Former US Treasury Secretary and Goldman Sachs CEO Henry Paulson on Tuesday undertook a strident defence of his management of the US economy during the height of the financial crisis. In a promotional for his upcoming book On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, Paulson stated that his former Wall Street connections were a “huge help” during the crisis (presumably Paulson meant a huge help to the economy, rather than merely Goldman Sachs shareholders.

In an interview with Warren Buffett at the annual meeting of the Greater Omaha Chamber of Commerce in Omaha (Buffett’s home town), Paulson also defended the Treasury’s actions during the crisis, especially with regards to the controversial bailout of Bear Sterns and AIG, but let Lehman Brothers collapse. Paulson claimed:

I do not get concerned about the second guessing … because this was very complicated. It’s very hard for people to understand the technicalities. The American people don’t like bailouts, OK they just plain don’t like bailouts and I’m glad they don’t like bailouts.

And in terms of Lehman I think I make it pretty clear in the book we just didn’t have the authorities. In Bear Stearns we had a buyer. We had JP Morgan to take care of the capital hold and to guarantee the trading book during the pendency of the shareholder vote. And at Lehman Brothers we tried very hard to prevent that failure but we, we were left defenseless because we didn’t have the authorities we need.

Paulson also defended the Treasury and Fed’s actions with respect to AIG — claiming that had the insurer not been “bailed out”, the US would have witnessed its unemployment rate to 25%. The fact $US13 billion of those AIG bailout funds were received by Paulson’s alma mater, Goldman Sachs, was a mere coincidence. So too was the fact that in the week prior to the AIG bailout, Paulson spoke with his successor at Goldmans, Lloyd Blankfein, on 24 occasions (plus possibly more from mobile phones). Presumably, the two were not discussing baseball.

In a more surprising revelation, Paulson criticised the remuneration structure of Wall Street, noting that “in our system risk takers are supposed to bear responsibility for their losses and compensation on Wall Street has always been out of whack”. Paulson’s comments are entirely correct, but perhaps somewhat hypocritical, give that Paulson himself collected more than $500 million while CEO of Goldman Sachs (and bore no personal responsibility himself for any potential losses).

Paulson may have gotten get one thing right though, wryly observing that “no one likes investment bankers … you make your life more difficult when you build a 15,000-square-foot house”.

Meanwhile, Goldman Sachs has revealed that Lloyd Blankfein’s bonus has been slashed to $US9 million this year, down from $US67.9 million in 2007. Blankfein’s bonus is being paid in restricted Goldman stock, which will not vest for five years, so at least Blankfein’s remuneration will fall in line with any corresponding drop in Goldman’s share price (Blankfein’s main rival, JPMorgan CEO, Jamie Dimon, received $US17 million in stock).

Interestingly, Goldman Sachs’ compensation expenses dropped to only 35.8% of total revenue (down from 49% in 2008). This compares with Macquarie Bank in Australia, which is attempting to increase its compensation ratio to 45% this year — presumably Macquarie considers their employees more able than those at Goldmans.