On NPR's Day to Day this morning, I had to endure listening to ex-GE CEO Jack Welch talking about what a terrible cut in pay poor Hank Paulson had to take in order to serve his country in the position of Treasury Secretary. Like many things I hear on Day to Day, which masquerades as a liberal, objective news outlet while freely disseminating right-wing talking points, this infuriated me. Seriously, my neighbors must think I'm a crazy person, shouting at the radio every morning before going to work. More importantly, it scares the pooties.
Jack Welch: "This guy has given up his life, in a way, to try and rescue us, and we're fortunate as hell to have him there doing it."
Former Goldman Sachs CEO Hank Paulson is no more altruistic than anyone else in the Bush administration, and many behind the scenes of Wall Street believe that Paulson and his fat-cat cronies manufactured this entire liquidity crisis, starting with selling off Bear Stearns at bargain-basement prices to their buddies at JP Morgan at record speed, even though Bear management was unaware there was a problem only days earlier.
When Paulson took the position of Treasury Secretary in 2006, he got a bit of a "perk"... he was allowed to divest himself of over half a billion in potentially toxic Goldman Sachs stock, tax free, in order to avoid "conflicts of interest."
From a 2006 Forbes article on the subject, "A Loophole for Poor Mr. Paulson":
High-flying business executives almost always endure financial sacrifice when they make a detour into public service. Paulson is no different: The Goldman Sachs boss will see his annual paycheck shrink from last year's $38 million to a paltry $183,500 once he takes over the job of Treasury secretary.
But don't shed too many tears for Paulson. He has amassed quite a fortune--a roughly $700 million equity stake in Wall Street's premier investment banking house. And soon, he will have the chance to diversify a good chunk of those holdings without paying a dime to the Internal Revenue Service.
By accepting the Treasury post, Paulson is poised to take advantage of a tax loophole that allows government officials to defer capital gains taxes on assets they have to sell to avoid a conflict of interest, as long as the proceeds are reinvested in government securities or a broad array of mutual funds approved by the government within 60 days.
That aside, I really fail to see how someone as entrenched in the toxic culture of Wall Street as Hank Paulson is could ever be seen as making objective decisions about the economy. His entire life has been devoted to the acquisition of wealth. How on earth could someone like that not be looking out for the well-being of his portfolio and the portfolios of his friends on Wall Street with every move he makes?
The tax break was designed to ensure that the wealthy are not deterred from taking posts in government because they fear a big tax hit. But it amounts to a significant perk of public office.
Paulson's huge equity stake in Goldman served him well as he flitted around the globe singing the firm's praises to potential clients and investors. It was hard evidence of his faith in Goldman's continued success. But once he is gone from the bank, such a giant concentration of assets could be somewhat of an albatross for Paulson, who, at 60, is surely considering the tax consequences of diversifying his fortune.
It is not a stretch to suppose that, at the margin, the chance to unwind his stake in Goldman Sachs tax-free may have had an influence on his decision to take the Treasury job. After all, if he were to completely divest himself without any tax relief, he would be staring at a tax bill of well over $100 million.
Golly, think how much he would have lost if he still had such an enormous stake in his company's flailing stock!
Where things get particularly sticky for me is that Paulson himself was a key player in creating this crisis. From Sunday's Miami Herald:
During Paulson's tenure, Goldman was not as big a player in issuing mortgage bonds as two other investment banks that have gone under this year, Bear Stearns and Lehman Brothers.
But the 2005 annual report shows that Goldman was still a significant player. Its trading division, which included the mortgage bonds and complex financial instruments called derivatives, reported pre-tax earnings of more than $6.2 billion, up sharply from $3.5 billion in 2003...
Paulson's personal fortunes also zoomed in those years.
In 2002, Paulson received $12.1 million in compensation, including a $6.3 million bonus - an improvement over the previous three years when Wall Street accounting scandals unsettled investment banks, including a $1.5 billion settlement Goldman and other banks paid for issuing overly bullish research reports that promoted deals the banks themselves were involved in.
Published reports said Paulson received $30 million in compensation and salary in 2003.
After Paulson left Goldman and mortgage bonds began losing money, the investment bank erased those losses and then some by betting against the very products it had sold, Fortune magazine reported last year.
Seriously, Mr. Paulson. Even I knew these mortgages were bad news by the time you left your post at Goldman Sachs to become Treasury Secretary in 2006. Why didn't you do something about them two years ago, when you had the chance? Why not push for regulation of the absurd and insanely dangerous credit default swap market then? Why wait until the shit hit the proverbial fan?
At a minimum, there's irony in Paulson being in charge of so large a bailout.
In the last annual report at Goldman that Paulson signed off on in November 2005, a year in which he received $38 million in compensation, investors were clearly told that the federal government wouldn't be there to save them from bad investments.
"Goldman Sachs, as a participant in the securities and commodities and futures and options industries, is subject to extensive regulation in the United States and elsewhere," the report said.
But those regulations are designed to protect the interests of clients in the market, it said. "They are not . . . charged with protecting the interest of Goldman Sachs shareholders or creditors," it said.
That's a different tune from the one Paulson was singing Sunday.
You know what I think? I think Hank Paulson's personal billion-dollar portfolio should be the first billion in the bailout package. Only $699 billion more to go! (I think I know where to start looking for it...)
P.S. I found it intensely entertaining to see that Mr. Paulson's Wikipedia entry begins thus this morning: "Henry Merritt "Hank" Paulson Jr. (born March 28, 1946) is a liar, thief, crook, the United States Treasury Secretary and member of the International Monetary Fund Board of Governors." But apparently we're supposed to admire him because he's an environmentalist.