On the Brink (7 page)

Not long after that, I got a call from Josh Bolten, President Bush’s new chief of staff and a former Goldman executive, to gauge my interest in the job. Goldman was clicking, and I wasn’t eager to leave. I told Josh I couldn’t see doing it, and I used Wendy as an excuse: she did not want to go to Washington, and she was a supporter of Hillary Clinton’s. I also wasn’t sure what I’d be able to accomplish at the end of a second term.

Josh was persistent. He knew that I had been invited to an upcoming lunch on April 20 at the White House in honor of Chinese president Hu Jintao, and he invited me to meet with President Bush then. “The president normally only meets with people when they want to accept,” Josh explained. “But he’d like to visit with you privately in his residence the night before the lunch.”

“Fine,” I said. “I’ll be there.”

A day or so before I was scheduled to go down to Washington, John Rogers, my chief of staff at Goldman, asked me whether I was planning to accept the post.

“Probably not. I can’t think of what he could say to persuade me,” I said.

“You shouldn’t meet with him, then,” said John, who was wise in the ways of Washington. “You don’t tell the president no like that.”

I called Josh immediately and explained that I was not going to see the president after all because I had decided against taking the job.

Wendy and I flew to Washington for the Hu Jintao lunch, and I met beforehand with Zhou Xiaochuan, the Chinese central bank governor, at the headquarters of the International Monetary Fund. He asked to see me alone, and we went off to a room where no one could listen in and where there were no note takers.

“I think you should become Treasury secretary,” he said.

“I’m not going to do it,” I said, without going into the details. I was surprised at how well informed he was.

“I think you’ll be sorry,” Zhou replied. “I am someone who’s spent my life in government. You are a public-spirited person, and I think there’s much you could accomplish in the world right now.”

The lunch at the White House was an impressive gathering. Still, I felt the president was cool with me when I saw him, as was Vice President Dick Cheney, with whom I’d had a good relationship. Someone in the receiving line who was well plugged into the administration said to me, “Hank, you’d have been a great Treasury secretary. And you know there may not be a chance for another Republican for years. Do you know what you’re doing turning this down?”

When the lunch was over, Wendy and I walked onto the White House grounds by the entrance to the Treasury. It was a gorgeous day, the magnolias and cherry blossoms in full bloom set dramatically against a crisp blue sky.

I felt awful.

I don’t hide my emotions well, and Wendy could see I was distressed. She said: “Pea”—which is what she likes to call me—“I hope you didn’t turn this down because of me. You know if it was really important to you, I would have agreed.”

At the time, she thought that was a throwaway line.

“No,” I said, “I didn’t.”

Shortly after, I went down to the Yucatán for a Nature Conservancy meeting, and I was in agony wondering whether I’d made a mistake. Almost everyone I’d consulted had advised against it. They would say: “You’re the head of Goldman Sachs. You’re the man; why go to Washington? The president has just two and a half years left. Look how unpopular he is. The Republicans are about to lose Congress. What can you possibly get done?”

And yet part of me knew I owed much to my country, and it troubled me to say no to the president when he was asking for help. My good friend John Bryan reminded me that “there are no dress rehearsals in life. Do you really want to be 75 and telling people ‘I
could have been
Treasury secretary’?”

I called Rogers and said, “John, I can’t believe I’ve done this.”

He said, “Well, you may get another chance. They may come back.”

And they did. I was in Germany on business in May, when Josh called again, and I agreed to meet him in D.C. on my way out to the West Coast for a Microsoft conference. We talked in a private suite at the Willard Hotel about what could be accomplished in the remaining years of the administration. We talked about what it was like to work with the president and about pressing policy matters like the need for entitlement reforms, as well as other areas where he thought I might be helpful, such as with Iran and cracking down on terror financing.

I turned to a number of people for advice. Jim Baker, the former secretary of Treasury and State, who had recommended me to the president and urged me to accept the position, said that I should ask to be the primary adviser and spokesman for all domestic and international economic issues. “That,” as he put it, “really covers everything.”

I was still struggling to decide. My epiphany came while I was flying out to the Microsoft meeting. As I thought through my decision, I recognized that it was simply fear that was causing me such anxiety. Fear of failure, fear of the unknown: the uncertainty of working with a group of people I had never worked with before and managing people I had never managed before.

Once I understood this, I pushed back hard against the fear. I wasn’t going to give in to that. I prayed for the humility to do something not out of a sense of ego, but out of the fundamental understanding that one’s job in life is to express the good that comes from God. I always believed you should run toward problems and challenges; it was what I told the kids in camp when I was a counselor, and I now told myself that again. Fear of failure is ultimately selfish; it reflects a preoccupation with self and overlooks the fact that one’s strength and abilities come from the divine Mind.

I arranged to go back to Washington to see Josh again. As we sat in front of the fireplace in his office, beneath a portrait of Abraham Lincoln, I laid out my “asks.” In addition to being the administration’s primary economic adviser and spokesman, I wanted to be able to replace political appointees and bring in my own team, and to have regular access to the president, on a par with the secretaries of Defense and State. I asked to chair the economic policy lunch held at the White House. Josh rang up Al Hubbard, the National Economic Council (NEC) director, at his home in Indianapolis to be sure he was all right with this, and he was.

After Josh and I worked out these details, I went up to see the president in the residence. I found George Bush to be personable, direct, and very engaged. He was relaxed, having come in from a bike ride that morning, and had his feet up. We talked about a number of issues: how important it would be to address entitlements, and that perhaps having the Treasury secretary as opposed to the president lead this effort might help win support from both sides of the aisle. We talked about using financial sanctions to make a difference with Iran and North Korea. At the end of the hour-long meeting, I told him that I planned to accept.

From there, things went into overdrive. An announcement had to be made before the news leaked. I flew out to Barrington for the weekend to spend some time with Wendy, who was in despair over the impending loss of our privacy as we were fed into the Washington meat grinder, and to tell Mom the news. Then I returned to New York and called Lloyd Blankfein, summoning him back from a weekend with his family to discuss the developments. I asked Lindsay Valdeon, my trusted assistant at Goldman Sachs, to make the move to Washington with me, and she agreed.

I then called the board members and all 17 executives on the management committee to tell them, and asked Lloyd and John Rogers to fly with me to Washington for the ceremony.

Afterward, we flew out to Chicago for a previously scheduled partners’ meeting. I woke up the next morning, and I was on the front page of every newspaper. It took my breath away. Even though the coverage was positive, it was unnerving.

The Senate voted to confirm me before the Fourth of July recess. There was only one hurdle remaining—my mother. I was concerned about what she might say when she met the president. She promised me that she would be on her best behavior.

I was sworn in on July 10, 2006. The ceremony took place in the Treasury Building’s Cash Room, an extraordinary space that was designed in the 1860s to look like an Italian palazzo. It has marble floors and marble-clad walls that soar to an ornate gold-edged ceiling from which massive bronze chandeliers hang. Until it was closed for security reasons in the 1970s, the room had been open to the public: government checks could be cashed there and Treasury bonds purchased. My oath of office was administered by Supreme Court Chief Justice John Roberts with President Bush—and my mother—in attendance.

My mother suffered when Hillary Clinton lost in the 2008 Democratic primaries to Barack Obama; she wants to live to see a woman become president and the Cubs win the World Series. And she voted for Obama. Given the chance again, she probably still would not have voted for George W. Bush in 2000 or 2004. But after watching the way he worked with me, and having heard me report back to her about one issue after another, I can tell you this: she looks at the president a lot differently today than she did when I first went to Washington. So do Wendy, Merritt, and Amanda.

C
HAPTER 3

Thursday, August 17, 2006

I
n August 2006, President Bush gathered his economic team at Camp David. The presidential retreat is a beautiful wooded spot with rustic lodges and mulched paths one and a half hours by car from Washington, in western Maryland’s Catoctin Mountain Park. It had been five weeks since I had been sworn in as secretary of the Treasury, and I was still feeling my way as an outsider in a close-knit administration.

The economic outlook was strong. Stocks were trading just below their near-record highs of May. The dollar had shown some weakness, particularly against the euro, but overall the U.S. economy was humming—the gross domestic product had risen by nearly 5 percent in the first quarter and by just below 3 percent in the second quarter.

Nonetheless I felt uneasy. On the macro front, the U.S. was conducting two wars, the expenses from Hurricanes Katrina, Rita, and Wilma were mounting, and our entitlement spending kept growing even as the budget deficits shrank. This odd situation was ultimately the result of global financial imbalances that had made policy makers nervous for years. To support unprecedented consumer spending and to make up for its low savings rate, the U.S. was borrowing too much from abroad, while export-driven countries—notably China, other Asian nations, and the oil producers—were shipping capital to us and inadvertently fueling our spendthrift ways. Their recycled dollars enriched Wall Street and inflated tax receipts in the short run but undermined long-term stability and, among other things, exacerbated income inequality in America. How long could this situation last?

My number one concern was the likelihood of a financial crisis. The markets rarely went many years without a severe disruption, and credit had been so easy for so long that people were not braced for a systemic shock. We had not had a major financial blowup since 1998.

We arrived at Camp David late Thursday morning, August 17, ate lunch, and spent the afternoon hiking. That evening, Wendy, ever the athlete, defeated all comers, including me, in the bowling tournament. Though the retreat is well known for the foreign dignitaries who have stayed there, the atmosphere is quite casual. On Josh Bolten’s recommendation I had even bought a pair of khaki pants—at the time, I just had dress slacks and jeans.

In the morning, I went for a brisk run, accompanied by the loud singing of Carolina wrens and, high up in the canopy, migrating warblers. I came across Wendy and First Lady Laura Bush, trailed by a Secret Service detail, heading off to do their birding. I was on my way to see a more exotic species of Washington animal.

After breakfast, the president’s economic team gathered in a large wood-paneled conference room in Laurel, as the main lodge is known (all of Camp David’s buildings are named for trees). Ed Lazear, chairman of the Council of Economic Advisers, led off with a discussion of wages and later talked about pro-growth tax initiatives. Rob Portman, the former congressman then serving as the head of the Office of Management and Budget, dissected budget matters, while Al Hubbard, then director of the National Economic Council, and his deputy director, Keith Hennessey, took us through entitlement issues.

The president’s operating style was on full display. He kept the atmosphere shirt-sleeve informal but brisk and businesslike, moving purposefully through the agenda with a minimum of small talk. Some people have claimed that as president, George W. Bush lacked curiosity and discouraged dissent. Nothing could be further from my experience. He encouraged debate and discussion and picked up on the issues quickly. He asked questions and didn’t let explanations pass if they weren’t clear.

I focused on crisis prevention. I explained that we needed to be prepared to deal with everything from terror attacks and natural disasters to oil price shocks, the collapse of a major bank, or a sharp drop in the value of the dollar.

“If you look at recent history, there is a disturbance in the capital markets every four to eight years,” I said, ticking off the savings and loan crisis in the late ’80s and early ’90s, the bond market blowup of 1994, and the crisis that began in Asia in 1997 and continued with Russia’s default on its debt in 1998. I was convinced we were due for another disruption.

I detailed the big increase in the size of unregulated pools of capital such as hedge funds and private-equity funds, as well as the exponential growth of unregulated over-the-counter (OTC) derivatives like credit default swaps (CDS).

“All of this,” I concluded, “has allowed an enormous amount of leverage—and risk—to creep into the financial system.”

“How did this happen?” the president asked.

It was a humbling question for someone from the financial sector to be asked—after all, we were the ones responsible. I was also keenly aware of the president’s heart-of-the-country disdain for Wall Street and its perceived arrogance and excesses. But it was evident that the administration had not focused on these areas before, so I gave a quick primer on hedging; how and why it was done.