Paulson’s Funny Business

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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.