Bush's Treasury pick sought assurances of influential role

WASHINGTON — President Bush named Goldman Sachs Chairman Henry Paulson Jr. as Treasury secretary Tuesday, turning to a highly respected Wall Street insider to lead his economic team and become the chief promoter of his administration's fiscal policies.

The nomination, announced by Bush in a brief Rose Garden ceremony, marked the first time this president has chosen a chieftain from the world of finance to head the Treasury after two industrial-sector executives who struggled to hold sway with Bush's inner circle.

Although Bush has shown mistrust of financiers in the past, he hailed Paulson's service as head of "one of the most respected firms on Wall Street" who has "an intimate knowledge of financial markets and an ability to explain economic issues in clear terms."

The move culminated a months-long recruitment effort during which Paulson rebuffed several White House overtures to consider the post, according to administration officials and people familiar with Paulson's decision-making.

White House Chief of Staff Joshua Bolten, a former Goldman Sachs executive, renewed those efforts in recent weeks, and persuaded his old colleague to meet with Bush at the White House earlier this month.

It was then, after a long Saturday meeting 11 days ago, that Bush persuaded Paulson to take the job.

In that meeting, Paulson, 60, sought assurances that the post, which at times has been seen as subordinated by the White House, would have the proper stature.

"He was curious about what was myth and what was reality when it came to the inner workings of the job," said a top Bush adviser with close knowledge of the selection process. "I think he was reassured by understanding how the job operates."

If confirmed by the Senate, Paulson will replace outgoing Treasury Secretary John Snow, who in December told the White House he wanted to step down after three years in the job, a pledge he carried through on last week.

Although a loyal booster of Bush's policies, Snow suffered from the widespread perception in markets and on Capitol Hill that he was an advocate rather than a key policymaker.

A loyal lieutenant in Bush's economic team, Snow has traveled around the country promoting, among other things, Social Security changes and an overhaul of the tax code. His standing suffered as both proposals stalled.

Paulson's nomination comes as the economy shows robust growth and strength but also troubling signs.

The economy grew at its fastest rate in 2 ½ years during the first quarter and unemployment remains low, but polls show a majority of Americans believe the economy is in fair or poor shape.

Rising gas prices and a median household income that, adjusted for inflation, has fallen have fanned public anxiety.

"Everything is going great in the economy until you look at the people in it," said Jared Bernstein, senior economist with the liberal-leaning Economic Policy Institute.

In brief remarks, Paulson said 32 years on Wall Street have given him a keen sense of the power that markets have in fostering economic growth and efficiency.

"Our economy's strength is rooted in the entrepreneurial spirit and the competitive zeal of the American people, and in our free and open market," Paulson said as Bush looked on. "It is truly a marvel, but we cannot take it for granted."

In choosing Paulson, Bush defied skeptics who predicted that late in his presidency he would be unable to attract a Wall Street heavy hitter for a position that up to now has held little power in his administration.

As chief since 1998 of one of Wall Street's wealthiest investment-banking firms, Paulson brings high-caliber financial credentials that contrast with Bush's previous Treasury chiefs: Paul O'Neill, who ran Alcoa, and Snow, of the CSX railroad.

The White House was eager to find a candidate with credibility among investors. Markets have turned highly volatile in recent weeks, with the biggest dips coming in commodities and stocks in Asia, Latin America and Eastern Europe.

U.S. stocks, which have also dropped sharply from recent highs, sank anew Tuesday, with the Dow Jones industrial average shedding 184 points, mainly because of a rise in oil prices and a report showing a decline in consumer confidence.

With Alan Greenspan having recently left the Federal Reserve in the untested hands of a new chairman, Ben Bernanke, the administration was in danger of lacking a figure with deep experience in market downturns — such as the so-called Asian flu of the late 1990s — that could undermine the international economy.

"We have a very strong economy, a very strong banking system, but these things do happen, just like hurricanes," said Stephen Friedman, former director of Bush's National Economic Council and a predecessor of Paulson's as Goldman's CEO.

"Hank is someone with a superb background, who understands markets in his bones. Friedman said. "That's something the White House was very aware of."

Bernanke, who has had a bit of a bumpy start in terms of communicating with financial markets, described Paulson as "highly respected throughout the financial world."

Given the new Fed chief, economists said it couldn't hurt to have Paulson's seasoned market experience on the Bush team.

Trying to defuse trade tensions with China is another challenge. The United States racked up a record-high $202 billion trade deficit with the Chinese last year.

As Treasury secretary, Paulson will not only become the president's top economic salesman but also the top spokesman for the U.S. dollar.

Snow's financial diplomacy led China to take important steps in revamping a currency policy that some in the U.S. had blamed for the huge trade deficit and a loss of manufacturing jobs.

With his worldwide contacts, Paulson might be able to bring about further change to relieve the trade situation, some economists and policymakers said.

Paulson's nomination stirred no immediate objections in the Senate. Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, said he looked forward to meeting the nominee.

Finance Committee member Charles Schumer, D-N.Y., said he spoke to Paulson on Tuesday and pledged his "full support for his nomination."

Washington Post research editor Lucy Shackelford contributed to this report. Material from The Associated Press is also used.