The secret Paulson-Goldman meeting

By Felix Salmon
October 20, 2009
Andrew Ross Sorkin's new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we're still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he'd promised not to do that when he moved from Goldman to Treasury.

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Andrew Ross Sorkin’s new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we’re still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he’d promised not to do that when he moved from Goldman to Treasury.

But it turns out that Paulson just happened to be in Moscow at the same time that Goldman’s board of directors was having dinner there with Mikhail Gorbachev. (You know, as one does.) Take it away, Andrew:

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along. (It’s also a bit peculiar, to say the least, that the only two times Paulson met with private-sector boards he was out of the country, and arguably outside US jurisdiction.)

Paulson didn’t have this meeting out of fear or necessity: in fact, he told the directors that although there might be tough times ahead, “I think we may come out of this by year’s end.” (Blankfein was skeptical.) There was nothing in the way of extenuating circumstances which could possibly justify the secret rendezvous. This is definitely a situation where Wilkinson should have pushed back and said no way — but it’s hard to say no to Hank Paulson. Whose reputation has now taken yet another serious lurch downwards.


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Words escape me, although a few colorful adjectives come to mind. Un-freaking real.yay for capitalism

Posted by Griff | Report as abusive

Why am i not surprised? Paulson reflected everything we always suspected about the Bush administration. And Obama is not as different as I would have hoped.

Posted by Juls | Report as abusive

Paulson, Bernanke, and Geithner had all talked extensively about how the government needed the authority to wind-down troubled investment banks in their testimony to Congress right after Bear went under. That was in March/April. So the fact that Paulson said the government needed this authority in June isn’t even remotely scandalous. He had already said it in public many times before, and it’s not like it was controversial or anything. It would be like Secretary Sebelius saying in a private meeting with Pharma CEOs that “we really need to pass health care reform this year.”Paulson may have said inappropriate things at the meeting, but this wasn’t one of them.

Posted by jake | Report as abusive

I’m actually more impressed with the use of “whole shebang.”

Two different views of virtue.In one, people are good because they do good deeds. The goodness of deeds exists innately; the goodness of people is consequent. If one discovers that a person considered to be good has not, in fact, done the good deeds that he lays claim to, or that he has also done evil deeds, then one no longer considers that person to be good.In the other, deeds are good because they are done by good people. In this, the goodness of deeds is consequent, and the goodness of people is innate. If one discovers that a deed previously considered good was done by an evil person, then that deed is considered to be evil – and vice versa.We’ve seen a lot of the second viewpoint in the last eight years.

Posted by ajay | Report as abusive

Jail them all for conspiracy to defraud the government, insider trading and economic terrorism. The Chinese would have shot the whole bunch by now.

Posted by thorneycroft | Report as abusive

Keep connecting the dots Felix. So Paulson has a casual (yet secret) pow-wow with the Goldman board at the end of June. Less than a month later, he brings onboard Ken Wilson, the head of GS’s FIG unit, as an “unpaid” advisor (ha! i’m sure the taxpayers rather would have paid him a nice fat salary rather than pay the bailout bill). By August the bailout of Freddie/Fannie was done, then a month later the AIG bailout along with GS getting access to the Fed as a bank holding company.You don’t need to shout conspiracy. Any jury in America would know this smells to high heaven (particularly since there were many other alternatives to the finanical crisis than the paths chosen by Paulson and his crew).P.S. Anyone review the Paulson phone logs that Sorkin posted on his website? Can anyone guess the only lawyer in private practice in America that Paulson called during the height of the financial crisis? Yep – you guessed it – Ed Herlihy of Wachtell, Lipton. Paulson bent his ear on Sept 17. Gee, I wonder why the Treasury Secretary is calling a lawyer in between calls to the President, Congress and CEOs.The next step is to find out how often Ken Wilson and Herlihy spoke. These two guys were trying to save their client bases. Nothing truly evil. But please don’t do it with our money.

Posted by Grrrr... | Report as abusive

Um Jake,Maybe you missed this little fact, but after talking about “how the government needed the authority to wind-down troubled investment banks in their testimony to Congress right after Bear went under” in March/April, Treasury failed to write up a resolution authority bill over the Spring/Summer of 2008 and failed to request this power in September 2008.

As a serial violator of the spirit of Free Capitalism, and this is putting it mildly, Hank Paulson is a major liability on the political balance sheet of America. Nothing short of his removal, his prosecution and reversal of all his policies will suffice to save what little dignity this country’s economy may be deemed to possess.Why the Obama administration kept him on in the first place is either a complete mystery or an agenda item of complicity in the Paulson cadre’s ongoing reign of deceit. Any pretense at mystery is now unraveling fast.

Posted by The Bell | Report as abusive

Attacking Hank Paulson and demanding his head while justified is not killing the disease that threatens the already weakened state of our democracy.The MAJORITY of citizens of this country believe that wall street is corrupt and has infected our government institutions. Our government is the collective representation of our citizens. President Obama has been elected thus appointed as the citizens leader. President Obama should execute the citizens will by stripping Wall Street of its power through taxation and stop acting like a panzi. Tax policy has been used for decades to shape human behavior. Let Wall Street hand over large bonuses but tax them at 99% and if they raise salaries to exhorbitant levels, tax the wages. Punish the wall street leeches where they are most sensitive. So it drives out the greediest of the parasites…so be it.

Posted by csodak | Report as abusive

I do not think of this as conspiracy, as much as egos of power. Its obvious GS and the government saw trouble coming. But no one got out of the way of the oncoming train. Why? I think it may well be over confident egos. I definitely want to read the book.

Posted by Suz | Report as abusive

In the land of the sheep and the home of the so-called brave everything is OK and anything goes.The 2nd, 3rd, and 4th percentile of tax payers must enjoy being shafted by their own govt. to protect the rich!Lack of 100% incontrovertible proof will trump logic and common sense every time!

Posted by V. Ray | Report as abusive

These are the types of stories that are causing more and more people to lose faith in our govt, in my opinion. There is a huge conflict of interest between our politicians desire to get re-elected and the long run health of our country. And I think that the continued decline in the value of the dollar is indicating this lack of trust in our economic system. I recently read a good article about this at titled “Gold Price Up, Dollar Down – Does it Really Matter?” on the left side of the page that discusses the Fed’s history of easy monetary policies, as well as some of the investment implications for fiat currencies and their relationship with the gold price and gold mining entities. There are a lot of unintended consequences of our government’s plans that have yet to be felt in my opinion. And I hope Paulson gets indicted for these secret meetings.

Posted by jturner | Report as abusive

Maybe this is a little off-topic – perhaps even meaningless – but I just wanted to note that Goldman is still the only one of these mega-finance corps that didn’t lose money. They were in trouble because investors made a run on the bank, led mainly by rumour-mongering in the media and the ill-fates of those around them. You can flap your gums all you want, but GS is still the best and brightest. And if they have connections that other investors can only dream of… well, isn’t that always the way? ie the boss’s son gets the promotion, not you; the guy with a friend at the box office gets the best tickets, not you. Frankly, if we had those same connections we would use them just as flagrantly, perhaps even more so, and wouldn’t feel the least bit bad about it.Also, I find it sad that people really bring the hate on for the GS guys in government. Don’t we want the best people in there to help guide the tough decisions we have to make on subjects we don’t fully grasp? It’s hard to argue that GS hasn’t been the best for the last 20 years, so why be discouraged to find GS ‘alumni’ in gov’t? Would you prefer some nickel punting promoters like Jim Cramer trying to shape our economy?Lastly, I don’t think Paulson did such a great job, and I hate to be an apologist, but it might have to do more with his relationship with the then president. Dubya was a politician through and through, but it’s hard to say he was the sharpest tool in the shed. I think this aggrevated Paulson, which then rebounded back to Dubya and aggrevated him. Then the two drift apart and neither makes an effort to keep communication open. Then you have the PotUS not knowing in the least what’s happening with the economy and Paulson not caring to explain himself. I suppose that in itself is bad enough, but I think ol Dubya should get some of the blame.Maybe I’ll be ignored or eviscerated by other comments, but these ideas are worth thinking about before the next squid-laced diatribe is uttered.

Posted by the pragmatist | Report as abusive

@ the pragmatistWithout TARP money, the TGLP and commercial bank status GS would not have made much money. They utilized extremely cheap financing to make their recent profits. I’m all for getting off of the hate GS train, but they need to move away from commercial bank status and stop utilizing the discount window and other Fed provided financing options.As for Paulson, ugh. I seriously doubt he did anything subversive to help GS, which is a point that ARS makes in his book actually, but this is only going to give the Tyler Durdens and ZH-esque conspiracy cooks of the world more ammo. Just when you start to hope that the nation can quit flinging about ridiculous conspiracy theories and start ignoring GS as they did before, this story comes out. As evidenced by the ignorance displayed here in the comments I suspect that this will simply touch of a whole new wave of ranting. Please see Hank Paulson in the thesaurus under synonyms for Blithering Idiot.

Posted by Securitized Products Guy | Report as abusive

Talk about Gangster Capitalism…It’s not just for Russians you know..?

Too bad Obama hasn’t any people as smart and talented as Paulson to get us out of this mess4,000,000 jobs lost so far this yearChange we can believe in

Posted by jay | Report as abusive

Where are the geniuses now ?!?!?!?Not one bill passed from this white house all yearquick sand slowly sucking us all in

Posted by mi | Report as abusive

pragmatist, you have accepted a system of corruption. I can tell you that many 3rd world countries have perfected this. Do you want the USA to follow and compete with them?

Posted by IF | Report as abusive

This is all very interesting, but A. Ross Sorkin’s writing is just unbearable. It sounds like an accidental mock-epic.

Posted by Dave | Report as abusive

Is the punishment for treason still death?? Hank Paulson would like to know.

Posted by The Cronk | Report as abusive

Obama meets with ACORN

Posted by o bama | Report as abusive

Every Sec of Treasury since WW2 has worked for Goldman Sachs. Paulson is no exception, with one difference – his job is to save his real employer in a crisis of the industry. He has done a mighty fine job. Not only Goldman is saved but destruction of the rest of the big 4 ensures this bank will continue to run the finance of the USA.Tim Geithner has an even bigger responsibility than Paulson. He not only works for Goldman, but for China Finance Ministry. One must take care of the boss who has loan you $1 trillion. Both bosses appear to be happy at this point. Good job Tim!

Posted by The Real Deal | Report as abusive

There should be a taxpayers law suit against the illegal granting of a commercial bank charter to Goldman Sachs so it could tap into FDIC money at practically zero interest and then use that money for speculative trading, inflated profits, and huge bonuses instead of using it for consumer and business loans (which is what FDIC money is for). Goldman Sachs does not make consumer or business loans. What a fraud.It’s about time for Goldman Sachs to b e recognized – and indicted – as a vast criminal conspiracy aided and abetted by a sorry series of Treasury Secretaries with contempt for the American people and a blind worship for Wall St.

Posted by John McGrath | Report as abusive

I’ll add to the chorus: Paulson just wanted to see his friends and the rules be damned. What is amazing is that the rules just don’t matter, and he was treasury secretary.There is no longer any concept like “the appearance of impropriety.”We are all Argentina now.

Posted by Dollared | Report as abusive

Clinton’s excuse for buying into deregulation is really pretty good as everyone else was buying this Republican Know Nothing Whigism also. Obama looks more and more like he’s into punking liberals pure and simple. As for Paulson, Andrew Sorkin’s new book says he saved us from the abyss while simultaneously saving himself and his friends on Wall Street. The book also says he was at the confluence of deregulatory fervor that took us to the edge of the cliff in the first place. To me it is just another historical example of the merchantilist class not understanding the error of its ways until it was too late to see the dominoes falling.

Posted by Stevie | Report as abusive

It is time for GS to be investigated by the AG as an “ongoing criminal enterprise” that is constantly perpetrating fraud and theft upon the people of the world.

Posted by Morocco Mole | Report as abusive

I realize that GS wouldn’t have made nearly as MUCH money without the open Fed window, but all the others have the same access to the same window and are still getting hammered.@ IF, America has always been a corrupt society, it’s just that the players keep changing. Your gov’t has always been in cahoots with some merchant power or other, from big oil to railroads, to military contractors to bankers. There has been cronyism since there was an America. It’s prevalent all throughout your social fabric. The only deal breaker that gets new people into ‘the club’ is money and lots of it. If I’m wrong or you believe things are different, please let me know how or what is the truth. The only difference between America and your African countries is in Africa (or China for that matter) they don’t bother to try to hide the ‘corruption’ as you call it…

Posted by the pragmatist | Report as abusive

to the extent that the Obama administration seems to be a revolving door for ex-GoldInSacks types Obama is duly tainted. So much for diversity-where-it-counts within the Obama adminstration…

As the stories keep piling up, I keep wondering when the pitchforks will finally come out. With each one the true nature of Government Sachs becomes more and more obvious, yet nothing happens. Maybe we’ve all just gone numb?http://theendisalwaysnear.blogspot. com/2009/10/rent-seeking-parasites.html

This puts me in mind of one of Harry Shearer’s latest satiric efforts, “Mr Goldman and Mr Sachs”, towards the end of his “Le Show” podcast ogramID=714

Posted by Steve | Report as abusive

If not obama any suggestions on how we are going to get out of this mess short of a revolution. When I think about how close we came to voting in McCain and Palin it literally make me sick. We are in trouble people and I for one know that the republicians are not the answer. We have only two choices, we either keep the heat on obama or we settle for the fact that we have lost our republic as Ben Franklin warned.

Posted by Jimm | Report as abusive

Goldman and its “offspring” are not capitalists, they do not believe in transparency or rules, they will manipulate and distort information for their betterment…Goldman’s capitalism is simply manipulating natural market incentives and disincentives by skewing state intervention under the guise of free markets.

Posted by chart | Report as abusive

Paulson has not been retained by the current administration. Tim Geithner is now head of Treasury. However, that is merely a change from your enemy to one who sympathizes with your enemy.Wall Street has destroyed American productive capacity and run our economy onto the rocks. And it is not over by any means. Watch for another death spiral when commercial real estate implodes (which has already begun).

Posted by Wintermute | Report as abusive

@pragmatist:WTF??? The US TREASURY is complicit in the kind of fraud, insider trading, etc etc that has cost tens of millions of Americans their life savings, their homes, their grandchildren’s futures, and all you can do is shrug and say ‘them’s the breaks?” That Goldman is one of only two investment banks left standing, that they received backdoor bailouts via fraudulent activity, that they have earned obscene profits while fully ten percent of your population were being put out of work is NOT akin to ‘i get good seats at the ball game because I know a guy.” Jesus Christ! These people, Paulson included, should be put in jail for life, not given high praise!WTF is wrong with you? (Please tell me you dont vote!)

Posted by tanya Lea | Report as abusive

Gangster capitalism?Its all in this article concerning attempted derivative regulation, no speculation on the matter needed: s/magazine/2009/marapr/features/born.htm l“Born recalls taking a phone call from Lawrence Summers, then Rubin’s top deputy at the Treasury Department, complaining about the proposal, and mentioning that he was taking heat from industry lobbyists. She was not dissuaded. “Of course, we were an independent regulatory agency,” she says.”High ranking, esteemed government official getting muscled by wall street thugs.

Posted by Not Tyler Durden | Report as abusive

Regarding Goldman being the best and brightest and still making money – they would have gone under had you and I not bailed out AIG – thru counterparty CDS obligations – so I don’t buy your point. Also – with their penetration at the highest levels of gov’t they clearly have the inside track to front run all policy decisions -and likely have.Knowledge is power -inside knowledge is criminal!

Posted by KevinP | Report as abusive

Goldman Sachs would have gone under if weren’t for Paulson throwing money at it with no strings attached. Instead of taking the money and lending it, it went out and bought all the distresses assets it could WITH TAX PAYERS MONEYleveraged at 20 – 1 and then paid themselves enormous bonuses bigger than in 2007. If the banks had been temporarily nationalized, we could have all shared in the gain, but no. It is grotesque.

Posted by msbeachwood | Report as abusive

Don’t we know that Paulson contacted Goldman frequently around the time the crisis was occurring? We know this stuff. The fact that you are just now figuring out that they met once are reporting that as significant is pretty funny.

Posted by Russ | Report as abusive

It wouldn’t surprise me if the same financial powers that have Obama’s ear also have a gun at his head through some arrangement or other. Until we get a better press, the true nature of our government in Washington will remain a mystery. Is it really an anarchic system of influence peddling, lobbying, and small-time corruption that allows things like this to occur? Or are the forces involved more organized and directed? Might we even have some sort of a “deep-state” pulling the strings behind the scenes? It’s hard to tell, and personally I don’t know which would be worse, but in any case, radical change, of the sort that Obama’s voters expected from him, is absolutely necessary. In order for that to happen we have to stop giving the powerful people in this country the benefit of the doubt and start demanding transparency, accountability, and results.

Posted by Dr. Robert | Report as abusive

why are we surprised that this sort of thing goes comes down to the golden rule of: He who has the gold makes the rules.if your angry at what’s happening then get some gold and change the rules.

Posted by chugs | Report as abusive

What is most disconcerting…is that it proves the guy is flat out stupid.NO, NO, NO …not for meeting with Goldman, that shows he has no conception of ethics, but that he actually was saying things would be good by the end of the year!!!

Posted by fresno dan | Report as abusive

So we find out about ONE out of ??? meetings and communications. If they were all in jail they could talk to their hearts content.

Posted by fit50 | Report as abusive

So the jig is up, the fix is in, the fiat currency is toast. It’s just a matter of time.

I will not comment on the ethics agreement and whether Secretary Paulson followed it as I was the lawyer representing the White House in drafting and approving the agreement (I left in 2007, long before the 2008 waivers were granted). I have, however, commented in a paper posted on SSRN on government ethics and bailouts generally, and I conclude that the two do not mix: fm?abstract_id=1470910I will now update the paper to reflect this latest news.More general discussion is in my 2009 book from Oxford U. Press, Getting the Government America Deserves: How Ethics Reform Can Make a Difference og/general/subject/Law/FederalPractice/? view=usa&ci=9780195378719Richard W. Painter

what would you have done to save the financial system with even a year extra to think about?

Posted by john | Report as abusive

The lot lot of them need to hang from the lamp posts!

Posted by Jim | Report as abusive

When someone in government says lets keep this quiet, it’s never good. A social meeting infers friendship and that says everything.

What would Immanuel Kant say?

Posted by ttime | Report as abusive

Felix,With all due respect, don’t be such a putz.Andy Ross Sorkin is Wall Street’s bitch. Even more than Maria Queen of the Bareback on CNBC.Lil’ Andy didn’t write anything in that book that his Wall Street Sugar Daddies didn’t approve. Just check his offshore banking records and all those flights Lil’ Andy makes to the Caymans and Brit Channel Isles.I like your work, but don’t be such a stooge. Lil’ Andy’s dealing exactly the kind of shit his Bosses on Wall Street demand. Punk thinks he’s another Rattner. He’s not. Lil’ Andy’s just another Wall Street bitch.

Posted by Mark | Report as abusive