Robert H. Heath

How Paulson Gave Goldman the Lehman Heads-Up

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.