Too Big to Fail [26]
One additional condition came with the appointment: Paulson would have to divest his huge holding of Goldman Sachs stock—some 3.23 million shares, worth about $485 million—as well as a lucrative investment in a Goldman fund that held a stake in the Industrial and Commercial Bank of China. Because new Internal Revenue Service rules allowed executives who entered into government service to sell their interests without a penalty, Paulson saved more than $100 million in taxes. It was perhaps one of the most lucrative deals he ever struck, but for many months prior to the crisis, he watched chagrined as Goldman’s shares rose from about $142, when he sold them, to their high of $235.92 in October 2007.
Henry Merritt Paulson Jr. was officially nominated for Treasury secretary on May 30, 2006. Just seven days later, the Washington Post featured a profile of him that opened: “In an administration with just two and a half years to go, Henry M. Paulson Jr., President Bush’s nominee for Treasury secretary, may have little chance to make a mark on many economic issues.”
Nothing could have played more effectively to his immediate sense of buyer’s remorse—and motivate him to overcome the challenge.
By Wall Street standards, Paulson was something of a baffling outlier, a titan who had little interest in living a Carnegie Hill multimillionaire’s life. A straight-shooting Midwesterner, he had grown up on a farm outside Chicago and had been an Eagle Scout. He and Wendy assiduously avoided the Manhattan society scene, trying to get to bed before 9:00 p.m. as often as they could, and preferred bird-watching in Central Park—Wendy led tours in the mornings for the Nature Conservancy—near their two-bed-room, twelve-hundred-square-foot apartment, a modest residence for one of the highest-paid executives on Wall Street. Paulson wore a plastic running watch, and any inclination he might have had to spend money was discouraged by Wendy, the daughter of a Marine officer whose frugality had kept him firmly grounded. One day, Paulson came home with a new cashmere coat from Bergdorf Goodman, to replace one that he had had for ten years. “Why did you buy a new coat?” Wendy asked. The next day, Paulson returned it.
And despite his prodigious fund-raising for President Bush, he hardly fit the image of a Republican hardliner. A hard-core environmentalist whose only car was a Toyota Prius, he was the subject of a good deal of negative publicity—and the scourge of some annoyed Goldman Sachs shareholders—when in 2006 he donated 680,000 acres of land Goldman owned in the South American archipelago of Tierra del Fuego to the Wildlife Conservation Society. He was WCS chairman, as it happened, and his son was one of its advisers. Although the irony could not be appreciated by anyone at the time, the firm had acquired the ecologically sensitive South American land as part of a portfolio of mortgage defaults.
Paulson had a long history of exceeding others’ expectations. Despite his relatively modest frame—six feet one, 195 pounds—he had been an all–Ivy League tackle for Dartmouth, where his ferociousness in playing earned him the nicknames “The Hammer” and “Hammering Hank.” But unlike his hard-partying teammates, he kept orange juice and ginger ale in a refrigerator at his fraternity, Sigma Alpha Epsilon, to drink during beer parties. (He met his future wife when she was a student at Wellesley; Wendy’s classmates there included Hillary Rodham, who in some ways was her rival. Wendy was president of the class of 1969; Hillary was president of the student body.) Paulson graduated Phi Beta Kappa from Dartmouth in 1968 with a major in English literature.
Paulson had first come to Washington in 1970, after graduating from Harvard Business School, and at the time he didn’t even own a suit. Armed with a recommendation from one of his undergraduate professors at Dartmouth, Paulson landed a job as a staff aide to the assistant secretary of Defense and would soon display some of the skills that would later make him such an effective salesman at Goldman Sachs. In just