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?

Former Treasury Secretary Henry Paulson
(Image credit: Win McNamee/Getty Images)

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."

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