More Evidence that Paulson belongs in jail

Another shocking story, this time from Bloomberg Businessweek. This goes back to July 2008, when Congress was panicking about Fannie Mae & Freddie Mac being the next dominoes to fall.

How Paulson Gave Hedge Funds Advance Word of Fannie Mae Rescue

On the morning of July 21 (2008), before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc., of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. 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.

Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

He’s not the only one who was shocked.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.

“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”

A Lawyer’s Advice

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.

Martha Stewart went to jail for much, much, less. Why is Hank Paulson still walking around free and rich?

This entry was posted in Crony Capitalism and tagged . Bookmark the permalink.

25 Responses to More Evidence that Paulson belongs in jail

  1. votermom says:

    I was scheduling this and published it instead. Oops.

  2. jjmtacoma says:

    Did you know it is not “insider trading” when members of congress buy and sell stocks, even when they have insider information?

    Seattle PI

    That is how they leave congress so rich, they know all the inside stuff and can buy/sell based on what they know.

  3. votermom says:

    BigGov has a post on the same article

    We reached out to Breitbart Editor Peter Schweizer, whose new book Throw Them All Out has rocked DC, for comment on Sec’y Paulson’s actions:
    This sort of behavior goes on regularly. Government officials can chose to release sensitive information to who they want. As I point out in my book, this has happened with Pentagon officials talking with investment houses about defense stocks and the defense budget, and Obama Administration discussions with commodity traders over plans to release the Strategic Petroleum Reserve. This is crony capitalism at its worse.

  4. HELENK says:

    this is one of the most sensible articles on today’s education , I have read in a long time.

    • votermom says:

      That is a good read. The bit about China using free market principles better than USA reminds me of Jim Cramer’s stick that China is the new leader of capitalism.

  5. DeniseVB says:

    I’m loving me some Chris Christie ….

  6. myiq2xu says:

    Remember all the cool protest songs of the sixties and seventies?

  7. 1539days says:

    Does that mean Paulson basically killed Bear Sterns?

  8. HELENK says:

    this is something I have never seen before. Yes I have had Christmas when we were short and it was a small Christmas, I am sure most people have had that experience.
    But never 1/2 the people of the country at one time

  9. HELENK says:

    here is another one of backtrack’s jailbird BFF who visited the white house over 60 times.
    Does backtrack have any friends that do not wear prison stipes???

  10. HELENK says:

    why is that those that scream the loudest about the rich and suck others into protests always seem to live the good life.

Comments are closed.