- The Washington Times - Thursday, September 25, 2008


When Henry Paulson was named as the successor to John Snow on May 30, 2006, to take over the Treasury Department, there were myriad problems facing the country that threatened its future stability. During the next month, we detailed several problems he would have to deal with - declining profits of Wall Street investors wasn’t one of them.

The major problems on the horizon were the price of oil rising above $70 a barrel to more than $100, trying to trim the three-year average $370 billion federal budget deficit to something more manageable and finding ways to get people back to save more. (Less money went into savings accounts than out of consumer’s pockets for the first time since the 1930s.) The $900 billion annual current-account deficit was more than 7 percent of the nation’s Gross Domestic Product, the dollar was falling fast and housing construction and sales seemed to be hitting a plateau.

Just weeks after Mr. Paulson was nominated, Wall Street investment banks began complaining that the Federal Reserve should not raise interest rates and that they were seeing declines in their liquidity, even as the 5 percent Fed funds rate at the time was 0.2 percent less than consumer prices.

The biggest problem Mr. Paulson faced was the trade deficit that by the time he arrived in Washington was a whopping $794 billion. When he was chairman of Goldman Sachs in 2003, Mr. Paulson said the then-$494 billion trade deficit was a “significant problem.” The current trade deficit of $517 billion is a result of the weakened dollar making U.S. products easier for people in other countries to buy.

Since Mr. Paulson’s June 28, 2006, unanimous Senate confirmation, he promised that everything would be fine. As recently as July, he said that a bailout for Fannie Mae and Freddie Mac wouldn’t be necessary. Later, he said it was necessary to stave off disaster in the economy. Then the Treasury also bailed out AIG.

Now Mr. Paulson wants to centralize power over Wall Street. The shift to Washington is not going to fix the problems of trade, current-account and budget deficits, which Mr. Paulson inherited in 2006.

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