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Reply #26: It's Accountability Time for Banks and Wall Street [View All]

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xchrom Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-07-11 08:31 AM
Response to Reply #6
26. It's Accountability Time for Banks and Wall Street

Theres a scene in the HBO adaptation of Andrew Ross Sorkins book Too Big to Fail where Treasury Secretary Henry Paulsons adviser suggests he call Warren Buffett to ask for help with Lehman Brothers. As what? responds Paulson. Warrens friend? His former banker? The treasury secretary? No! In the movie, Paulson understands the difference, that there are bright lines that he should not cross. In real life, it turns out, these were not the kind of distinctions Paulson was particularly concerned about making.

Missing from that movieand other first drafts of recent financial historywas a bombshell recently uncovered by Bloombergs Richard Teitelbaum: Paulson gave his hedge fund friends inside information about government plans to seize Fannie Mae and Freddie Mac, seven weeks before it happened. Common stock and some preferred stock would be wiped out in the process, he told them, meaning a bet against the giants was a bet that could make them millions. Those without connections to Paulson didnt get a tip-off; worse, they got the opposite. On the same day that Paulson met with the hedge funds, he told the New York Times that markets would soon have reason for renewed confidence in both enterprises.

Such shameful conduct, which law professors told Bloomberg is not illegal, is becoming increasingly typical. We know, for example, that Paulson held a secret meeting with the Goldman Sachs board in a Moscow hotel in June 2008 that, again, didnt match his public statements. These are just the meetings we know about.

You just never ever do that as a government regulatortransmit nonpublic market information to market participants, William Black, a former general counsel at the Federal Home Loan Bank of San Francisco, told Bloomberg Markets Magazine. But Americans have learned by now: Never say never ever.

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