'Vanity Fair' Profiles Former Treasury Head Paulson

When Henry Paulson became Treasury secretary in 2006, the economy was humming along. Todd Purdum of Vanity Fair began interviewing Paulson in 2007. During a series of eight interviews, the economy became a crisis. Purdum talks with Ari Shapiro about the interviews, which are the basis for his article "Paulson's Longest Night," which is in the new issue of Vanity Fair.

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ARI SHAPIRO, host:

Henry Paulson became the Treasury Secretary in 2006, when the economy was humming along. The former CEO of Goldman Sachs stood out among other Washington policymakers. Here's how Vanity Fair's national editor Todd Purdum described Paulson.

Mr. TODD PURDUM (National Editor, Vanity Fair): He's physically a hulking, imposing presence, very tall - you know, a former offense lineman on the Dartmouth football team and he's athletic. He's a big sportsman, avid outdoorsman, a bird watcher and a big environmentalist who's given $100 million of his own money to environmental and conservation causes. That makes him something of an oddity among Republicans, as well.

SHAPIRO: Purdum knows Secretary Paulson very well. They began holding a series of interviews in November of 2007. The condition was that Purdum not publish the interviews until Paulson was out of office. At first, they talked about issues like dealing with China and the challenges of working in Washington. And then the U.S. was hit with the worst financial crisis since the Great Depression, and they continued talking.

Purdum interviewed Secretary Paulson a total of eight times, most recently in January of this year. Those discussions are the basis of Purdum's article "Paulson's Longest Night." It's in the newest issue of Vanity Fair magazine, and Todd Purdum joined me in our studios in Washington.

Mr. PURDUM: Good morning, Ari.

SHAPIRO: I'd like you to start with a particularly evocative metaphor that Henry Paulson used to describe his situation. Do you know the phrase I'm referring to?

Mr. PURDUM: When he said after you've been boiling in oil, it doesn't really matter what the temperature is. Yeah, I think…

SHAPIRO: That's the one. That's the one. What did he mean by that, exactly?

Mr. PURDUM: I think he meant that he was really - he had a fire under him at all times, and it was impossible for him in some ways to ever get the long view. He was just in the pot, and things were bubbling. And every time he thought he'd solved one problem or plugged one hole, another one emerged often before the end of the week. And I think that was a hard, hard thing for him to cope with.

SHAPIRO: Yeah, you say he was not an in-box kind of a guy. He liked to think long term. He wanted to fix major problems.

Mr. PURDUM: Yeah, he came hoping to do entitlement reform and work on tax overhaul and work on the relationship with China, which he believed to be of enormous strategic importance in influencing all kinds of aspects of U.S. foreign and economic policy, and he was able to do a little bit of that with China. But basically, from the minute he got there, he was bailing as fast as he could.

SHAPIRO: And he was never a particular expert in the kinds of things that he had to focus on. He was not an expert in housing…

Mr. PURDUM: No, nor in regulation, nor in any of the number of sectors in which he was called on to act. And he was candid in acknowledging that.

SHAPIRO: And he also acknowledged that philosophically, he came to the job thinking one thing and pragmatically had to do something very different.

Mr. PURDUM: He came to the job thinking that markets could mediate risk, and he was fundamentally sort of against government intervention. And by the end, I think he felt there were a whole series of tools that would be needed in the future to regulate the financial activities or - not just domestically, but globally - that future Treasury secretaries ought to be able to have.

SHAPIRO: So in all of these ways that you're describing him and that he's describing himself, it doesn't sound like he came to the job with a profile that somebody who ended up in the job he was in would need for the crisis that he had.

Mr. PURDUM: Except in on particular, he came to the job as a master of markets and understanding the psychology of Wall Street and the psychology of investors and the psychology of deal making. And I think in some ways, it was lucky that he was there because he was a master dealmaker. He'd been used to courting CEOs all over the - CFOs all over the country and the world as an investment banker getting their business. So when he went to Capitol Hill, he was quite practiced in the art of negotiation.

And in the end, I think, through the sheer force of his personality, as well as his understanding of what the psychology of investors would suffer if the worst had happened, I think he managed to be a sort of persuasive advocate for those questions on the Hill.

SHAPIRO: But it sounds like he had a really hard time with the culture of Washington.

Mr. PURDUM: I think he did have a hard time with the culture of Washington. He came of age in the business world, where billion dollar deals are sealed with a handshake and your word is your bond. I think it drove him crazy to have members of Congress say I'd love to help you and I'm all for what you're doing and if you really needed my vote, you'd have it. But since you don't, I'm going to take a pass, and by the way, I'll take a swipe at you on the way out the door.

SHAPIRO: People kept telling him one thing in private and then saying something different in public.

Mr. PURDUM: Yes, and he was very discreet about it because I tried to ask him over and over again who are the worst offenders? And he said, I really don't think I'm going to get into that with you. But he - it was quite clear there was people who were.

SHAPIRO: But when it came to people he was pleased to work with, he did name names.

Mr. PURDUM: He named names. He was very pleased at Nancy Pelosi often, and he said that he so wished that Barney Frank were a Republican and shared his philosophy because they really thought they could have gotten a lot done. I think he felt that Chairman Frank of the House Financial Services Committee was a very, very effective legislator who knew how to get things done.

SHAPIRO: He was working in a White House that had some really strong political ideologues. And some of the people he had the best experience working with were Nancy Pelosi and Barney Frank, Democrats. How did he navigate that divide?

Mr. PURDUM: I think he told the White House at times, look, we need to do something on a bipartisan basis to restore investor confidence and restore public confidence. That itself would be seen as good for the markets and good for the country. And I think he was candid in telling me that President Bush, by the end of his time in office, realized how limited his own political capital was and let Secretary Paulson take the lead on some of these controversial questions because he knew that he could be a more effective advocate.

SHAPIRO: So when people were criticizing the president for being too hands off, Henry Paulson told you that was actually the strategy that he agreed on.

Mr. PURDUM: It was a deliberate strategy that they'd agreed on together as being the most effective, yes.

SHAPIRO: As you describe it, he really had to be persuaded to take this job. And then once he agreed to take it, he had some real questions. Based on your interviews with him, do you have the sense that he's confident, he made the right choice in taking the job?

Mr. PURDUM: I think he told me at one point that, you know, it wasn't what he expected it would be, but it's what he signed up to do and he did the best he could. And I think he's something sort of unusual in Washington, which is he's a very straight shooter. He's really - he was an Eagle Scout, and it's really kind of the way he acts. And…

SHAPIRO: And he doesn't drink. He doesn't smoke. He has a very modest house.

Mr. PURDUM: Doesn't drink, he doesn't smoke. He has a modest house in Barrington, Illinois near the family farm where he grew up. So he's a little bit of an odd duck for a person who came from the world he came from. And I think he has almost a sense that he - it became a duty for him, and he did the best he could.

SHAPIRO: He spent a lot of time working with Tim Geithner…

Mr. PURDUM: Yep.

SHAPIRO: …who's the Treasury Secretary currently. Tell me about that relationship.

Mr. PURDUM: I think they were very close. They worked very well together. He'd considered - he'd asked Tim Geithner whether he might come to Washington to be one of his deputies, and Geithner preferred to stay at the New York Federal Reserve where he was then the president. He told me, Paulson did in one of our interviews, I think he's going to make a great Treasury secretary someday. And of course, it turned out to be exactly what happened.

SHAPIRO: And this was before he was nominated.

Mr. PURDUM: Oh, well before. I mean months, months before.

SHAPIRO: So it's interesting. In Washington, we saw a political transfer of power from the Republicans to the Democrats, the Bush administration to the Obama administration. But in the Treasury Department, it sounds as though -well, as you describe it, there was sort of this third, post-partisan group of people overseeing the economy.

Mr. PURDUM: There was a great deal of consistency, I have to say. I mean, the triumvirate that was working on the financial crisis a year ago was Tim Geithner, Hank Paulson and Ben Bernanke, and two of those three are still there.

SHAPIRO: As the Obama administration was preparing to take office, he said something to you about consolidation of power in one party. What was that?

Mr. PURDUM: He said that he's normally not in favor of having the Congress and the presidency in the hands of the same party, and he thought that as kind of a skeptic that it would be better if there was two-party rule. I think he felt that in this particular circumstance, that it might be a useful way to get some things done.

I would love to talk to him now about what he thinks of the first eight or nine months of the Obama administration. I haven't seen him since January. That was part of our deal. He's writing his own book, which is coming out in November, so I'll be interested to see about what he says that's happened in the year since.

SHAPIRO: Todd Purdum is Vanity Fair's national editor. Thanks a lot.

Mr. PURDUM: Thanks, Ari.

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