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Who’s in charge? It’s hapless Hank

Elliot Wilson

Wednesday, 16th July 2008

The failings of Hank Paulson

It’s becoming harder and harder to believe that anyone is really in charge of the world’s largest economy. Each day brings a new catalogue of woes, miscues and missteps, each of which should have been foreseen long ago. And at the centre of each fresh foul-up stands one man: Treasury secretary Hank Paulson, ‘Hammerin’ Hank’, once boss of mighty Goldman Sachs, now reduced to a sort of Frank Spencer figure, constantly bemused by domestic disaster. Only in Hank’s world it’s the American mortgage industry that’s falling apart, not just the kitchen table.

The latest stress test for America’s embattled economy is the sudden, alarming decline in the shares of Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Association), institutions that together guarantee and fund $6 trillion worth of mortgage debt. Traditionally, both fall under the purview of the Treasury, yet Paulson has been notably slow to respond. Only after Fannie Mae’s stock plummeted by more than 22 per cent on 11 July did he act, announcing that both retained the unequivocal support of the entire US financial apparatus, such as it is.

Of course he had to say that. The mere suggestion of Fannie or Freddie failing is unthinkable. The knock-on effects would be apocalyptic, utterly unpredictable in their scope and reach. So how did all-powerful America come to this? Amazing though it seems, it’s barely more than 12 months since the very same Hank Paulson announced to a business summit that any trouble facing the US housing market would be ‘largely contained’, and that the subprime disaster ‘wouldn’t amount to much’.

And this is the man who once ran the world’s most successful global investment bank; a top college athlete and committed Christian Scientist who kitted out the bathroom of his private Goldman Sachs jet with solid gold bath taps. His stock until recently remained high in Washington, where he was seen as a saviour after the disastrous tenure of his even more clueless predecessor, John Snow.

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