Paulson, Once a Top Earner, Tells Buffett Bankers Make Too Much

By Andrew Frye

Feb. 10 (Bloomberg) -- Henry Paulson, who was paid an $18.7 million cash bonus for his final six months of work on Wall Street in 2006, said bank bailouts he later orchestrated as Treasury secretary should encourage firms to rein in pay.

“Today restraint is very much in order by the top people,” Paulson, 63, said yesterday in an interview conducted by billionaire Warren Buffett in Omaha, Nebraska. “If you have losses you are supposed to bear responsibility.”

Bank executives, who tapped taxpayers amid losses in 2008, are under pressure from lawmakers to keep compensation in check as profits return. Lloyd Blankfein, the chief executive officer of Paulson’s old firm, Goldman Sachs Group Inc., turned in record profit in 2009 and walked away with a $9 million all- stock bonus, about one-seventh the size of his 2007 award.

“During benign periods, I think compensation levels on Wall Street are out of whack,” Paulson said to an audience of more than 2,400 people at a lunch meeting organized by the Omaha chamber of commerce. “I would have these conversations with Wendy all the time,” Paulson said, referring to his wife.

Paulson led Goldman Sachs for seven years before joining George W. Bush’s cabinet. In the first half of 2006, he turned in what was then the biggest profit in Wall Street history. Paulson stepped down, after a career at the firm, with stock and restricted shares worth more than $500 million.

Buffett, 79, a Goldman Sachs investor through his Berkshire Hathaway Inc. and a friend of Paulson’s, has criticized compensation at firms that perform poorly. Last month he told Fox Business Network that the CEO of a failing company should be “destroyed himself financially.” With Paulson, Buffett asked questions and offered few opinions.

‘Obscene’ and ‘Reckless’

President Barack Obama called bank bonuses “obscene” at least twice this year, and Democratic Representative Andre Carson said the industry’s practices are “reckless” during a House Financial Services Committee hearing on compensation.

Paulson is promoting a memoir about the financial crisis, “On the Brink,” which was published this month. In the book, he said he would sometimes chide Goldman Sachs colleagues about “the dangers of the ostentatious lifestyles” he saw with some bankers.

“No one likes investment bankers,” Paulson recalls saying. “You make your life more difficult when you build a 15,000- square-foot house.”

Goldman Sachs this year cut the percentage of revenue earmarked for pay to the lowest in a decade as a public company. The New York-based firm aimed to allay anger about bank profits as the U.S. jobless rate remains about 10 percent.

In the fourth quarter, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co.’s investment bank slashed their compensation. The three Wall Street firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.