The Secretary of the Treasury

I promised some follow-up and highlights of yesterday's Q & A that Hank Paulson did with the NYSSA members. If you watch it live on CNBC or saw him this morning on that same channel co-hosting in the eight-o'clock hour, this won' be a surprise. What was surprising is that it took until the very last question yesterday for someone to ask Sec. Paulson about his stance on the dollar. On CNBC this morning, that question was asked, in different ways, at least four times (It was getting to the point where you think that CNBC hoped that Hank would have a stroke or the immediate onset of Alzheimer's and start blathering on that a weak dollar is a great thing!). Where Mr. Paulson's response differs from previous Treasury Secretaries, with the exception of perhaps Alexander Hamilton, is that he goes to explain why the dollar strength is a good thing and to not fret over month-to-month or year-to-year weakness.

Sec. Paulson's prepared remarks lasted about 20 minutes. The vast majority of that time was spent on what Treasury is doing with regard to the housing market, giving updates on where the process stands (Not too far along, given that it has been only two months). He did comment on the Fed (thought they doing the right thing in their targeted liquidity moves), the President (still deciding on what fiscal stimulus, if any, is necessary), Congress (need to act on FHA reform, and in the medium term, taxes) and one more point. This final concept again cropped up more than once in the Q & A. The point is, and I am paraphrasing, that the United States remains the strongest economic country in the world, that despite the relative growth rates now, the US is more competitive than anywhere else in the world over any given time frame. He went on to say that the US has fewer structural problems related to growth than anywhere else and implied that we ourselves are the biggest obstacles to further growth, specifically singling out tax policy. Time and time again he cited the resiliency of the US economy, using historical and other examples (the recent upsurge in foreign investment here was one he repeated over and over, saying this wouldn't occur if they had no confidence in the US) to buttress his argument. It is an argument made in this forum time and again, but Mr. Paulson did it eloquently without coming off like a rah rah cheerleader.

The question and answer segment has its bizarre moments, starting with the first question. A gentleman in the front row stood up and handed Sec. Paulson a reply to a letter the questioner had sent to Energy Sec. Bodman, instructing him to address it with Sec. Paulson. He wanted to know if the Treasury, and Mr. Paulson specifically given his background with Goldman Sachs, could start taking positions in the oil futures market, preferably on the short side. After the laughing died down, Sec. Paulson gave him a very succinct answer on why that wasn't going to happen. I was asked to ask him about quasi-bailout of the banking system and the moral hazard that represented. While I didn't have that opportunity, someone else asked moral hazard of bailing out homeowners. His answer was quite good: certain people will be helped, ones deserving of help; others will not. The process being set up is designed to streamline the system, not eliminate foreclosures. It is all about separating the good, salvageable situations from the bad. Finally, on the question regarding the dollar, he did say that economic fundamentals should determine currency values, and then reiterated the strong underlying US fundamentals. As a student and participant in foreign markets for decades, I would say that rarely happens. Take a look at the value of the Euro.

I left the meeting with a renewed sense of optimism about the US. It is good to see that the people in charge have level heads, unlike the ranting and raving that is demonstrated by the headless chickens on TV. Once the uncertainty around the Presidential election and the future tax policy has passed, thing will look brighter here.