A FEW weeks ago Hank Paulson told The Wall Street Journal that he was very happy in his position as chief executive of Goldman Sachs and had no intention of leaving it in the foreseeable future.

So much for financial forecasting.

Yesterday Mr Paulson was nominated by President Bush to be the 74th Secretary of the US Treasury.

Though the nomination was widely welcomed in political and financial circles, it carried with it a puzzle. It had become axiomatic in Washington in recent months that when John Snow was finally replaced, no big Wall Street figure would take the Treasury job.

Commentators, including this one, assumed that the downgrading of the job in the Bush years beneath the demands of the White House’s famously powerful chief political adviser meant that no big figure on Wall Street would be willing to be, in the words of one economist, “Karl Rove’s Second Banana”.

So why did Mr Paulson agree? The first and most obvious answer is the still powerful pull of the call to public service in American life. When the President calls, even a president as beleaguered and battered as this one, and asks you to take a Cabinet post, especially the one first held by Alexander Hamilton a couple of centuries ago, it is never easy to say “No”.

But it must also be assumed that Mr Paulson would not have agreed to swap Wall Street for the Treasury without assurances that the pattern of the past five years would change and that he would be given some serious role in economic policymaking.

And yet it is easy to see how disappointments could lie in wait for the new Treasury chief.

The job is an oddly ill- defined one at the best of times. Monetary policy is made by the Federal Reserve, fiscal policy is largely the outcome of painful negotiations between the Administration and Congress. Unlike Her Majesty’s Treasury, its American counterpart does not in any real sense control the purse strings of other government departments.

The main source of his power is in essence his status, his own personality and the willingness of the President to let him have his head. Doubtless, Josh Bolten, another Goldman graduate and the new White House Chief of Staff, assured Mr Paulson that he will have charge of economic policy. But will he really?

Two key Bush legislative initiatives that would have been his to lead have just about collapsed: reform of Social Security, the public pension system, and radical overhaul of the byzantine US tax code.

What’s more, it is quite possible there may be a gap between Mr Paulson’s own vision of the Secretary’s role and that of the White House.

He will doubtless see himself as a voice for economic reform to prepare the US for global challenges. Given his financial background he can be expected to emphasise the importance of fiscal restraint in Washington. But that is not something that has seemed to be a high priority for this Administration.

By contrast, it looks as though the White House wants Mr Paulson primarily for his salesman’s skills. Mr Bush is not known for thinking there is much wrong with the US economy and instead is frustrated that, despite strong growth and low unemployment, he gets low marks from the American people. He presumably wants Mr Paulson to focus on improving the message.

And if fiscal restraint is not high on the Bush list, foreign policy still is. Mr Paulson may well be called upon to do much of the heavy lifting in attempting to persuade a sceptical world of the need for tough financial sanctions against Iran in the coming months.

The biggest uncertainty is over how he will handle perhaps his largest challenge — the dollar. Will Mr Paulson be content to go along with the odd twin-track approach of the past few years — publicly expressing support for a “strong dollar” while in practice happily acquiescing in the US currency’s decline? As a Wall Street man, he may not want to be remembered as the chap who oversaw the sharp decline in the global value of US financial assets. Not that he’ll have much choice — the dollar’s decline seems assured as long as the US sits on a vast and growing mountain of international debt. In fact his main task may be to prevent the dollar decline turning into a rout.

Not a dishonourable charge. But hardly one to be proud of.

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