Paulson’s Funny Business
Felix Salmon brings us what looks to me like a blockbuster scoop about Hank Paulson’s inappropriate hanky-panky with Goldman Sachs. From Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (don’t think this one needed the subtitle):
If all that weren’t enough to deal with, [Lehman president Bart] McDade had just had a baffling conversation with [CEO Dick] Fuld, who informed him that Paulson had called him directly to suggest that the firm open up its books to Goldman Sachs. The way Fuld described it, Goldman was effectively advising Treasury. Paulson was also demanding a thorough review of Lehman’s confidential numbers, courtesy of Goldman Sachs.
McDade, though never much of a Goldman conspiracy theorist, found Fuld’s report discomfiting, but moments later was on the phone with Harvey Schwartz, Goldman’s head of capital markets. “I’m following up at Hank’s request,” he began.
After another perplexing conversation, McDade walked down the hall and told Alex Kirk to immediately call Schwartz at Goldman, instructing him to set up a meeting and getting them to sign a confidentiality agreement.
“This is coming directly from Paulson,” he explained.
In a separate incident Paulson held a secret meeting (in Moscow!) with the Goldman board at which he gave them a private briefing of his views on the economic outlook. I can’t think of any non-corrupt possible rationale for that, but it also doesn’t seem like a huge deal. This other thing, by contrast, you could imagine being on the up-and-up (understanding Lehman’s books was a legitimate policy issue and arguably Goldman was better-equipped to do it than the government) were there not the appearance of corruption granted by Paulson’s past as a Goldman guy. But at the same time, it’s a very big deal. And when you put the two anecdotes together you have a very, very ugly picture—something that strikes me as easily worthy of some congressional hearings.
28 Responses to “Paulson’s Funny Business”
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October 21st, 2009 at 1:41 pm
Unless Paulson had something to do with the balloon hoax don’t expect any hearings. America, fuck yeah!
October 21st, 2009 at 1:42 pm
This is pretty stupid on Salmon’s part (not surprising – Salmon is one of the dimmer bulbs in the financial press). Paulson (and Geithner and Bernanke) were try to find a buyer, any buyer, for Lehman. Which is why they set up meetings between Lehman and Morgan, with B of A, etc. Why is it at all surprising that they set one up with Goldman too? There are only a limited number of potential buyers for Lehman.
October 21st, 2009 at 1:45 pm
I wish Al Queda would target Goldman-Sachs. It’s clear they’re the ones who really call the shots regardless of which party is in power. Take them out, I’d imagine you’d find America becoming a lot more manageable over-all.
This is the kind of systemic corruption that makes regulation-based healthcare reform a joke supported only by people who don’t actually care about reforming healthcare. In the end, the elite are too incestuous and evil to be permitted to police themselves.
October 21st, 2009 at 1:52 pm
The final days of the GOP crime syndicate bust out.
October 21st, 2009 at 1:55 pm
Re “And when you put the two anecdotes together you have a very, very ugly picture—something that strikes me as easily worthy of some congressional hearings.”
————
WHY?
The dumbfuck, corrupt Congress CAUSED the financial crisis — and knew they were too fucking stupid to fix it.
We are damm lucky Hank Paulson didn’t demand to be made Emperor — and every Goldman Sachs’ executive given a patent of nobility.
Matthew STILL does not get it. The US COngress needs to be destroyed by a Constitutional Convention. It’s that simple.
Otherwise, their whoring will destroy the American Republic just as the ancient Roman Republic was destroyed by the Senate upon which OURS was modeled.
Google “Punic Curse” for fucks sake. Like Rome , we destroyed a major competitor (Carthage -USSR) in a decades long Cold War which sapped our middle class.
Our fucking elites — who never got within 1000 fucking miles of the battlefield — then used our excess military power to pursue a global empire that dumped enormous treasure into the hands of the few while destoying the middle class with taxes and huge imports of cheap foreign labor.
The stupid fucking rabble are diverted from the fact they are being plunged into hopeless poverty by cheap sport (NFL – Glatatorial games)
We KNOW how this will end: After Congress destroys any respect and allegiance the American People have for the Government, the People will cheer the ascent of a Caesar — just so long as he cuts the fucking Senators heads off and
displays them on the National Mall/Forum.
October 21st, 2009 at 2:00 pm
UNRESTRAINED CORRUPTION is destoying America just like it destroyed the Roman Republic. Because the very elites charged with maintaining the rule of Law/Justice and managing the Government for the benefit of ALL are the fucking Crooks. And no longer have any moral values, sense of restraint, or sense of patriotism.
October 21st, 2009 at 2:13 pm
Having Lehman open its books to GS would basically be telling them to go out of business, but make sure to give all their cash to Goldman first.
October 21st, 2009 at 2:42 pm
I used to wonder about the motivation of Paulson/Summers/Rubin etc. Whether it was greed/arrogance or stupidity.
But I have set that aside. Whatever their motivation, these creeps have been/are destroying this country. Serious action is required to turn this around, but that will apparently not come from Obama.
It is at the point that mass public protest is needed.
October 21st, 2009 at 2:45 pm
Paulson is clearly corrupt, and always was. i really don’t know anyone who thinks different, it’s just that some think it’s worth ignoring this to get Paulson’s tech expertise and keep him at the table.
Geithner is only slightly more above board, and this is tolerated for the same reasons.
theser are not good enough reasons to let these coyotes continue to destroy the public’s faith in the system, in govt, in the Administration we all have had such hope for, etc.
to the guillotine with them!
and GS and similar firmres MUST be broken up. we must again separate investment banking and trading from commercial and community banking. truly separate.
what are we letting ourselves in for here? as they say, fool me once, etc. Obama has to send GS and their comrades to Guantonomo or someplace else we can’t get Congress to re-admit them from. these f’s are poison. why would we keep setting ourselves up for more theft, abuse of our trust, and worse.
October 21st, 2009 at 2:46 pm
I used to wonder about the motivation of Paulson/Summers/Rubin etc. Whether it was greed/arrogance or stupidity.
It’s not stupidity.
October 21st, 2009 at 2:57 pm
I see that the price of oil just broke $80/barrel, when supply/demand would indicate about $30.
And the CFTC is now backing off reinstating position limits on speculators – the obvious fix. I wonder who Gary Gensler (the ex-Goldman guy appointed by Obama to be CFTC chair) talks to about these issues.
http://www.ft.com/cms/s/0/a695ed2e-bdb4-11de-9f6a-00144feab49a.html?nclick_check=1
October 21st, 2009 at 3:09 pm
Sorkin was on Fresh Air yesterday.
http://www.npr.org/templates/story/story.php?storyId=13
Worth a listen.
Yves Smith argues (very plausibly) that many of the ideas for reform are beside the point:
http://www.nakedcapitalism.com/2009/10/volcker-glass-steagall-and-the-real-tbtf-problem.html
“Paul Volcker, Mervyn King, Glass Steagall, and the Real TBTF Problem”
October 21st, 2009 at 3:10 pm
Anyone who has ever read When Genius Failed might recall the palpable horror someone at a failing company may suffer when the books are opened up to Goldman. The writer all but says they trashed the shit out of LTCM’s positions by trading against tehm, exacerbating Long Term’s insolvency and making money in the process before graciously agreeing to participate in the bailout.
Further irony: Paulson basically used the Long Term bailout to force Corzine’s ouster.
October 21st, 2009 at 3:14 pm
We have so many suspects to damn…
but not the fish head.
October 21st, 2009 at 3:22 pm
George W. wasn’t about to save Lehman, not with less than two months to go before a Presidential election. Why not? His brother, Jeb worked for Lehman’s private equity division, while cousin George Herbert Walker ran Lehman’s Nueberger Berman division.
With McCain/Palin running neck and neck with Obama/Biden, W. wouldn’t save Lehman because it could look bad for the Red team.
Don’t worry, the Bush boys came out quite well, financially. Don’t they always?
http://peureport.blogspot.com/2009/01/curious-case-of-john-ellis-bush.html
October 21st, 2009 at 3:28 pm
I agree with Yves Smith that instituting a new Glass-Steagal is not sufficient. You also have to limit, if not ban, lending by commercial banks to speculative ventures – which is hard to define properly.
Outlawing CDSs, a Tobin tax, increased capital reserve requirements and international capital-flow regulations are also needed.
October 21st, 2009 at 3:44 pm
Wow, I think I agree with Al. Without further context to suggest otherwise, Lehman “opening its books” to Goldman (ie., letting a potential buyer do due diligence) is perfectly legitimate.
October 21st, 2009 at 4:00 pm
The lack of context is a bother, but from the quote, it doesn’t seem like GS was looking to buy LEH. I mean, if they were, then due diligence would be required and LEH opening its books would be totally expected, which makes the fact that Paulson called up about it look very fishy. The quote makes it seem like Paulson wanted to know how bad things were, and was using GS to gather that information. Which is a bad, bad, bad, idea.
October 21st, 2009 at 5:18 pm
Hi conspiracy theorists. Opec must love you guys blameing Goldman traders for the high oil price.
October 21st, 2009 at 5:41 pm
The Day Lehman Fell
Lehman Brothers files for Chapter 11 bankruptcy protection that evening, declaring itself insolvent. Trading for over 158 years, the investment bank would ultimately become the biggest failure as a result of the credit crisis, and remains the largest US corporate failure in history. The company failed with $639 billion in assets, but far more in debt and liabilities.
Several sections of Lehman however, remained out of the chapter 11 filing, including Neuberger Berman and other investment units. Talks continue to sell these to other organisations, with Barclay’s once again being touted as a big player.
Sorkin’s call logs show Hank Paulson took a call from Rudy Guiliani on Sept. 15. Did they talk about the Bush boys, Jeb and cousin Walker?
October 21st, 2009 at 5:44 pm
Goldman needs oil to be volatile to make money. American branded oil oligarchs like the high prices, just as much as OPEC.
October 21st, 2009 at 8:15 pm
Thanks be, thanks be, that Geithner and Summers would never engage in such corrupt subservience to the interests of Goldman Sachs.
October 21st, 2009 at 8:56 pm
It’s always hard to get one’s mind around the notion that an upstanding citizen like H. Paulson could be a crook, so let’s frame it as: he and his like really do consider it in the public interest (’good for America’) when they protect each other’s ability to do business unfettered, and take home really, really a lot of money. There would be little wrong with this set of beliefs other than its shallowness and laughable self-aggrandisement, but it can do terrible harm unless it is ringed about with, limited sharply and clearly by, VALUES such as honor, equity, transparency, a decent sense of self that countenances the huge world that is left out of these inner-circle considerations, and so on.
so, you don’t have to think he is a crook, or that Geithner is a dope, or that Summers is an oleaginous eel (although of course he is, actually), to see that their habits of mind, operating unconstrained over months and months of hundreds of decisions, giving just a little of the wrong nudge at each juncture, can wind up, at the end of a long trail of just-slightly-self-serving decisions and actions, at a place very like where a crook would have gone.
so not a crook, and yet somehow a party to stealing almost our entire economy by his pals.
a distinction, i would say, without a difference, but if it makes it easier to grasp what these guys (and their enablers) have done, then fine.
October 21st, 2009 at 9:38 pm
If true, Paulson’s request (demand?) to Lehman was completely unacceptable – Paulson knows damn well what a prop trading desk as strong as Goldman’s is will do if it can get it’s hands on knowledge of a weakened market players entire portfolio. (now, if GS buying Lehman was really a serious option, then Paulson’s request might be OK. as we know, such a purchase didn’t take place and there’s not much evidence that it was ever a serious possibility).
October 22nd, 2009 at 2:23 am
Unless Paulson had something to do with the balloon hoax don’t expect any hearings. America, fuck yeah!
Amen, this is the sorry, pitiful truth.
October 22nd, 2009 at 4:23 am
Let them go. LET WALL STREET GO! Cut em loose and float em out into some metaphorical Free Market Sea. Let them survive or die as to their own devices.
Create your own banking system. Take over the Fed. The Fed is United States property. TAKE THEM OVER. Use the Fed in conjunction with Fanny and Freddie. Capitalize one to create a nationwide banking system to handle the basic day to day banking affairs of the American people and its businesses, capitalize the other to be the Green Bank of the United States, with the purpose to invest, on behalf of the US government and its people, in infrastructure, green technology, and JOBS.
Or you can delay and do next to nothing. Offer tepid reform measures. Launch NO investigations. Hope and pray that a system rotted to core does not bring down the country for few years, so that you can possibly win another a term in 2012, and personally oversee the collapse of a nation.
October 22nd, 2009 at 7:35 am
I believe points 6 and 7 of Paulson’s original seven point plan were: 6. Give all the money to Goldman Sachs 7. Give Hank Paulson the Presidential Medal of Freedom
Anyone actually read the book? On Hardball and Fresh Air Sorkin said that GS and Morgan Stanley both almost went under the weekend after Lehman collapsed.
October 22nd, 2009 at 9:45 pm
Read The Pity of It All on the Depression of 1873 in Germany.
The parallels between then and now are dismal.