Crisis Turns Free Marketeers into Regulators (
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U.S. Treasury Secretary Henry Paulson and policy-makers have converted from proponents of hands-off government regulators to occasional interventionists given the state of the economy.WASHINGTON
(Reuters) - Worn down by a deepening housing crisis, U.S. Treasury
Secretary Henry Paulson and other Washington policy-makers have
converted from proponents of hands-off government to reluctant
interventionists ready to extend the occasional, expensive helping hand.
It was not the smoothest transition for Paulson, a Goldman Sachs
veteran who was seen as a strong and knowledgeable bridge between
Washington and Wall Street when he took up his cabinet post in July
2006.
Many of his former financial market colleagues welcomed his
appointment because they believed he would work to relax some rules put
in place after accounting scandals took down companies such as Enron
and WorldCom earlier in the decade.
Instead, a year of credit market turmoil has exposed gaping holes in
supervision, and Paulson's legacy may be that he laid the groundwork
for the biggest overhaul of financial regulation since the aftermath of
the Great Depression in the 1930s.
When markets seized up one year ago, Paulson annoyed some on Wall
Street who thought he underestimated how quickly problems in the
subprime mortgage market could infect the global economy. Last month,
he incurred the wrath of some fellow Republicans in Congress, who
likened Paulson's pledge to backstop mortgage finance companies Fannie
Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to socialism.
In Paulson's own words, he was simply "playing the hand that I have
been dealt" when he agreed to offer an undefined credit line and buy
stock in Fannie Mae and Freddie Mac to bolster the two
government-sponsored enterprises.
However, he was able to engineer bipartisan agreement on a rescue,
with presidential elections just months away, underlining the pragmatic
approach Paulson brought to the Treasury from his three-decade tenure
on Wall Street.
"I would rather not have been in the position of asking for
extraordinary authorities to support the GSEs," Paulson said on July
31. "We saw a clear need to strengthen Fannie and Freddie's ability to
continue to play their important role in financing mortgages and in our
capital markets more broadly."
Government 
