Hank Paulson: a Goldman Sachs connection
will get you far
Exhibit number I-forget-which in the ongoing list of things that suggest a
shudderingly inappropriate relationship between the top financial firms and the government officials in charge of setting economic policies:
The first news of this behavior came in October 2009, when Andrew Ross Sorkin revealed that Paulson had met with the entire board of Goldman Sachs in a Moscow hotel suite for an hour at the end of June 2008. He told them his views of the US and global economies, he previewed a market-moving speech he was about to give, and he even talked about the possibility that Lehman Brothers might blow up. Maybe it’s not so surprising that Goldman Sachs turned out to be so well positioned when Lehman did indeed do just that a few months later.
Today we learn that the Goldman meeting in Moscow was not some kind of aberration. A few weeks later, on July 28 2008, Paulson met with a who’s who of the hedge-fund world in the headquarters of Eton Park Capital Management — a fund founded by former Goldman superstar Eric Mindich.
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…
Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out…
The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.
So the secretary of the Treasury is out giving advance insider information to selected firms; we knew that already. The new information is that apparently, it wasn't even an isolated occurrence, although it seems a Goldman Sachs connection might have been a boost to your chances of getting such a visit.
We'd sure save a lot of grief and effort if we just turned over government to the banks and left it at that. Clearly, asking for any distance at all between government economic figures and the large Wall Street firms is simply not going to happen.