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Crony Capitalism? Hank Paulson’s Extraordinary Meeting

December 1, 2011

by Jesse Eisinger
ProPublica, Nov. 29, 2011, 5:35 p.m

According to the story, on July 21, 2008, then-Secretary of the Treasury Hank Paulson met with “a dozen or so hedgefund managers and other Wall Street executives” and discussed “a possible scenario for placing Fannie [Mae] and Freddie [Mac] into ‘conservatorship.’ That’s a fancy term for a government seizure that would have allowed the entities to keep operating, but would have caused severe adverse consequences to holders of the Frannies’ equity and, possibly, debt. A fund manager told Bloomberg he was “shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan.” After the meeting, this manager consulted a lawyer, who told him to cease trading immediately in the Frannies, lest he later be accused of – here’s the rub – insider trading.

The Bloomberg story cites law professors to say that Paulson did not break the law. But the story’s implicit allegation is that the former head of Goldman Sachs was so clueless – or contemptuous – of his role as Secretary of the Treasury of the United States of America that he engaged in a clubby tête-à-tête with his former peers and handed them what Bloomberg says “amounted to inside information.”  (read the rest on ProPublica)

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