Page last updated at 17:15 GMT, Tuesday, 23 September 2008 18:15 UK

Fresh challenge for Henry Paulson

Henry Paulson
Henry Paulson is under enormous pressure

As a massive crisis has gripped banks and sent the world's markets into a tailspin, the spotlight has turned on one man at the eye of the storm.

Over the past two weeks, US Treasury Secretary Henry Paulson has had to take more difficult decisions than most of his predecessors were faced with in their entire term of office.

On his word some of the oldest and biggest names on Wall Street have either disappeared or effectively been nationalised and the global financial landscape has been changed forever.

Now, he faces his toughest challenge yet: to persuade US lawmakers to create a $700bn fund to buy the bad loans held by US banks and to restore confidence and in the financial system.

If he succeeds without lasting damage to the US economy - still the most powerful in the world - he'll be lauded as a hero.

If not, and the US economy slips into a prolonged recession, the blame will fall like a ton of bricks at his feet.

That kind of pressure is not for the faint of heart, but those that know him - even political opponents - say Henry, or "Hank", Paulson is the best person for the job.

Leadership credentials

Certainly, Mr Paulson's leadership credentials are in no doubt.

As chairman and chief executive of Goldman Sachs for seven years, he presided over its rise to become the world's top investment bank.

Under his command, the bank's involvement in China grew, with Mr Paulson visiting the country about 70 times.

He left the firm in July 2006, with its share price hovering at around $235 - close to its peak.

A little over two years later and its shares have almost halved in value. What's more, this week the firm sought approval from the Federal Reserve to change its status to a bank holding company.

The shock move will see Goldman Sachs accept more stringent Federal Reserve regulation in order to build a credible savings business and raise funds that way.

The old model of investment banks buying and selling securities is effectively bust.

Policy maker

At the time, his move to the Treasury left many economists scratching their heads, particularly as it had seemed doubtful the White House would allow him any leeway to make his mark on the US economy.

Neither of the previous two Treasury Secretaries had any real clout when it came to making policy initiatives.

And at a time of booming economic growth, it was felt that President Bush was looking for a PR man to sell the US story to the rest of the world.

But events have demonstrated that the 62-year-old alumni of Dartmouth College has a firm place at the policy table.

Whatever he set his mind to, he usually succeeded
Henry Paulson's mother, Marianna

Most notably, he is credited with engineering the shift in the relationship between the US and China at a time when links between the two countries were under strain.

Walter Minnick, a close friend who has known Mr Paulson since the two worked together as juniors in the White House under President Nixon in 1972, goes as far as to attribute him with China's economic emergence on the world stage.

"The ability to handle issues such as North Korea's nuclear capability, China's approach to emergence into the World Trade Organisation and as a world player in the world economy have all been facilitated by Hank's relationships and persuasive ability which are very considerable," he says.

On the domestic policy front, economists note he has been less successful, struggling to make progress on pensions and healthcare reform.

Eager to succeed

In an interview with BBC Radio 4, Mr Paulson's mother, Marianna, said he had always been a high achiever in sports and academics.

"Whatever he set his mind to, he usually succeeded," she said.

This included wrestling and American football in high school and later on at Dartmouth, he won many awards for his football prowess.

Henry Paulson (l) and Fed Chairman Ben Bernanke face US lawmakers
Henry Paulson and Fed chief Ben Bernanke present the $700bn bank rescue plan

Mr Paulson will need to draw on these strengths in the coming weeks and months.

He cannot afford to be distracted by the imminent presidential election and the fact that he will most likely be leaving office when President Bush's term ends next January.

Mr Minnick - despite his affinity with the Democrat party - has confidence in the staunch Republican.

"When Hank goes fishing and everyone else has caught a fish and he doesn't have any - he'll go out after dark and won't come back until he's got two. That's Hank Paulson," he says.

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