Opinion Brief

Hank Paulson's 'astonishing' insider tip to Wall Street

Bloomberg reports that as Treasury secretary, Paulson gave a potentially lucrative heads-up to hedge fund managers. Should we be outraged?

Mere days after revealing that big Wall Street banks made $13 billion in secret profits off the Federal Reserve's $7.7 trillion bid to shore up the financial system in 2008-09, Bloomberg Markets is back with a "rather astonishing" scoop on then-Treasury Secretary Henry Paulson's sharing of insider knowledge with hedge fund chiefs. On July 21, 2008, as Paulson was publicly assuring reporters and Congress that Fannie Mae and Freddie Mac would survive without a government lifeline, he told a who's-who of hedge fund managers that a partial federal takeover was likely, Bloomberg reports. At least five of the hedge fund managers were alumni of Goldman Sachs — a firm Paulson used to run. Is this as bad as it sounds?

Paulson's tip-off is scandalous: Slipping non-public, market-moving information to your "hedge fund buddies" during a financial crisis — "now this is what a scandal looks like," says Derek Thompson at The Atlantic. Paulson may not have broken any laws, but he clearly crossed the "bright white line between doing everything you can to help our financial sector survive the credit crunch, and doing everything you can to help your buddies survive the credit crunch."
"Bloomberg exposes Secretary Paulson really, seriously not doing his job"

Fair or not, this is just business as usual: "The sharing of information from federal regulators to the head honchos within the financial industry is nothing new," says Lisa Du at Business Insider. It happened in the Bush administration, and it's happening under Obama, too. And remember, it's not all for nefarious reasons: Federal fiscal and monetary officials need to gauge the mood of the market to do their jobs. "The Bloomberg exposé is a great piece of muckraking," but it's hardly surprising.
"Investors and bankers getting special access... happens all the time"

But this isn't Paulson's first violation: There's a huge difference between touching base with Wall Street and Paulson's "downright pathological" need to give "inside information to his old Wall Street buddies," says Felix Salmon at Reuters. We only know for sure about this hedge fund confab and a separate secret Moscow meeting with the entire board of Goldman Sachs. But Paulson's "astonishing black hole where his ethics ought to be" surely runs much deeper. Sadly, it turns out the "'Government Sachs' conspiracy theorists" were right all along.
"Hank Paulson's inside jobs"

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