Questioning Paulson's Role as Treasury Head

Eighteen months into his job and I have to ask: Is Henry Paulson the right man to be Secretary of the Treasury? Oh, he has impeccable credentials, coming from Goldman Sachs (GS) where he was CEO. But just maybe therein lies a problem.

As a condition of accepting the job, he reportedly received White House assurances that he would be able to run U.S. China Policy. U.S. news media have well covered his "Sino-U.S. Strategic Economic dialogues"" forum to persuade Beijing into revaluing their currency, opening their financial markets, and working on food & product safety issues, not to minimize the need, or effort, to address the myriad other "market access" (trade) concerns. His 'reasoned patience' speeches to the press have won both support and forbearance from Congress to impose trade sanctions against China. And admittedly Mr. Paulson has been clever conducting U.S. Dollar Policy: Seeing little progress on the China currency front, he has obviously opted to accelerate the devaluation of the dollar, while talking strong Dollar Policy with the Chinese. Moreover, as an outward demonstration of friendship, and to convey the U.S.'s view of the strategic importance of U.S.-China trade, Mr. Paulson recently swiftly moved to appease Beijing by streamlining U.S. Food & Drug Administration inspections, with 'special handling' access and reporting--all in an effort to maintain the integrity of inspection without shutting down trade.

For their part, the Chinese have modestly let their currency appreciate against the dollar, but have argued that quickly changing their currency policy could harm their fragile banking sector. By way of progress, Beijing has increased its lending reserve requirements for banks, and granted greater access for Wall Street banks and investment firms.

So in judgment of progress made thus far, I find it interesting that early progress has been made in the area of trade where Goldman Sachs figures to benefit most. Goldman invested $2.6 billion in Industrial & Commercial Bank of China pre-IPO (HK:1398). 2007 YTD the now listed shares are up 30%!

Likewise I wonder how a diversified investment house can completely be unscathed by an endemic Wall Street debacle: the subprime mortgage implosion. Indeed is there any connection between that success and the U.S. State Department report that China increased its U.S. mortgage investment exposure a thousand fold since 2001, and has taken a curious 'no comment' approach, at least publicly, to what have to be massive losses? Could it be that Beijing is strong-arming our Treasury/Goldman to make it whole? Shouldn't an independent U.S. regulator review the mortgage-backed security sales to Beijing, and disclose publicly the totals of their government vs non-government backed obligations? Shouldn't correspondence between Beijing and those who have been dealing with these issues be reviewed? Furthermore, I ask, should a guy at the center of such enormous potential conflict of interest run Treasury policy with regard to China?

Reference: www.treas.gov/tic/shl2006r.pdf

Comments

[kkin365]

1) A while ago, I read, in one of the financial publications, that the US Treasury dept is nicknamed the DC branch of GS.
2) In the current issue of The Economist (1/5/08), there is an excellent story (with impressive graphs) stating that Chinese export to US was greatly exaggerated -- by the same token, the effect of a US "r" would have inconsequential effect on China's economy. In any case, why should China listen to Paulson? Wake up. The western imperialist days are long gone.

[gordon]

Why did it take you this long to WAKE UP? How about that international courts warrant that was/is out on Paulson (he was detained in Germany on it a few years ago on Christmas) How about him being the architect of off-balance sheet losses at Enron, just like the SIVs, and about to be sued, when he goes to work for Bush, and CAN SELL ALL HIS GS STOCK WITH ZERO INCOME TAXES.($700million?) Certainly, he's making China "whole on their losses as he is for the investment banks.How about the Paulson scheme to use excess tax receipts as repo loans to the 21 primary dealers, #1 being Goldman, to pump up the market for the last 18 months, where did you think all those "trading profits" came from?How did you think they reversed a market 300 pts in 1/2 hour?