Bush picks Paulson as shock choice for US Treasury post

In a notable coup that could revive his flagging administration, President Bush has persuaded Henry Paulson, the chairman of Goldman Sachs, to become the US Treasury Secretary.

The announcement, which took the markets and most financial analysts by surprise, was made by Mr Bush at the White House during a ceremony attended by Mr Paulson and John Snow, the outgoing Treasury Secretary, who signalled his intention to step down just before the Memorial Day weekend.

The changeover is the latest, and perhaps the most important, step in the makeover of the Bush administration since Joshua Bolten took over as the President's chief of staff six weeks ago.

Since then a new CIA director and a new White House spokesman have been installed, while the powers of Karl Rove, Mr Bush's top political adviser, have been reined back.

Mr Bush described Mr Paulson yesterday as a man with "a lifetime of business experience" and an "intimate knowledge of securities markets".

That positive sentiment was echoed in both political parties here, making his speedy confirmation by the Senate is a certainty.

Charles Schumer, a member of the Senate Finance Committee, was just one senior Democrat who promised to support Mr Paulson, praising the nominee as "the best pick America could have hoped for".

The 60-year-old, an avid nature lover who has led Goldman Sachs since 1999, will need all the qualities attributed to him in his new job - that will pay barely US$200,000 ($312,744) a year compared with his remuneration of US$38 million last year at the helm of arguably the world's most powerful investment bank.

He hinted yesterday at the difficulties ahead, noting the current robust growth of the US economy, but warned that "we cannot take it for granted".

America, Mr Paulson said, had to take steps to maintain its competitive edge.

Although GDP expanded by a 5 per cent annual rate in the first quarter of 2006, that pace is likely to slow.

US consumer confidence slipped last month, while inflationary threats are growing, not least because of soaring energy and commodity prices.

The biggest long-term problem, however, will be managing - and if possible reducing - America's huge "twin deficits": the federal budget deficit of some US$350 billion, but above all the deficit of US$800 billion as measured by the current account, the broadest overall guide to US financial dealings with the rest of the world.

The external deficit is financed by massive purchases of US securities by the Chinese, Japanese and other foreign central banks.

The fear is of a possible dollar sell off that could destabilise the global financial system.

The dollar fell against most major currencies yesterday before recovering slightly on the news that Mr Paulson - and not Donald Evans, the former commerce secretary - had accepted the job.

Analysts said that the arrival of Mr Paulson will not affect the unspoken Bush administration policy of allowing the currency to fall gently, as the best means of restoring US competitiveness.

Mr Paulson's likely successor at Goldman Sachs is the bank's chief operating officer, Lloyd Blankfein, and analysts said they expected a smooth transition as soon as Mr Paulson is confirmed at the Treasury.

Mr Blankfein is another Goldman lifer, having joined the bank in 1982.

He was head of the company's trading businesses until his appointment as Mr Paulson's No 2 in 2004.

His elevation to chief executive would cap the growth of Goldman's trading divisions, which have eclipsed the bank's work giving financial advice.

The trading divisions accounted for 66 per cent of net revenues in the first quarter of the year.

- INDEPENDENT