WASHINGTON — When he leaves office next month, Henry Paulson will conclude what has been one of the most influential terms of any Treasury secretary in recent memory.
The debate over how he has used that influence is just beginning.
During his two-year tenure, Mr. Paulson has spearheaded the government's seizure of Fannie Mae and Freddie Mac, engineered the bailout of some of the country's largest financial firms, partially nationalized the banking system, and won approval of $700 billion from Congress to try and resolve the financial crisis.
His term has also been marked by abrupt reversals, a characteristic that to supporters demonstrated flexibility and to detractors indicated a lack of overall strategy.
"He's a mixed figure," said Kip Weissman, a partner at Luse Gorman. "Whether he had an opportunity to save the economy or not will be debated in history, but he did his best and tried."
In interviews with current and former regulators, academics, analysts, and industry representatives, most give Mr. Paulson an "A" for effort. A common criticism, one even his admirers acknowledge, is that he tackled problems as they cropped up, which led to conflicting solutions and unintended consequences.
"The administration has lurched from one strategy to the next," said Michael Barr, a senior fellow at the Center for American Progress and a former Clinton Treasury official. "The administration has suffered significantly because it lacks that underlying theory, and therefore these steps it's taken seem to be from the sky."
Even some close to the administration were frustrated.
"This is the financial level of 9/11 and the government didn't have good contingency plans in place, and they should have," said a former Bush administration official.
But others argued a grand strategy would have been impossible.
"So much was coming at these people so quickly," said Ernie Patrikis, a lawyer at White & Case LLP and a former Federal Reserve official. "It was very, very difficult for them to step back and say, 'This is our strategic approach.' … Some may criticize there being an ad hoc nature, but I don't think you have a choice."
Still his reversals were dramatic. In March, Mr. Paulson was adamant the government would not get into the bailout business.
"Most of the proposals I've seen would do more harm than good. I'm not interested in bailing out investors, lenders, and speculators," he said on March 12.
Within weeks, Mr. Paulson negotiated the Bear Stearns rescue. Then, a day after ruling out a similar rescue for Lehman Brothers on Sept. 15, drawing a line against further government assistance, he stepped in to save American International Group.
In July, he asked Congress for more authority over the government-sponsored enterprises but insisted he would not need to use it. On Sept. 7, he organized the seizure of Fannie and Freddie.
Perhaps the most controversial change came in October. Within days of receiving $700 billion to create a program to buy troubled assets — a program Mr. Paulson had said was vital to preventing the collapse of the economy — he abandoned it. Instead, he used the money to inject capital into banks — something he had told lawmakers he did not think would be wise.
And finally on Friday, Mr. Paulson agreed to use money from the Troubled Asset Relief Program to help bail out the automakers after arguing against it for weeks. (See related story.)
"The secretary hasn't merely shifted his stance on some major issues, he's done an about-face," said a former Treasury official. "He was for purchasing troubled assets, then against. Against giving Tarp funds to automakers, then for. For months he denied that there was a federal guarantee for Fannie and Freddie, but eventually he made the implicit guarantee abundantly explicit when both firms were bailed out."
Some Treasury programs were also rolled out before details were finalized, leaving obvious questions unanswered. When Mr. Paulson announced Oct. 14 the government would invest $125 billion in the nine largest financial institutions, he said another $125 billion would be divided by the rest of the industry. But it was unclear on what basis the money would be provided and what it would be used for. Mr. Paulson said the funds would be used for lending, while other regulators said it would be used to strengthen financial institutions. Later Mr. Paulson endorsed using the capital to finance mergers.
"At important points, programs were rolled out before they were ready," said Wayne Abernathy, executive director of financial institutions policy for the American Bankers Association and a former Bush administration Treasury official. "You want to have the details worked out before you announce a program, because when you announce it as a Treasury secretary the market immediately reacts."
Though some of the ad hoc nature of Treasury's actions were inevitable given the changing shape of the financial crisis, former staff said it also reflects Mr. Paulson's style.
He was known for micromanaging his staff and shifting gears quickly. Former aides said he would often call on weekends asking for work on something, but by the start of the next week he had often moved on.
Some of this may be a result of his experience as the chief executive at Goldman Sachs, where Mr. Paulson had a staff of hundreds and experimentation was part of the job. But it did not necessarily fit well with the Treasury Department.
"When you are running a business, you can afford to experiment a little bit, even in public," Mr. Abernathy said. "Your room for doing that when you are a Treasury secretary is very small, because the consequences for doing that are very large."
Others said Mr. Paulson took too much on himself.
"You don't want a micromanager as head of the Treasury," said Joseph Mason, a professor at Louisiana State University. "You want someone who is going to delegate and not sit and make everything his own. And I think this has been the Paulson show."
Former staff members said Mr. Paulson also frequently cut others out of the decision-making process, including his own staff, White House staff, other regulators, and lawmakers. On several occasions regulators have privately said they were unaware of a major plan that affected them before it was announced.
The lack of consultation has frequently angered lawmakers, including many of those nominally on Mr. Paulson's side.
In a meeting with House Speaker Nancy Pelosi in February on the economic stimulus package, Mr. Paulson agreed to Democratic demands to include an increase in the GSE conforming loan limit, sources said, without running it by the White House or Senate Republicans.
The shift privately angered White House staff and publicly infuriated Sen. Richard Shelby, the top Republican on the Senate Banking Committee. Sen. Shelby said at the time that Mr. Paulson lost credibility. "He spoke to the whole Republican caucus on that issue and two hours later, he gave it away and he never told us what he was going to do."
Rep. Maxine Waters, the House Financial Services subcommittee chairwoman, said she likes Mr. Paulson, but that his zigs and zags damaged his credibility.
"When he came back with a change in direction of not buying all of the toxic mortgage papers, it shocked me," she said in an interview. "It absolutely shocked me. … I don't think he understood that a switcheroo would cause this much anguish and this much of a pushback as he's seeing in Congress."
Mr. Paulson has also been criticized for letting Lehman fail, while saving other financial institutions. Mr. Paulson has defended the decision by saying he could not find a buyer for Lehman and did not have the legal authority to bail it out. But lack of authority has not stopped him in other situations, and several observers said history will view the decision as a mistake.
"I think if they had to do it all over again, they probably would not have let Lehman fail," said Robert Clarke, a partner at Bracewell & Giuliani LLP and a former comptroller of the currency. "It should have been dealt with in a way that would not have had all the disruptions in the markets it caused."
To be sure, there are many who argue that Mr. Paulson was doing what he had to do in the face of a financial crisis unlike any since the Great Depression.
Randall Quarles, managing partner of Carlyle Group and a former Treasury undersecretary in the Bush administration, said Mr. Paulson should be commended for changing course when necessary.
"The willingness to act decisively and move Tarp from asset purchases to capital injections in the face of a rapidly evolving situation was the right move, and a sign of strength," he said. "When people look back with a little distance, they will realize those were the right actions. Hesitating to take them for fear of criticism over an apparent change in direction would have been a mistake, and people will be glad there was somebody there to take that heat."
Alex Pollock, a resident fellow at the American Enterprise Institute, agreed.
Flip-flops are "bound to happen in the course of trying to address a panic," he said. "And I don't think there's any doubt that this intervention has made this panic less bad than it would have been."
Another common complaint is that Mr. Paulson has poor communication skills, and he has acknowledged as much. In response to congressional questions, Mr. Paulson has frequently appeared evasive or unable to explain the rationale behind government actions.
"These are probably times when you need exceptional sales skills, and that has just not been one of his strong points," said Brian Gardner, an analyst with KBW's Keefe, Bruyette and Woods.
When Mr. Paulson has communicated, he has sometimes been contradicted by later events. Five days before the government took steps to backstop Citigroup, he wrote in an op-ed piece in The New York Times that "the failure of a major bank is no longer a pressing concern."
"The criticism could be that he was too optimistic and too trusting that markets would be self-correcting, so when matters continued to worsen, he got caught in a reactive, catch-up mode," said William Longbrake, a director of the Seattle Federal Home Loan Bank and a member of the board of directors of First Financial Northwest in Renton, Wash.
It may be years before the final verdict on Mr. Paulson's tenure is clear.
"Secretary Paulson will be remembered as a central player in one of the most turbulent and perilous episodes ever to befall our economy," said Eugene Ludwig, the founder of Promontory Financial and former comptroller of the currency. "It's easy for the critics to pile on, and in doing so one diminishes the fact that he confronted unprecedented challenges with energy, dedication, and commitment. Who would have willingly traded places with him?"