Hank Paulson’s inside jobs
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What on earth did Hank Paulson think his job was in the summer of 2008? As far as most of us were concerned, he was secretary of the US Treasury, answerable to the US people and to the president. But at the same time, in secret meetings, Paulson was hanging out with his old Goldman Sachs buddies, giving them invaluable information about what he was thinking in his new job.
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.
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.
Paulson, says Teitelbaum, “is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations”. I’d take issue with the “distinguished” bit. Unless it means “distinguished by an astonishing black hole where his ethics ought to be”.
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Can’t he be prosecuted?
Given the number of Goldman alumni in the new “technocratic” European governments, the ECB and the IMF, one has to wonder what meetings are going on right now. There are banks with no liquidity, sovereigns than may well default and a monetary union that may fail — all in the near future. Inside information at such a time could be pretty helpful, no?
“Can’t he be prosecuted?”
Only if Zero Hedge is appointed Attorney General.
Truly genuinely unbelievable. So Paulson discussed the possibilty LEH might go under in June 2008 and this was private news? I mean nobody was saying there were issues with LEH right? I mean Einhorn was not talking about LEH in public speeches right? and people were not making fun of LEH executives putting on korean accents at the time? How was GS particularly well positioned between June 2008 and sept 2008? What exactly did they suddenly rush out and do?
Rather than repeatedly fake the outrage why don’t you actually point to something the guy did wrong, amidst the things he did right during that year
“Can’t he be prosecuted?”
Maybe if he sleeps out in Zuccotti Park; or is caught shop-lifting a candy bar at Wal-Marts. Let’s say that he’s “too big to be prosecuted”.
maynardGkeynes, and judge and jury.
aquacalc, you mean if he commits a crime?
If the shareholders sue H.Paulson, I can’t imagine the crippling liabilities if that happens!!
Could the shareholders sue the U.S. government?
This is pretty hard stuff!
PAULSON’s AIM: THE ASSAULT ON FnF BY THE BIG BANKS
He wrote in the government’s warrant, Treasury may assign its 79.9% stake in Fannie and Freddie, upon exercise the warrant, to any “Person” (private lenders,…) and that Person shall be deemed holder the exercise day in order to not make the Administration appear to be selling its stake in FnF to private lenders and avoid a public outcry. Point 2.1
http://www.treasury.gov/press-center/pre ss-releases/Documents/warrantfrec.pdf
His plot should fail and FnF ought to resume independent operations.
Paulson is nothing more than a sef-serving carnival barker for the cognitive elites.
Serfdom has many names, many guises, but it is always with us.
What the hell is Sen. Levin waiting for?
Indict Goldman, Paulson and the whole rotten Wall Steet edifice.
This seems like a really odd way to try to profit from inside information. Getting a group of sharks around a table (who would sell each other out in a second) and then expect the secret to be kept? The meeting was on Paulson’s agenda and FOIA was bound to reveal the details eventually. Any person at that meeting would have to be certifiably insane to trade Fannie or Freddie after that. Plus, the treasury secretary *knows* you have material inside information on those two companies. Also, this was 7 weeks before the GSEs were taken over.
This sounds more like a handcuff than a tip.
GJOA, sues the goverment for taking over a company that is not only insolvent but has remained so for over 3 years? Love to be an observer at that trial.
I’d hate to be only person here defending Paulson, but one of the jobs of the Secretary of the Treasury is to liason with industry, that is the financial industry, and to poll their opinions on where the economy is heading as well as their likely responses to upcoming shifts in policy. The Fed performs similar actions with private briefings.
It is a good thing that Paulson was communicating with his former colleagues; he undoubtedly gained valuable insight on what was, and what wasn’t possible in 2008.
Mind you, I agree with all of the above comments that Paulson likely gave out privileged information which benefited his former colleagues, and that was wrong. Still, it is important for the Treasury Secretary to communicate with the “Titans of Finance”.
Danny_Black, you should know FnF’s charters say Treasury may purchase FnF’s obligations “at an appropiate rate”. That’s the so called government’s implicit guarantee.
Hey! It’s not my fault, it’s written in the charters approved by Congress. The government’s implicit guarantee is a bailout, and it’s the Law because it’s written in their charters.
Even Congress must abide by the Law.
Personally, I enjoy reading these comments when they help me understand what is going on. Usually what is going on is too big for any one person to understand all of it, all the time.
I do not enjoy comments that boil down to “Felix, you suck,” “Obummer is an Obozo,” “It’s all the fault of the CRA,” and the like.
If the shoe fits, please change it.
If you read the article in Bloomberg, you’ll see that at least one of the hedgies immediately went to his lawyer and restricted himself from trading Fannie or Freddie.
On the face of it, this was an extraordinarily stupid thing for a government official to do–the kind of thing a naive business person does, thinking there *is* such a thing as an off-the-record conversation.
Never assume mendacity when stupidity will suffice.
I had occasion to listen to Ron Suskind talk informally about Paulson & Geithner last year, before his latest book came out. He had qualified admiration for both men, & noted that what seemed to drive Paulson’s thinking and actions during the recent financial crisis was his study of the bank failures during the Great Depression, which he saw at the decisive “tipping point.” So saving the banks was always first on his agenda. The question is, how much real “inside information” was shared in his private meetings with banking friends back in 2008? Not sure this blog post really opens up long-concealed can(s) of worms. I kind of like what Kosta0101 said, above.
There isn’t enough information to come down very hard on either side. I have been in a lot of meetings were we talk through different possible scenarios and just because I might mention that one outcome is bankruptcy doesn’t necessarily mean that I know ahead of time what the actual outcome will be. Should Paulson, or any other person in positions of power, be prohibited from having conversations about how things might play out? That doesn’t seem practical, and might even be counterproductive. Did Paulson cross the line on this occasion? The article gave me enough information to decide.
Correction: The article DIDN’T give me enough information to decide.
Felix, that’s what insider of last resort is SUPPOSED to do!
LIBERTARIAN Friedman-ites REJOICE!……unlimited corruption and insider trading is EXACTLY what you like!
your boy Paulson is following your nihilist self destruction playbook to a T.
FREE MARKETS … FREE MARKETS !!!
Unless he’s going to share the information with all the players, Paulson was a gov’t bureaucrat “picking winners”… No?
I don’t see how Paulson could have been picking winners. Every hedge fund manager in that meeting received material inside information. If anyone traded on it, Paulson owned them lock stock and barrel. He could ask the SEC for the records and if any of them bought or sold the GSEs he could either turn them in at that point or threaten them with doing so.
So, in return for some inside information these fund managers have a choice: be locked out of trading the GSEs (which prevents them from attacking the stocks via shorts), be owned by Paulson, or be arrested for insider trading. Given that Paulson could have been lying (public figures do that), that further complicates things from the point of view of the managers.
Given what a bad deal it was for the fund managers, the real questions are: Why communicate this to a group instead of individually? Why do it on the record instead of in a more clandestine fashion?
Bizarre all around. Unless Paulson was trying to lockout the biggest GSE shorts without getting a decree from the SEC.
Your post contains an error. Bloomberg reports that the meeting occurred on July 21, 2008, not July 28.
* * * *
Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM).
At the state level, a financial regulator who reveals confidential information like this (gleaned from an inside position) would be subject to a lifetime ban on working for that regulator, and possibly subject to criminal sanctions. What’s wrong with federal law that it doesn’t have similar prohibitions and sanctions?
If you have a bazooka, and everyone knows it … you can give it to your buddies so they can wipe out all of their competition!
Never appoint a chief from Goldman Sachs when death is on the line.
“What’s wrong with federal law that it doesn’t have similar prohibitions and sanctions?”
I don’t know, but maybe it’s related to the Wall St.-to-K Street-to-PA Avenue merry-go-round. The foxes decide what’s “legal” in the hen house.
K9quaint, do you think every fund manager in the world was in the room with Paulsen? Of course, the guys who were in the room walked out the door and made bets with others who weren’t in the room. And screwed the outsiders.
Why are you so invested in making a completely specious argument to defend the guy? This was inexcusable behavior.
@Dollared If they walked out the door and made bets on the GSEs, then that is insider trading. All of their fund’s transactions should be accounted for (MF Globals aside) and can be had by subpoena. Normally this is no problem for insider traders since the prosecutors must also determine *if* they had access to inside information, *who* gave it to them, and then *prove* such a thing in court. Who would dare trade on inside information given to them by the secretary of the treasury in front of a dozen of their competitors?
From the Bloomberg article: “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.”
Even the Raj didn’t conduct his insider trading in front of the SecTres. ;) I would be very surprised if any of the dozen did any trading in GSE during the following 7 weeks. The colossal stupidity evidenced by some managers has surprised me before, so maybe it will again in this case. That is what it would be, stupid. Not nefarious, or sneaky, or sly.
Let’s start with the basics: Hank Paulson abused a position of trust, not for own gain, but potentially for the gain of friends. Second, those receiving the information, if they did what was right, were harmed more than helped, because it would be illegal to trade on the material nonpublic information. (That happened to me twice as a buy side analyst; we had a strong compliance function, so we froze the names and did nothing until the news came out.)
He should have been relieved of his duties immediately if the President came to know what happened. Favoritism in administration of one’s office is wrong; it may not always be prosecutable, but it is wrong.
I’m afraid the only thing that can be done regarding Paulson, is to simply make known what he did, so that the history books properly record him to have been a very poor steward of what the nation entrusted to him.
Makes me glad that I did not review his book, even though I got a free copy — never did think the man was good at his post.
DavidMerkel, he halted a major meltdown that was not of his making at a relatively low cost to the taxpayer. If that is being a “poor steward” what would you consider to be a good one?
He halted nothing; he incited moral hazard by bailing out defaulted institutions, rather than guaranteeing the bedrock claims at the bank debt level, and wiping out common, preferred, jr debt, and making senior debt take a haircut, and become the new equity.
As a result of his and the Fed’s actions, we still face mountains of unreconciled debts, with bills aimlessly being given to the taxpayers. Under a better Treasury secretary, we would have had more banks fail, but the basic payments/deposits system would have survived, and the banks would have been recapitalized not by the government, but through the bondholders and new private capital. Imitate the RTC of the 90s — no bailouts.
My main point is that he was careless with very sensitive information given to him. He should have been fired for that alone, regardless of whatever good things he did.
FROM whorunsgov.com: (excerpt)…In May 2006, President George W. Bush was looking for a high-profile new Treasury secretary to replace John Snow. Chief of Staff Josh Bolten recruited Paulson, who was reluctant to come to Washington to work for an administration in which Treasury secretaries Paul O’Neill and Snow had little power.
Bush promised Paulson a broad portfolio over economic policy, including managing the nation’s economic relationship with China; making a new attempt to overhaul Social Security; and managing any financial crises that arose.
SOURCE – http://www.whorunsgov.com/Profiles/Henry _Paulson?loadTab=1
>DavidMerkel, he halted a major meltdown that was not of his making at a relatively low cost to the taxpayer.
Either you are a regular consumer of propaganda or a fool.
>regardless of whatever good things he did.
He did nothing good.
People are aware, are they not, that one motive behind TARP was that Paulson would have lost $700 million in Goldman options had he not bailed them out?
Jammy22, people who actually know the facts are not aware of this.
Shouldnt this guy be beheaded for this?
I mean, people like this kill people, lots of them, indirectly
Illuminaughty, you should bring it up at the next witch burning committee..
Your byline in this case, should read, A Slice of Slime.
In the S&L crisis of the ’80′s, special government task forces referred 1,000 cases to prosecutors, resulting in more than 800 bank officials going to jail. In the aftermath of a financial mess that generated hundreds of billions in losses, no high-profile participants in the disaster have been prosecuted. Obama said we mustn’t look back–jail is too good for them all.
Kudos to Eric Mindich of Eton Park Capital Management for not trading on this non-public information. But did he report this to the SEC or DOJ as he should have?
@Rastamann:
“LIBERTARIAN Friedman-ites REJOICE!……unlimited corruption and insider trading is EXACTLY what you like!”
Actually, no – you have no idea what you’re talking about. Nice try, though. Fraud, corruption, and insider trading are not tolerated in our circles; if you’d actually bothered to read any of the works of the people you’re talking about, you’d know that.
“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it” – Fredric Bastiat.
foggygoggles, maybe because they committed crimes? People have gone to prison in the last crisis too, just not the people you’d like to go to prison.
As I told Foppe, another person who seems to have a problem living in a country with a rule of law, you should move to a country like Syria. There the government can just execute people without all this messy finding people guilty of breaking the law nonsense.
No Walls, period.
The more you read about the inner workings of Goldman Sachs the easier it is to understand that they created a culture where they told each other everything, everything! Forget Chinese Walls between trading, banking and M&A, inside information was used for gain at the expense of clients, the government, the public and competitors.
Paulson is just continuing the tradition on a grand scale to help everyone of his 1% buddies.
The only solution is to break up all the TBTF banks and any others that cross lines between investments, traditional banking services, M&A, etc.
Let’s start with Goldman Sachs. Sign this petition:
http://signon.org/sign/its-time-to-break -up
I wrote a short piece based on Felix’s observation called “This is what conspiracy really looks like” at OpEdNews. You can view it at http://www.opednews.com/articles/This-Is -What-Conspiracy-Re-by-lincoln-stoller-1 11202-31.html
Wall Street protesters seem to think big corporations are the enemy – the corporations (private and public/crony capitalism) are not the enemy – the people running the corporations & the apathy of their victims are the problem.
How many people know the names of their representatives?
Any entity left to do what it wants, without the victims knowing or caring that they are getting victimized – will become overpowering.
We’re not going to get much knowledge from the media – getting e-mails from your reps will educate much more; -unfortunately people are more concerned with the fate of Michael Jackson’s doctor.
People are upset, and choosing to fight without knowledge of what they are fighting for – welcome to Socialism – Social Justice is not the right word – Social Propaganda may be more accurate.
The left’s dollars available to promote their agenda are from taxing the citizens – which many times hurts rather than helps the commoners, as with the healthscare TAX/FINE, and more than likely Green Energy. It may be worth some time to search who is instigating the solar and wind energy projects at zoos, schools and homes – are the projects government/bureaucrat mandated/managed – or managed by private/CAPITALISTIC enterprises. Given that the current regime, with it’s high court, that is against big business/Wall Street, this administration probably wants America’s wealth distributed by government control, and bureaucracy – as with the healthscare TAX.
We hear half truths from this neo democrat socialist administration – they wrap socialism in false promises – they find a scapegoat – (even if it’s a partner in crime, such as many Wall Street entities, like Goldman Sachs – because the end justifies the means – GS knows this) – make the people believe they (Wall Street/big business) are evil, and get the people to support the gov. plan/solution – which seems to be government control – the financial reform bills do no more reform than the healthscare tax.
Rushlimbaugh-com Soros, Schumer, and Shorting April 27, 2010 – “CALLER: It’s interesting that today they’re going after Goldman Sachs and they’re slapping them around, but a year ago in March they sold IndyMac bank to who else but George Soros and John Paulson along with a couple of other people.
RUSH: Yes. You know, I’m glad you brought this up because that’s the thing. Remember who got that ball rolling.
CALLER: Yes, Chuck Schumer.
RUSH: Chuck-U Schumer who goes public with how IndyMac is not solvent, it’s a big problem. He created a run on the bank. Guess who gets in there and buys it? You’re exactly right: George Soros and John Paulson who is also the hedge fund guy who made the billion dollars here shorting the collateralized debt obligations of Goldman.”
This is a rush transcript from “Glenn Beck,” November 10, 2010. This copy may not be in its final form and may be updated. – “…Because of his own words, we know what to look for. We know the signs. We know what he’s done in the past to bring down regimes. He’s left a blueprint, pattern to look for. And now that Soros is saying that he has turned his focus and set his sights on America, don’t you think we should look at his past and see how he has done it before? What are the footprints? Where is he leaving fingerprints? How did he do it? Four or five times before…So, how does he view us? Well, it’s easy. He views us like this: America is the main obstacle to a stable and just world order, the United States — his words, not mine…So, not only does he want to bring America to her knees, financially, he wants to reap obscene profits off us as well. Like when he made $1 billion off the collapse of the British sterling — his claim, not mine…What is George Soros trying to do? What is it? How does he do it?
After country after country after country, we found that there are five steps to him gaining control. He does it over and over and over again. So, let’s see what the steps are and let’s if he’s done any of them here…”
You-tube-com Soros Explains His Anti-Capitalist, Pro-Marxist Tactics – evidently video clip base for above article
— This administration stating Republicans’/conservatives are for WallStreet, and therefore are bad – is the same as Clinton saying cheating on your spouse is wrong – more of the same MISinformation, and lies people have had to endure for decades – because many people haven’t known what their reps. are doing for decades. Obama, this administration and Goldman Sachs are symbiotic – Chief of Staff Rham Emanuel was a chief proponent of the $700 billion Wall Street bailout in 2008 – GS and JP Morgan have given millions to Obama and Emanuel. Emanuel received more money from the securities and investment industry – $600,500 as of Sep. 30, 2008 – than did any other member of the US House, and it was more than either presidential candidate received.
Attention
Eric Holder, Attorney General, Chair
Michael Bresnick, Executive Director
United States Attorney’s Office
Eastern District of New York
Robert Nardoza
Public Affairs Officer
(718) 254-6323
Robert.Nardoza@usdoj.gov
Dear US DOJ, State AGs and US HUD Et Al
Mr. Nardoza,
Under Federal FOIA Law and Applicable State Open Records Law Please Provide Us The Follwing information,
1. The Cause Number and Case Information associated with the 50 State and Federal Government Action on record in the US District Court/s which appertains to the Settlement Announced. You refer to it as the Global Settlement ” The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes ”
2. Please provide is with a Copy of The Terms and Details as well as a COPY OF THE Settlement agreement or the Proposed Agreed judgement/s . ” The settlement announced today also resolves the office’s investigation, conducted with the Special Inspector General for the Troubled Asset Relief Program and the Inspector General for the Federal Housing Finance Agency, of allegations that Bank of America defrauded the government by failing to determine the eligibility of homeowners to participate in the government’s Home Affordable Modification Program. Ms. Lynch thanked Christy L. Romero, Acting Special Inspector General for the Troubled Asset Relief Program, and Steve A. Linick, the Inspector General for the Federal Housing Finance Agency, for their assistance in this investigation.”
3. Please provide us with the Emails for the Government Agencies and Lawyers that are Real parties In Interest and The same Information for all banks and Their Lawyers known or within the Control of your Offices.
4. Please provide the Style of the case/s filed and the docket number/s for the cases filed associated with this announced settlement / agreed judgement. ” “We announce today the largest ever False Claims Act settlement relating to mortgage fraud. Through their underwriting and origination of tens of thousands of government-insured loans to unqualified borrowers, Countrywide Financial subsidiaries systematically abused the Federal Housing Administration and became some of the main players in this country’s financial crisis. We are committed to protecting the FHA’s ability to provide assistance to qualified low-income and first-time home-buyers, and this settlement goes a long way toward that end. It also puts lenders on notice that they will face serious financial consequences for violating their obligations under the FHA’s programs,” stated United States Attorney Lynch. ”
5. The Name of the Judge/s that these case/s are before.
Thank You
J. Witham
National Victims Coalition
Legacy Trust Media
CC:
geoff.greenwood@iowa.com, ntalley@ncdoj.gov, mike.saccone@state.co.gov, dchelp@mow.uscourts.gov, janelleg@atg.wa.gov, susankinsman@ct.gov, nbauer@atg.state.il.us
For help with transparency, read this book (See http://www.amazon.com/gp/reader/08070032 12/ref=sib_dp_kd#reader-link)
Have your US Congressperson ask the questions, the reason is the punishment for lying to US Congress is 5yrs in prison. Did that help?
For help with transparency, read this book (See http://www.amazon.com/gp/reader/08070032 12/ref=sib_dp_kd#reader-link)
Have your US Congressperson ask the questions, the reason is the punishment for lying to US Congress is 5yrs in prison. Did that help?
For help with transparency, read this book (See http://www.amazon.com/gp/reader/08070032 12/ref=sib_dp_kd#reader-link)
Have your US Congressperson ask the questions, the reason is the punishment for lying to US Congress is 5yrs in prison. Did that help?
For help with transparency, read this book (See http://www.amazon.com/gp/reader/08070032 12/ref=sib_dp_kd#reader-link)
Have your US Congressperson ask the questions, the reason is the punishment for lying to US Congress is 5yrs in prison. Did that help?