Can Comrade Hank find a way through this crisis?

The US Treasury chief sees his interventionism as a case-by-case response to unprecedented events, says James Doran, but his critics see it as inconsistent, dangerous and ‘un-American’ New York It’s hard to keep up with Hank Paulson, the grim-faced US Treasury Secretary and would-be architect of a new financial order. Over the past eight months, since the collapse of the investment bank Bear Stearns, Paulson has been confronted with an escalating crisis that has engulfed Wall Street, plunged markets into chaos, and threatened to push the global economy into deep recession.

And at each milestone on the road to ruin, Paulson — Hermes-like — has presented a different face. When he accepted the Treasury job in July 2006, it seemed the perfect final posting of a perfectly planned career. The former Eagle scout, wrestling champion and all-Ivy League American football star graduated from Harvard with an MBA in 1970 to work first at the Pentagon, then as an adviser to John Ehrlichman, the controversial counsel to Richard Nixon who was told to seek and destroy the President’s enemies in government. It is rarely mentioned these days, but Paulson was Ehrlichman’s righthand man from 1972 to 1973, at the height of the Watergate investigations that culminated in Ehrlichman’s resignation and later his 18-month prison sentence. It’s hard to imagine a better training in the dark side of politics.

Paulson emerged unscathed from Watergate: he was, after all, hardly a key player and he was very young. He moved on to join Goldman Sachs and become a partner in 1982. A stellar career took him on upwards to chairman and chief executive in 1999. But when he accepted the job of Treasury Secretary at the tail end of the Bush administration, Paulson’s biggest worry was that he would sink into obscurity and fail to make a difference — not something he was used to. Many of his contemporaries agreed. With just two years to make his mark and waning Republican support in Congress, not much was expected of him. How wrong they were.

In the past few months, Paulson has intervened in the market in an attempt to thwart certain global financial meltdown more times than any of his Treasury predecessors. The measures he has taken arguably go even fur ther than the policies drawn up in the aftermath of the 1929 Wall Street crash. And surely there will be more intervention and more reform before this crisis is over.

But while Paulson has stepped in boldly to save Bear Stearns, Fannie Mae, Freddie Mac and AIG, he has let others feel the pain of failure. Just ask Lehman Brothers’ 26,000 employees how they feel about Paulson’s methods. He likes to define his approach as flexible, but others call it unpredictable.

However it is cast, this case-by-case approach, and rejection of dogma in favour of action that might actually work, is the hallmark of Paulson’s tenure at the Treasury.

It is also a credit to his political ability that he is able to twist and turn so readily. Just before he was appointed to his current job, he revealed a previously unseen side of himself with a four-point economic plan. Bush and the Republican party were stunned. Their hand-picked Wall Street titan was turning out to be a bit of a leftie. First he outlined a renewable energy policy — and became the only member of Bush’s cabinet who dared acknowledge that human actions contribute to global warming. But perhaps they could have predicted this part of his plan: Paulson is chairman of the Nature Conservancy’s Asia Pacific Council and a long-time advocate of green measures.

Then he prescribed new policies to fix global trade and investment policy. And he vowed to reform social security and healthcare and address the growing income gap between rich and poor. To talk of an income gap when others in the administration were still slapping themselves on the back for maintaining growth at all costs was seen as utter heresy by his new political bosses.

But ‘Hank the Hammer’ was not used to cushioning his views for anyone — and besides, he barely had two years of a lameduck administration left, so he was hardly likely to achieve his lofty manifesto. Most likely he never really intended to achieve even half of it. Rather, his almost-socialist agenda was a deft political move to ensure that, should he ever need decisive support from a Democratdominated Congress, he had a good chance of getting it.

In March this year his bridge-building efforts came in handy when he was forced to act swiftly to save Bear Stearns via a bailout and a quick sale to JPMorgan Chase. The Democrat Congress hardly blinked. Paulson had a free rein. Then, in April, with the credit crunch and housing slump in full swing, he announced a plan for complete reform of the nation’s financial regulators. In so doing he transformed the Federal Reserve from an interest-rate-obsessed think-tank to a powerful regulator of regulators with a hand heavy enough to take on Wall Street.

But events overtook his plans for reform and all of a sudden Paulson was in the midst of economic armageddon. Just as quickly as he had saved Bear Stearns, he nationalised Fannie Mae and Freddie Mac, the twin US mortgage-guarantee outfits. He handled the AIG bail-out in person after a long weekend during which he also effectively closed down Lehman Brothers and forced Merrill Lynch to merge with Bank of America. One way or another, he spurred as much mergers and acquisitions activity in the space of five days as he had done in a long career on Wall Street.

But in the past two weeks, as the global financial crisis has continued to escalate, Paulson’s actions, previously fêted as heroism, have been recast as villainy. His stalled $700 billion bail-out package has spurred critics to slam his flexibility as a lack of consistency that begins to look downright dangerous. ‘America is more communist than China is right now,’ billionaire investor Jim Rogers fumed, adding that Paulson’s interventionism amounted to ‘welfare for the rich’. Republican Senator Jim Bunning called Paulson’s bail-out plan ‘unAmerican’, shortly after declaring ‘the free market for all intents and purposes is dead in America’. Others have taken to calling the Treasury Secretary ‘Comrade Hank’.

Behind all this Cold War-era rhetoric lies a certain amount of truth. If Congress finally approves a bail-out in which the US government takes some sort of golden share as collateral from all those firms who want to offload toxic debt into Treasury coffers, it will mark the biggest financial nationalisation programme in history. And if the Treasury gets involved in limiting boardroom pay, you might as well turn the lights out on Wall Street and watch all the bright young MBAs depart for Shanghai and Dubai.

And what about restricting short-selling, then banning it, then restricting it again? To say Paulson swayed in whichever direction public opinion drifted on this perplexing issue is an understatement.

These seemingly extreme reactions do not necessarily represent Paulson’s preferred ideas. They were provisions he was willing to accept to get his rescue package passed through Congress in a hurry. Whether the bail-out goes ahead, and actually works, remains to be seen, but one thing is for sure: Paulson has made his mark. New York magazine has even taken to calling him ‘Hank the Hunk’ since a rather disturbing photo taken on a beach in 1973 surfaced a couple of weeks ago. It shows the future Treasury Secretary (who is now completely bald) standing in the surf in nothing but his swimming trunks, his trademark stone-faced grimace under a full head of hair, holding a large fish. ‘You can bail us out anytime,’ gushed one gossip columnist.

In trying to convince House Democrat leader Nancy Pelosi to pass his bail-out package Paulson revealed yet another side of his ever-changing persona. He actually went down on one knee to implore the most powerful woman in US politics to let his Bill pass before another bank failure. Wannabe comedian? Desperate salesman?

It remains to be seen which of these many faces will come to define Paulson’s legacy. His failure to convince Congress to pass his bail-out Bill on Monday will surely not be his finale. There are those who assume Hank will hammer out a new, more palatable version of the bail-out Bill in time to pull the markets back from the brink. Others are already calling for his resignation. Close friends claim that this kind of pressure — staring what looks like certain defeat in the face — is when Paulson comes into his own: the hotter the fire, the cooler he gets.

But let’s hope he will not truly prove to be a Hermes for our time. For aside from his day-job as god of markets and commerce, the ancient Olympian was also a grim reaper who dragged dead souls down to Hades.