I’m not surprised by President Bush’s sunny economic outlook—this president would praise the Weimar Republic’s hyperinflation as great for Home Depot and the wheelbarrow industry. But Hank Paulson? I expected better from the ex–Goldman Sachs chief. One of the few honest-to-Betsy revelations in The Age of Turbulence was Greenspan’s acknowledgment that the position of Treasury secretary, once a post for the best and brightest businesspeople and economists, has under Bush been reduced to nothing more than White House water boy for the “fundamentals are sound” mantra. The previous holders of the position, Paul O’Neill and John Snow, were either lightweights or totally useless housemen, unwilling to speak up beyond the party line on anything, whether it be ballooning deficits or reckless home lending. I had hoped that Paulson would be like Bob Rubin and Larry Summers, Treasury secretaries under Clinton whom Greenspan correctly praises in Turbulence for being anything but yes-men, for offering creative solutions that solved most of the nineties’ economic problems. Paulson had the stature and experience his Bush-administration predecessors lacked, and for a change could actually think and talk independently from Bush propaganda. Or so I thought. But the sole sour note I have heard from his office is from his undersecretary for domestic finance, Robert K. Steel, who had the horse sense to admit in front of Congress that we have a real housing-finance problem in this country that won’t go away by itself. Throughout this period of intense turmoil behind the scenes at places like Bear Stearns, Morgan Stanley, and Goldman Sachs (which Paulson ran), we never heard a peep out of Paulson that anything was awry. Who would have ever thought that Paulson, a coldhearted, some would say vicious, realist at Goldman, would become one more pol in what used to be a distinguished office?
It would have been terrific had Bernanke been able to break the boom-bust rates cycle that Greenspan fostered in the past decade. It would have been spectacular if the fundamentals were sound and Bernanke didn’t need to do a thing. Unfortunately, Bernanke’s got to clean up the turbulence left by his predecessor. With any luck, this time the Fed chief won’t have to cut too much further and we can get what is ultimately desired: a Fed that does no widespread tinkering and just suggests limited regulation—or regulates—when a market gets out of line.