How Paulson Gave Goldman the Lehman Heads-Up

The secret Paulson-Goldman meeting wasn’t the only time that Hank Paulson treated his buddies at Goldman Sachs especially well while at Treasury. In fact, it wasn’t the only time he did so before he got the now-famous waiver.

A bit further on in the Sorkin book, while Paulson is trying to work out what should be done with an imploding Lehman Brothers, we find this:

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 many ways, this is worse than Paulson’s meeting with Goldman’s board: in this case, Paulson is forcing Lehman to open its books fully to a direct competitor, for no obvious reason. And in this case it’s not at all obvious that Paulson got a sign off from Treasury’s general counsel before doing so.

I suspect this is what happens when you do all your business by phone rather than by email: you’re so comfortable with the fact that you’re not leaving any kind of paper trail, it becomes much easier to cross the line and abuse your position as the most powerful Treasury secretary in living memory to the benefit of your former firm. If the Moscow meeting wasn’t enough to precipitate some kind of Congressional investigation of Paulson, this should be.

Comments

[ilovesum:]

Its about time they investigate Paulson

Oct 21 11:19 AM

[CoinMiner:]

Yesterday (10.20.09) Fresh Air on National Public Radio ran a half hour piece with Sorkin. He generally came across as an apologetic for Paulson, The waiver was brushed off as something that had to happen, naturally, to save the world.

Of course the incident you highlight, and other high crimes, were never brought up.

Oct 21 12:21 PM

[MarketGuy:]

Paulson will go down as one of the biggest crooks in history. "Government-Sachs" becomes more and more fitting everyday.

Oct 21 12:23 PM

[helplessobs...:]

GS is about as ugly as it gets in conducting investment banking. Somehow they will pay and when it comes it will not be pretty.

Oct 21 12:24 PM

[debtacid:]

Paulson is just a Prince of a guy. Machiavelli would be proud. After 2 years of this, it may be time for the SEC or FBI or CIA or Congress or Senate or someone to investigate?

Oct 21 12:43 PM

[tripleblack:]

Its puzzling that two VERY adversarial administrations (Bush vs Obama) overlap this affair, and yet no one in authority is looking under rocks...

UNLESS the abuses have never ended, or dated from the time when members of the Obama administration were working with Paulson back during the Bush years. It is likely that the abuses continue to this day.

It would appear likely that at least two Secretaries of the Treasury would have to be investigated simultaneously here, and with the choice being two or none, they have elected "none".

Oct 21 02:58 PM

[a fat panda:]

Even if Geithner is totally innocent, he isn't apt to turn over any rocks. All of these guys worked together on the TARP. How much does Geithner win if he proves that Paulson was a crook. His only defense becomes, I was too stupid to realize that I was dealing with a crook?


On Oct 21 02:58 PM tripleblack wrote:

> Its puzzling that two VERY adversarial administrations (Bush vs Obama)
> overlap this affair, and yet no one in authority is looking under
> rocks...
>
> UNLESS the abuses have never ended, or dated from the time when members
> of the Obama administration were working with Paulson back during
> the Bush years. It is likely that the abuses continue to this day.
>
>
> It would appear likely that at least two Secretaries of the Treasury
> would have to be investigated simultaneously here, and with the choice
> being two or none, they have elected "none".

Oct 21 03:13 PM

[anarchist:]

That is a good point, why else has the GS/Paulson situation festered and never investigated (?).


On Oct 21 02:58 PM tripleblack wrote:

> Its puzzling that two VERY adversarial administrations (Bush vs Obama)
> overlap this affair, and yet no one in authority is looking under
> rocks...
>
> UNLESS the abuses have never ended, or dated from the time when members
> of the Obama administration were working with Paulson back during
> the Bush years. It is likely that the abuses continue to this day.
>
>
> It would appear likely that at least two Secretaries of the Treasury
> would have to be investigated simultaneously here, and with the choice
> being two or none, they have elected "none".

Oct 21 03:54 PM

[anarchist:]

Yes, and who the hell would employ him in the financial circles after his term as Sec. Treas. ends?


On Oct 21 03:13 PM a fat panda wrote:

> Even if Geithner is totally innocent, he isn't apt to turn over any
> rocks. All of these guys worked together on the TARP. How much
> does Geithner win if he proves that Paulson was a crook. His only
> defense becomes, I was too stupid to realize that I was dealing with
> a crook?

Oct 21 03:56 PM

[White Shield:]

So I'm confused - I was sure that Geithner had the next "Nobel Economic Award" all but had, and now you're telling me Paulson deserves it more (using the new standard for Nobel wards, that is)?

Oct 21 05:20 PM

[bindlepete:]

You can be sure the NSA has a copy of this phone conversation if they have not destroyed it. Echelon would have picked it up. With all of the crooks that were in the game I suspect they did and likely both Lehman and GS had or have one also.

No one learned the lesson from Bankers Trust.

Oct 21 05:22 PM

[lower98th:]

Treason:

A crime that undermines the offender's government .
disloyalty by virtue of subversive behavior
treachery: an act of deliberate betrayal
wordnetweb.princeton.e...

Oct 21 05:50 PM

[Mr. Ed, Jr.:]

A year later...where are the subpoenas, the grand juries, the indictments ? And not just for Paulson, but for all of the swindlers who continue to loot this country ?

We have managed to combine the corruption of Mexico with the financial acuity of Iceland. United States of Mexiceland ?

Oct 21 05:54 PM

[Robespierre:]

GS, JPM and others are not being investigated by the federal government because the federal government does not feel like investigate it them. This and the previous administration have and had the tools to do it, if not with the SEC (useless) then with the homeland security agency. Isn't what these people allegedly did closer to financial terrorism than anything else? Didn't they bring the nation close to collapse? They call themselves CEOs of the financial industry. They look more like capos of organize crime families to me dividing up the country to make it easy for them to loot. The irony is that they are financing the looting with tax payers money - Change you can believe in -

Oct 21 06:13 PM

[Indian:]

Well another intersting program on Front line on OTC derivative, still Larry Summers and Co pretty much in charge, and alos Last night Obama demands reform from Wall street, where else but Democratic fund raiser. Obama has become such a hippocrate and so soon he is becoming corrupt. I heard it was $ 39000 per person dinner event. Who else can efford such tab, no where but bailed out bankers. Wake up America.

Oct 21 07:19 PM

[countrybanker:]

Should GS have to take this years earnings, partially supported by FDIC's TLGP guaranty and access to the Fed, and at least payback the amount of money they received from AIG and that AIG rec'd from Fed and Treasury bailout???

Oct 21 09:13 PM

[Moon Kil Woong:]

I'm glad people are digging into the facts. Too bad they are all after the fact. It's outrageous that stuff like this is allowed to go on no matter what the reason is. BTW Lehman should have had a good attorney who could make sure acts like this by Goldman/Paulson clearly demonstrated improper favoritism when it mattered.

Oct 21 10:01 PM

[User 503457:]

Is GS one of the private entities that makes up the Federal reserve?

Oct 22 08:17 AM

[bottoms-up:]

I don't understand why any of this would be a surprise...

Look at who all of Tim's top aides are over at Treasury... Yet another crook!

These are key and critical government positions and there should perhaps be a five year bar or limit on any government official in the Fed or Treasury pre or post appointment from having worked with the likes of GS, BAC, etc

This is what happens when you get too cozy and it happens too often.

I, for one, can't wait to look Paulson up at bop.gov

Oct 22 08:26 AM

[bottoms-up:]

I guess it needs to be posted as:

www.bop.gov

My point is the same...

Tim, Ben, Paulson, all of them...

Oct 22 08:28 AM

[kaps:]

here is a quick ques.

What GS is to United States, United States is to...?

Using their financial muscle to exploit weaker companies/nations, exporting anarchy, influencing policies of IMF, World Bank, UN etc etc...

Oct 22 09:31 AM

[kaps:]

United States is one BIG Goldman Sachs!!

Oct 22 09:32 AM

[TheSandman:]

On Oct 21 03:13 PM a fat panda wrote:

> Even if Geithner is totally innocent, he isn't apt to turn over any
> rocks.

Oh come on -- he can't even figure out how to fill out his own income taxes! How is he going to unravel these alleged wrongdoings?

Oct 22 10:49 AM

[gmcg:]

Oh how I wish you were right, but GS will never "pay" nor anyone else involved in the financial demise of the United States and its citizens. It will all be swept under the rug with the blessings of Congress and the White House. No investigations, no useless hearings, no legislation, no new regulations. It has already been over a year of the federal government and the Federal Reserve protecting Wall Street and the banksters from any recriminations. Any public outrage is met with derision by those who were and are party to the financial downfall of a once great nation.


On Oct 21 12:24 PM helplessobserver wrote:

> GS is about as ugly as it gets in conducting investment banking.
> Somehow they will pay and when it comes it will not be pretty.

Oct 22 11:13 AM

[Robert H. H...:]

Has everyone already forgotten what was going on in September 2008?

Go back to any news story from that month. The big problem was that no one -- not the banks themselves, not Hank Paulson, not Ben Bernanke --had any idea what liquidation value could be placed on a huge pile of "troubled assets". But it was abundantly clear that in a distress sale, the liquidation values would be a small fraction not only of face value, but of the value the assets might fetch in a less distressed market environment. For this last reason, among others, it was also pretty unlikely that any firm was going to voluntarily say, "We looked at our assets and they're so impaired you might as well shut us down now."

So, if you're Treasury secretary and you're trying to figure out whether a particular bank is worth saving, doesn't it make sense to have an unrelated party take a look at the assets to draw some conclusion about whether there's value that exceeds the liabilities before you decide whether to throw the tax-payers' money at it? It's called due diligence. And since Treasury didn't have the staff to do the analysis, they needed someone else to do it. Goldman's pretty good at that sort of thing.
Not much scandal here.

Oct 22 08:15 PM