Henry Paulson, former Secretary of the Treasury of the United States, sat down with Dean Glenn Hubbard to discuss a range of topics in front of a packed room of students, faculty, and staff members on February 24 at Low Library. The event, titled “A Conversation with Secretary Henry Paulson,” was sponsored by Columbia Business School and Columbia University’s Program for Economic Research.
Paulson, who served under President George W. Bush from 2006 through 2009, answered questions about actions taken by the Treasury Department during the global financial crisis and China’s growth, among many other international economic issues. He also offered career advice to students. Hubbard and students asked Paulson specifically about the collapse of investment giant Lehman Brothers in 2008 and the federal takeover of mortgage lenders Fannie Mae and Freddie Mac. Paulson considers the latter his most significant accomplishment while at the Treasury, as he believes the failure of those organizations would have significantly worsened the housing crisis.
“I don’t believe any institution is too big to fail, but some are too big to liquidate quickly, as we found out with Lehman,” Paulson said. Addressing the bailout of AIG and other financial institutions, he added: “Most people don’t understand how fundamental the financial system is to the economy, how it’s the backbone of the economy, and it would have been catastrophic if the system had failed.” Paulson believes bipartisanship was crucial to his efforts to solve the country’s economic problems.
During his government tenure, Paulson had an arrangement with President Bush that allowed him to avoid political activities in order to focus on building relationships on both sides of the aisle. He worked so closely with Massachusetts Democratic Congressman Barney Frank during the crisis that Frank penned the forward to Paulson’s book, On the Brink (Business Plus, 2010). “I spent a lot of time talking to Republicans and Democrats, recognizing that I wasn’t going to be able to get anything done if I wasn’t willing to compromise,” Paulson said.
Paulson identified that cooperative attitude as especially critical for leaders in the public sector. “The skills it takes to be successful leader in the private sector are almost identical to what it takes to be a successful leader in the public sector, but the mindset is very, very different,” he explained. “When good CEOs come to government and fail, it’s because they’ve been ’king’ too long, they don’t have the mindset to compromise, they don’t recognize that members of Congress are their clients or that they’re working for the president.”
Paulson also commented on China’s fast-growing economy that made it imperative to him, as Treasury Secretary, to make the relationship between China and the United States a priority. “I thought this was as important as any bilateral relationship we had in the world,” Paulson said. “I knew that the good news was we had an economic relationship with China; the bad news was that whenever you have an economic or trading relationship, there’s going to be tension.” The effort paid off not only during the crisis, but also when the two countries worked together to deal with food and product safety issues.
Paulson says the ability to compromise was also critical to his 32-year career at global investment firm Goldman Sachs. Drawing on his own experiences, he advised business students in the audience to keep work/life balance in mind throughout their careers. “You get out of anything what you invest in it,” Paulson said, adding that the nearly limitless opportunities open to today’s graduating students can allow them to personalize their professional lives if doing so is a priority. “Everyone has to figure out how to find that balance and how to do something that they can do well enough, and naturally enough, that they don’t have to just be a drone.”
Looking at the current fiscal crisis, Paulson was optimistic about the nation’s economy but noted that while the United States and other western democracies may have stabilized their financial systems, there are underlying structural issues that must be addressed, such as Medicare, Medicaid, Social Security, and tax reform.
“In many western democracies, the voters want benefits they don’t want to pay for,” Paulson said. “Politicians, therefore, are unwilling to tell the truth and to really come up with hard solutions. “I have no doubt we’ll solve this [the fiscal crisis] because we’ll have to. But the longer we wait, the more painful it will be, the fewer options we’ll have, and the bigger the cost the next generation will pay.”
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