June 1, 2006

Henry M. (Hank) Paulson Jr. is apparently a hell of a fine choice for George Bush’s nominee to be Secretary of the Treasury. Criticized for making consistently political selections of yes-men, sycophants and contributors, for sensitive and powerful positions in government, Bush grabbed a critic and an environmentalist, Chairman of Wall Street powerhouse Goldman Sachs, to head Treasury.

None too quickly. The money-thing hasn’t been a Bush priority. Paulson, who is brilliantly qualified to pick up the crumbling pieces of the country’s economic tailspin, will probably enjoy an autonomy that was denied Paul O’Neill and John Snow. Both were criticized as unable to break in to the administration ‘inner circle.’

They were industry guys, lesser or equal luminaries to Cheney and Rumsfeld. By comparison, Paulson is a Wall Street rock star.

Dick Cheney was just CEO of Halliburton and, no matter the fame and infamy of Halliburton, it was (and is) a mid-level corporate bore, #153 on the Fortune 500. To him, Paul O’Neill was too small a player to out-fox the fox. Alcoa? So what. Cheney’s inner circle co-conspirator, Donald Rumsfeld, CEO of the similarly dull G.D. Searle, could hardly be blamed for seeing John Snow’s runing CSX (a railroad, no less) as uninspiring. Hard guys to impress.

The only reason George Bush was allowed in the Chumsfeld ‘inner-circle’ was because he happened to be President. Even then, there are those who claim ‘the decider’ had a menu from which to decide, prepared by Dick and Don.

So, as you can see, it’s not really a circle at all, but a straight line, which is the shortest distance between two philosophies. Point A was the Cheney quest for restoration of Presidential authority and point B was the Rumsfeld goal of military dominance. A-B doesn’t provide much encouragement for side issues, such as

• Diplomacy
• Fiscal constraint
• Coalition politics, or
• Balanced budgets

Embarrassingly, while A and B were busy laying out talking points for their President, their personal specialities, military dominance and presidential authority were in all kinds of trouble. Having kicked out, muted or dominated all other dissent in the administration, Cheney and Rummy were too busily and arrogantly occupied inside their own heads to notice a country gone to hell.

Finally, Treasury Secretary John Snow, his face pressed against the glass of the outside, looking in and frantically writing in the steam of his own breath, had enough. Like Paul O’Neill before him, he limped out.

Josh Bolten, Bush’s new Chief of Staff stepped in.

Not into Treasury, but more importantly, into the line between A and B. Bolten was head of the OMB, Office of Management and Budget, prior to taking the Chief of Staff job and he’s no lightweight. Not a yes-man. OMB’s mission statement is “Meeting the priorities of the Nation, while achieving spending restraint.” Bolten knows why that mission statement is in the toilet and the dollar along with it.

No one listened to O’Neill and Snow.

So, Josh found a man to read the riot-act to A and B, a man who left a salary of $38.5 million to step into a snake-pit. Even A and B are in awe of a man like that. Bolten found a man who required so much leverage that Bush himself had to spend the better part of a Saturday acquiescing.

“Yes, Hank. Of course, Hank. Happy to, Hank.”

Hank Powell has been critical of Bush, which is usually reason to resign, not reason to be promised whatever it takes to get a man of stature and capability. But Powell finally heard what he came to hear, said yes and the straight-line is now a triangle. Not yet an inner circle, but approaching one.

Reluctantly, he became the most powerful man in the administration—the man Bush dares not let leave. In forcing that choice, Bolten may not have saved his president, but may well have saved his country.

The international dollar has suffered a 50% decline since Bush came into office. It’s now worth 50 cents compared to its old self, anywhere outside the United States. The Euro has gained by not quite that amount, but nearly. The average American doesn't know that (or care), but Hank Paulson surely does.

So, here’s the question: If you had to loan one of two equal friends some money, one who lived in Europe and one in America, which would you choose? Six-years of money-market records show that if you lend dollars, the dollar the American repays will be worth less (maybe 50% less) than it is now. But Euros will be worth more than they actually cost now (maybe 50% more), when the loan comes due.

That choice is played out every day, at a billion dollars a day, and the world is turning away from loaning us money. Turning away at an alarming rate. We can’t exist in our current configuration without the continuation of those massive foreign loans

That’s only one of the things Hank Paulson has to wrestle with. Bet your boots he’s not likely to spend much time greasing the egos of A and B on his way to C.

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