we've not seen for a while, in terms of economic powerhouse and that this White House is putting the economy as a priority, as well.

And I think that's a message that has not been clearly conveyed: The economy was a top priority.

There was a lot of priorities this administration has dealt with. Obviously, the war in Iraq is one. But certainly, to the American people, the perception that the economy was the top priority clearly has not gotten through.

So to the extent that we actually see someone on Capitol Hill really working this and doing policy, enacting policy with Congress, offering a bridge with the business community to do that, as well, I think that is a positive move, although, at the end of the day, the only thing that's going to change public perception about the economy is the economy itself.

GWEN IFILL: Diane Swonk, Bob Hormats, thank you both very much.

ROBERT HORMATS: Thank you.