September 9, 2008
White House Memo
By SHERYL GAY STOLBERG
WASHINGTON — President Bush may be the nation’s first M.B.A. president, but when Mr. Bush and a small coterie of advisers met in the Oval Office last week to complete their plan to rescue the mortgage giants Fannie Mae and Freddie Mac, there was no question who was in charge.
It was Treasury Secretary Henry M. Paulson Jr. who first proposed the idea of a government conservatorship, and broached it with Mr. Bush while the president was at his ranch in Crawford, Tex. It was Mr. Paulson who set the guiding principles for the subsequent deal; Mr. Bush endorsed them, a departure from usual White House practice, in which the president articulates principles for his underlings to follow.
It was Mr. Paulson who, in that Oval Office meeting, plotted the weekend introduction of the plan so as not to rattle financial markets. And it was Mr. Paulson, not the president, who met with Fannie Mae and Freddie Mac executives on Saturday to deliver the unpleasant news that they were now out of jobs.
“He was all the way in the driver’s seat, and that was where the president wanted him,” said Tony Fratto, Mr. Bush’s deputy press secretary, adding, “The sentiment was, ‘You’re in charge, and I hope it works.’ ”
For a president like Mr. Bush, who holds a master’s degree in business administration from Harvard and has strong economic views of his own, Mr. Paulson’s emergence as the administration’s primary voice on economic policy is striking. But time and again in recent months, Mr. Paulson has taken Mr. Bush where he instinctively would not ordinarily go: into the realm of government intervention in the markets.
Since the beginning of the year, that path has brought forth an economic stimulus package, housing legislation, a bailout of the investment bank Bear Stearns and now the Fannie Mae/Freddie Mac rescue.
“Bush was in charge when it was cut taxes, deregulate, have free trade, etc.,” said Representative Barney Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee. “But then the old paradigm broke down, and it fell, frankly, to more serious thinkers to figure out how to cope with the current reality.”
Mr. Bush has never been a fan of the government’s involvement in the mortgage markets; he has long viewed Fannie Mae and Freddie Mac as “ticking time bombs,” said his former chief economics adviser, Al Hubbard. As far back as 2002, he began arguing for greater regulatory control over the companies, but was thwarted by Republicans who controlled Congress. (Democrats eventually granted the authority, which provided the legal underpinning for the takeover announced on Sunday.)
Mr. Bush was so disapproving of Fannie Mae and Freddie Mac, Mr. Hubbard said, that beginning early in his administration he refused to appoint members to their boards. “That is very significant,” Mr. Hubbard said. “No president has ever done that, but he said, ‘We’re not going to put people on the boards of these institutions that are these huge systemic financial risks to the economy.’”
So the idea that the government would become even more involved might seem like anathema to Mr. Bush, and the White House made clear on Monday that the president agreed to the conservatorship only as a last resort. “This is not action that we wanted to take; it was action that Secretary Paulson and others, working with the president, determined that we needed to take,” the White House press secretary, Dana M. Perino, told reporters.
One senior administration official who participated in the meetings, but spoke on condition of anonymity, said Mr. Paulson emphasized during his sessions with the president that the issue was not one of ideology, and Mr. Bush agreed. This person said Mr. Bush spoke little in the meetings, leaving most of the talking to Mr. Paulson.
Mr. Bush is a big believer in delegating authority; on the war in Iraq, for instance, he has said frequently that he makes decisions based on the advice of his commanders on the ground. But throughout his first term and well into his second, Mr. Bush did not have a close bond with a Treasury secretary in the same way that, for instance, he clearly trusts Gen. David H. Petraeus, the top commander in Iraq, or Secretary of State Condoleezza Rice.
His first Treasury secretary, Paul H. O’Neill, who later cooperated with the author and journalist Ron Suskind in a tell-all book, was regarded inside the White House as “a person that you had to keep out of trouble,” said Peter Wehner, a former domestic policy adviser to Mr. Bush. The second Treasury secretary, John W. Snow, was unceremoniously pushed out of his job. Neither man came from Wall Street. Mr. O’Neill ran Alcoa; Mr. Snow was a railroad executive.
Mr. Paulson, a former chairman of Goldman Sachs, joined the White House in July 2006 after an intense courtship by Mr. Bush’s chief of staff, Joshua B. Bolten. He demanded clout and got it, in part because “Paulson did not need the job; the administration needed Paulson,” said Vincent R. Reinhart, a monetary economist at the American Enterprise Institute in Washington.
Mr. Reinhart says Mr. Paulson, like Mr. Bush, would ordinarily resist government intervention. “I think the economy is taking Bush and Paulson to a place where they wouldn’t go on their own,” he said. “In a crisis, you start bending principles, and Paulson bent principles.”
By relying so heavily on Mr. Paulson, Mr. Bush is doing more than bend conservative principles. He is taking himself out of public view in the one area of policy making that matters most to Americans: the economy. Mr. Wehner, Mr. Bush’s former adviser, does not see that as a problem so long as the markets stabilize. And Mr. Frank, the Democratic congressman, said Mr. Bush’s reliance on the Treasury secretary is “one of those things that, historically, will be to his credit.”
Mr. Bush and Mr. Paulson kept in close touch over the weekend, with telephone calls both before and after the secretary’s meetings with the Fannie Mae and Freddie Mac executives. With the decision set, there was little need for lengthy discussion.
“The president called Hank when he got back from Camp David Saturday morning, just to check in on how he thought the meetings were going to go that day, did he feel good about it, was everything still on track,” Mr. Fratto said, describing the first of the two conversations. “It wasn’t a long call.”
Stephen Labaton contributed reporting.
White House Memo
By SHERYL GAY STOLBERG
WASHINGTON — President Bush may be the nation’s first M.B.A. president, but when Mr. Bush and a small coterie of advisers met in the Oval Office last week to complete their plan to rescue the mortgage giants Fannie Mae and Freddie Mac, there was no question who was in charge.
It was Treasury Secretary Henry M. Paulson Jr. who first proposed the idea of a government conservatorship, and broached it with Mr. Bush while the president was at his ranch in Crawford, Tex. It was Mr. Paulson who set the guiding principles for the subsequent deal; Mr. Bush endorsed them, a departure from usual White House practice, in which the president articulates principles for his underlings to follow.
It was Mr. Paulson who, in that Oval Office meeting, plotted the weekend introduction of the plan so as not to rattle financial markets. And it was Mr. Paulson, not the president, who met with Fannie Mae and Freddie Mac executives on Saturday to deliver the unpleasant news that they were now out of jobs.
“He was all the way in the driver’s seat, and that was where the president wanted him,” said Tony Fratto, Mr. Bush’s deputy press secretary, adding, “The sentiment was, ‘You’re in charge, and I hope it works.’ ”
For a president like Mr. Bush, who holds a master’s degree in business administration from Harvard and has strong economic views of his own, Mr. Paulson’s emergence as the administration’s primary voice on economic policy is striking. But time and again in recent months, Mr. Paulson has taken Mr. Bush where he instinctively would not ordinarily go: into the realm of government intervention in the markets.
Since the beginning of the year, that path has brought forth an economic stimulus package, housing legislation, a bailout of the investment bank Bear Stearns and now the Fannie Mae/Freddie Mac rescue.
“Bush was in charge when it was cut taxes, deregulate, have free trade, etc.,” said Representative Barney Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee. “But then the old paradigm broke down, and it fell, frankly, to more serious thinkers to figure out how to cope with the current reality.”
Mr. Bush has never been a fan of the government’s involvement in the mortgage markets; he has long viewed Fannie Mae and Freddie Mac as “ticking time bombs,” said his former chief economics adviser, Al Hubbard. As far back as 2002, he began arguing for greater regulatory control over the companies, but was thwarted by Republicans who controlled Congress. (Democrats eventually granted the authority, which provided the legal underpinning for the takeover announced on Sunday.)
Mr. Bush was so disapproving of Fannie Mae and Freddie Mac, Mr. Hubbard said, that beginning early in his administration he refused to appoint members to their boards. “That is very significant,” Mr. Hubbard said. “No president has ever done that, but he said, ‘We’re not going to put people on the boards of these institutions that are these huge systemic financial risks to the economy.’”
So the idea that the government would become even more involved might seem like anathema to Mr. Bush, and the White House made clear on Monday that the president agreed to the conservatorship only as a last resort. “This is not action that we wanted to take; it was action that Secretary Paulson and others, working with the president, determined that we needed to take,” the White House press secretary, Dana M. Perino, told reporters.
One senior administration official who participated in the meetings, but spoke on condition of anonymity, said Mr. Paulson emphasized during his sessions with the president that the issue was not one of ideology, and Mr. Bush agreed. This person said Mr. Bush spoke little in the meetings, leaving most of the talking to Mr. Paulson.
Mr. Bush is a big believer in delegating authority; on the war in Iraq, for instance, he has said frequently that he makes decisions based on the advice of his commanders on the ground. But throughout his first term and well into his second, Mr. Bush did not have a close bond with a Treasury secretary in the same way that, for instance, he clearly trusts Gen. David H. Petraeus, the top commander in Iraq, or Secretary of State Condoleezza Rice.
His first Treasury secretary, Paul H. O’Neill, who later cooperated with the author and journalist Ron Suskind in a tell-all book, was regarded inside the White House as “a person that you had to keep out of trouble,” said Peter Wehner, a former domestic policy adviser to Mr. Bush. The second Treasury secretary, John W. Snow, was unceremoniously pushed out of his job. Neither man came from Wall Street. Mr. O’Neill ran Alcoa; Mr. Snow was a railroad executive.
Mr. Paulson, a former chairman of Goldman Sachs, joined the White House in July 2006 after an intense courtship by Mr. Bush’s chief of staff, Joshua B. Bolten. He demanded clout and got it, in part because “Paulson did not need the job; the administration needed Paulson,” said Vincent R. Reinhart, a monetary economist at the American Enterprise Institute in Washington.
Mr. Reinhart says Mr. Paulson, like Mr. Bush, would ordinarily resist government intervention. “I think the economy is taking Bush and Paulson to a place where they wouldn’t go on their own,” he said. “In a crisis, you start bending principles, and Paulson bent principles.”
By relying so heavily on Mr. Paulson, Mr. Bush is doing more than bend conservative principles. He is taking himself out of public view in the one area of policy making that matters most to Americans: the economy. Mr. Wehner, Mr. Bush’s former adviser, does not see that as a problem so long as the markets stabilize. And Mr. Frank, the Democratic congressman, said Mr. Bush’s reliance on the Treasury secretary is “one of those things that, historically, will be to his credit.”
Mr. Bush and Mr. Paulson kept in close touch over the weekend, with telephone calls both before and after the secretary’s meetings with the Fannie Mae and Freddie Mac executives. With the decision set, there was little need for lengthy discussion.
“The president called Hank when he got back from Camp David Saturday morning, just to check in on how he thought the meetings were going to go that day, did he feel good about it, was everything still on track,” Mr. Fratto said, describing the first of the two conversations. “It wasn’t a long call.”
Stephen Labaton contributed reporting.
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