Conflict Of Interest? Report Says Goldman Sachs ‘Among Biggest Beneficiaries’ Of Paulson’s Bailout

Think Progress
Tuesday, Sept 23, 2008

In making his push to administer the largest federal bailout of Wall Street in history, Treasury Secretary Henry Paulson is seeking unfettered authority. McClatchy poses the question today, “can you trust a Wall Street veteran with a Wall Street bailout?,” referring to Paulson, the former CEO of Goldman Sachs:

But the conflicts are also visible. Paulson has surrounded himself with former Goldman executives as he tries to navigate the domino-like collapse of several parts of the global financial market. And others have gone off to lead companies that could be among those that receive a bailout.

In late July, Paulson tapped Ken Wilson, one of Goldman’s most senior executives, to join him as an adviser on what to about problems in the U.S. and global banking sector. Paulson’s former assistant secretary, Robert Steel, left in July to become head of Wachovia, the Charlotte-based bank that has hundreds of millions of troubled mortgage loans on its books.

Goldman Sachs cashed in under Paulson, with earnings in 2005 of $5.6 billion; Paulson made more than $38 million that year. A 2005 annual report shows that “Goldman was still a significant player” in issuing mortgage bonds. The conflict of interest is increasingly clear today, as Bloomberg reports that “Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries” of Paulson’s bailout plan:

Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

“Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,” Jeffrey Rosenberg, Bank of America’s head of credit strategy research, wrote in a report today, without identifying particular investment banks.”

The conflict of interest provides all the more reason for the bailout legislation in Congress to have more stringent oversight that the administration opposes.

The Wonk Room notes six months ago, Paulson claimed, “our banks and investment banks, are strong.”

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5 Responses to “Conflict Of Interest? Report Says Goldman Sachs ‘Among Biggest Beneficiaries’ Of Paulson’s Bailout”

big O Says:
September 23rd, 2008 at 8:25 am
Isn’t it strange that Goldman Sachs offices in New York on 9/11 were in one of the World Trade Center’s twin towers? Now we have one of their boys calling the shots at the Treasury.
dish gotta swim Says:
September 23rd, 2008 at 8:26 am
The “cat’s eye” effect seen in many ring galaxies is due to negative quantum gravity lensing. The negative gravity affect apparenttly accentuates the brightness of the central regions of many galaxies.

Oops, wrong topic.
Sam Says:
September 23rd, 2008 at 9:35 am
Bush is a real chip off the old block.
NONsense Says:
September 23rd, 2008 at 12:30 pm
This is nonsense.

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Come discuss it.

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kim Says:
September 23rd, 2008 at 2:57 pm
June 19, 2008
Paulson vs Paulson?

Is anyone else troubled by the fact that two guys named Paulson have been taking market views diametricaly opposed to one another for over a year and one is making billions and the other his helping him make billions with his astounding ability to misread the market? Lets think about it.

John Paulson is a hedge fund manager that has made many $ billions betting against the U.S. housing market starting in 2006 . John Paulson was in the news yesterday issuing dire warnings that the capital destruction within the financial sector has really only just begun. He believes that mortgage related losses for the financial sector (which I am assuming includes insurance companies like AIG and the GSEs, Freddie Mac and Fannie Mae) are going to total $1.3 Trillion. We couldn’t agree more with John Paulson, as unfortunate as that is.

Meanwhile, Henry Paulson, Secretary of the United States Treasury, has been going against the grain since he took his cabinet position. Last spring he boldly pronounced that the “subprime” housing crisis was well contained and shouldn’t spill over to the broader economy. Hell, forget the economy, he basically said that the category of “subprime” was an isolated sector and wouldn’t spill over into other categories of mortgages. Also in 2007 he showed a surprising lack of knowledge for a former CEO of Goldman Sachs, with regards to banks horrific exposure to “off-balance sheet” structures like SIVs. When he finally got around to SIVs he proposed “Super-SIV”. Super SIV would have been a multi-bank structure that would have essentially taken $ billions of missrated AAA CDOs and stuck them under the floor boards, exactly like Japan did in the 1990s. Luckily the deal never got done. Over the last 9 months, Henry Paulson has been cheerleading the economy and has been wrong almost everytime.

Ok, so what’s my point? The point is, John is obviously a bear, short selling financials, buying credit default swaps on housing related assets and making money all the merry-long way. Few have helped him more along this path than Henry Paulson. You see, when you are the former CEO of Goldman Sachs and the current Treasury Secretary, lots of people listen to you. When he says things aren’t so bad, or things are improving, investors act on those pronouncements and take the market up (or in the case of CDS, tighten spreads). Henry Paulson has been doing that a little over a year now. Everytime the market gets taken up, it just gives guys like John Paulson another entry point to set more shorts or buy CDS protection. It’s like they’ve been working hand in hand!

My opinion here is no one is that smart (John) and no one is that stupid (Henry)! I don’t know about you but I think it’s time to take a deep dive into The Paulson Family tree! http://www.monkeybusinessblog......k_paulson/