The Economist compares two Goldman Sachs chairmen turned Treasury secretary:
Mr Rubin rose to the top through risk arbitrage. As a trader, he knew that the important thing was to understand the big picture, and get big calls right. He knew to keep his mouth shut: talking about your ideas might let someone else steal your profits. This may be the perfect skill set for a Treasury Secretary, which is why the trader currently running Goldman, Lloyd Blankfein, might one day make a good one.
Mr Paulson, by contrast, rose to the top of the firm through investment banking, which is largely about dealmaking. The caricature of a dealmaker is someone who only wants to get the deal done, and cares not one fig for the consequences. Indeed, a lot of investment-banking deals involve undoing mergers put together by previous dealmakers.
The meltdown in the financial markets was arguably due in large part to dealmaking while ignoring the bigger picture. And Mr Paulson has stumbled from one crisis to the next, often fixing one in a way inconsistent with his approach to the next, with little indication of having a bigger strategy.
This is both clever and facile, in a very Economisty way: it’s the sort of thing which reeks of Oxford Union debates. Still, it’s cute, and it might even have a glimmer of truth to it. Although at this point I think we’ve had more than enough Goldman chairmen as Treasury secretary, thankyouverymuch.
Paulson is proof positive that having run an investment bank does not qualify you to run Treasury: the Washington job requires a deeper understanding of policymaking — how to do it, how not to do it — than Paulson, for one, has. Remember that Rubin spent three years as head of the National Economic Council before moving to Treasury. I suspect that was a much better training for the job than his years as an arbitrageur.
Incidentally, does anybody have a copy of Andrew Sullivan’s TNR cover story on the Economist from June 1999? It’s one of those things I’d like to have lying around, and for some reason it doesn’t seem to be online anywhere.
Update: Here it is. Thank you to Dave, in the comments, for finding it.