Paulson put the fix in for financial elites
Bloomberg reports that then-Treasury Secretary Hank Paulson quietly tipped off elite hedge fund managers about his plans regarding Fannie Mae and Freddie Mac — this, hours after he told the public, via an interview with The New York Times, that Treasury would be doing something different. Bloomberg:
At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Bloomberg’s source, who was present, says he was “shocked” that Paulson would disclose such information, given that those fund managers present would have the opportunity to trade on insider information. More:
There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.
And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.
Note that first graf: there is no publicly available evidence that they did. The lack of evidence does not mean they didn’t do so, or that they did; it only means that based on what is publicly available, there’s no evidence that it happened. Anyway, what Paulson allegedly did was legal. But was it moral? More:
William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.
“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”
Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.
“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”
Felix Salmon points out that this wasn’t the only time Paulson, ex-Goldman Sachs, helped out his buddies from his Treasury post:
When we found out about the Moscow meeting, I asked how on earth Paulson thought such behavior was OK. But now I think he was downright pathological in giving inside information to his old Wall Street buddies. And the crazy thing is that we have no idea how many of these meetings there were, or how long they went on for — the only way that we ever find out about them is when reporters like Sorkin or Bloomberg’s Richard Teitelbaum manage to find a source who was in the meeting and is willing to talk about what happened.
Given that it’s taken two years since the release of Sorkin’s book for the Eton Park meeting to be made public, it’s fair to assume that there were other meetings, too — possibly many others. Paulson was giving inside tips to Wall Street in general, and to Goldman types in particular: exactly the kind of behavior that “Government Sachs” conspiracy theorists have been speculating about for years. Turns out, they were right.
Congress should investigate this. Congress won’t investigate this, especially not if it reverts wholly to the GOP next year, as it probably will. If we didn’t have Pecora hearings in 2009, we’re not going to have them, alas. Unless something even more wicked this way comes, and pretty damn soon.
“Congress won’t investigate this, especially not if it reverts wholly to the GOP next year”
Give me one tiny reason to believe the Dems would be ANY more likely to investigate this. They’re absolutely no better on the despicable shenanigans that went on around TARP than the GOP. Heck, the Dems voted for it in far greater numbers, as many seem to forget, and the only ones who opposed it at all were proto-Tea Partiers, who get savaged by everyone else for being economic nihilists.
Rod- I think I, and many other people, have had enough. Is there any hope for a third party to emerge so we can get out of this Democrat versus Republican paradigm that just doesn’t work anymore?
Holy cow, especially the part about Eurozone exits perhaps spurring a deep worldwide depression. I am reading Strauss and Howe’s The Fourth Turning right now (written in 1997, so even more prescient than if it were written post-2009.) This could be the precipitating “catalyst” of which they speak, which would get the “fourth turning” going.
And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.
I’m not sure this is true. (It may be true, but it’s certainly not obviously so.)
The Goldman nexus needs to be x-rayed and cauterized.
From Paul Craig Roberts (former Under Secretary of Treasury under Reagan):
“Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.
In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.
My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayers’ expense and Goldman Sachs’ enormous profits.”
Roberts notes that the “technocrats” newly chosen to run Italy and the ECB are both Goldman alum.
[...] Rod Dreher » Paulson put the fix in for financial elites. [...]
Sounds like Paulson was just being a good friend to his friends. The surprising thing is that someone could be “shocked” that rich people are friends with other rich people, and try to help each other out when they can. That’s how normal friendship works; why would it work differently for rich people?
Quote: “Bloomberg’s source, who was present, says he was “shocked” that Paulson would disclose such information, given that those fund managers present would have the opportunity to trade on insider information”
This reminds me of Captain Louis Renault saying “I’m shocked, shocked to find that gambling is going on in here!”
Giving the revolving door between government and big business, this really is a “dog-bites-man” kind of story.
Someone delivered the goods overnight again,
http://twitter.com/#!/larmitstead/status/141870158372274176
Telegraph’s Debt crisis: Live homepage and Zerohedge blog (Here Comes The Global, US-Funded Liquidity Bail Out) report that a “global PRIVATE authority” will save us from the impending fiscal armageddon by making Federal reserve notes aka US dollars even cheaper to borrow (and thereby debasing the purchasing power of the populace who use them as legal tender to create the wealth deposited in the value vaults known as, you got it, banks) an unelected club of international hired help (the officers of the board may be volunteers, but the executives who carry out their policies are our ‘employees’ so to speak, they work for the holders of the capital they have been entrusted to supervise as fiduciaries)… truth is so often stranger than any ‘conspiracy-kooks’ fiction!
If you’d rather put your pennies elsewhere, Bloomberg reports that the S&P rates Chinese banks a better bet….
http://www.bloomberg.com/news/2011-11-30/bank-of-china-construction-bank-upgraded-by-standard-poor-s.html
Paging all values voters… check your iphone app for the latest hot tip on where to get cheap money… as Ron Paul predicted they would the US Fed’s just bailed out the West’s insolvent banks, again, using your money…
http://www.telegraph.co.uk/finance/debt-crisis-live/8924834/Debt-crisis-live.html
http://www.zerohedge.com/news/here-comes-global-liquidity-bail-out