What Was Hank Paulson Doing?
"IT'S clear that former Treasury Secretary Hank Paulson considered himself a vital intermediary between Wall Street and Washington -- a job description that not only doesn't exist but which is also fraught with potential conflicts."
http://www.nypost.com/p/news/business/paulson_rate_cut_telethon_doesn_A8YuH3qzccMBydla6SNyFO
Paulson's rate-cut telethon doesn't ring true
John Crudele john.crudele (at) nypost.com
New York Post
Last Updated: 10:49 AM, September 24, 2009
Posted: 1:19 AM, September 24, 2009
Paulson, the former head of Goldman Sachs, who lobbied strongly for interest rate cuts as well as controversial bailouts of financial institutions, admitted that he saw himself as a conduit.
"I think it's my job to talk regularly to market participants, but also talk regularly to key regulators and make sure we are seeing the same issues, the same problems and working toward the same solutions," Paulson said during an Aug. 21, 2007 television interview.
In my last column I laid out what occurred on Aug. 16, 2007, the day Paulson lunched with
Ben Bernankeand likely tried to convince the nation's leading central banker that interest rates needed to come down. That was a week after the Fed had already decided that they didn't.
It was also the day when the Dow Jones industrial average did a sudden 328-point reversal, turning what was going to be a horrendous loss into one that was barely noticeable. Soon after the Bernanke/Paulson lunch a rumor started spreading on the Street that the Fed was going to act.
I also explained that after Bernanke and Paulson lunched, Paulson made a couple of ordinary phone calls, which took place 30 minutes before the actions that have been deleted from his official schedule.
Later that night Paulson called
Robert Rubin, another former Treasury Secretary, who was then leading Citigroup -- which owned a brokerage firm. The two men probably shouldn't have been talking, especially if Paulson had learned anything substantive about Bernanke's thinking at the lunch.
The next day -- Aug. 17 -- the Fed made Wall Street very happy with a surprise interest-rate cut that was an extremely unusual about-face on policy.
Today I'm going to look at who Paulson spoke with the day before his lunch with Bernanke -- Aug. 15, 2007 -- and also on Aug. 17, the day rates were cut. It's interesting to see the "market participants" and "regulators" that were using Paulson as a go-between.
Wednesday, Aug. 15: First thing in the morning -- at 7:05 a.m. -- Paulson called
Jean-Claude Trichet, head of the European Central Bank, and left a message. Then, at 7:15 a.m., he reached Bernanke by phone. After that he called
Tim Geithner, who was then head of the New York Federal Reserve Bank and is now Paulson's successor as Treasury Secretary. Clearly, Paulson wanted to get the lowdown on what to expect when the already jittery financial markets opened.
Then, in rapid succession -- and remember, this is after speaking with Bernanke for five minutes and Geithner for 20 minutes and presumably getting important information -- Paulson placed calls to the heads of numerous Wall Street firms --
Jamie Dimonof JPMorgan,
Dick Fuldof Lehman Brothers,
Ken Lewisof Bank of America,
John Mackof Morgan Stanley, and
Stan O'Nealof Merrill Lynch.
Paulson called Mack again, who he hadn't reached the first time, and then phoned Lewis for a second time within an hour. After that he tried Trichet again, this time apparently successfully. That call lasted 10 minutes, according to Paulson's official schedule.
By 8:40 a.m. -- or 50 minutes before the stock market was to open in New York -- Paulson had reached the bulk of Wall Street's elite.
Wall Street's elite could have gleaned important information just by knowing that the head of the Treasury had spoken with Bernanke that morning and was subsequently making calls around Wall Street.
Lloyd Blankfein, who took over as head of Goldman when Paulson left, didn't get one of those earliest calls, at least not from Paulson's office phone. But Blankfein did get three calls from Paulson that day, starting with one that lasted 10 minutes between 9:40 a.m. and 9:50 a.m.
At that point, concerns about the credit market and the situation in housing had caused stock prices to decline 8 percent in a matter of weeks.
Some would call that a normal correction and nothing that should have caused Washington to panic.
According to his official phone log, Paulson is the one who initiated all these calls. So it seems reasonable to assume that he was just doing the job he had taken on -- coordinating what "regulators" like Bernanke and Trichet were thinking with the reaction he wanted by Wall Street.
When the Fed announced a "surprise" rate cut early on Friday, Aug. 17, Paulson again went into overdrive.
But this time he waited until the stock market was trading and prices were up. Just as soon as a conference call with Bernanke, Geithner and a couple of other Fed governors ended, Paulson called Dimon;
Charles Princeof Citigroup, where he left a message; Lewis; Blankfein,
Jimmy Cayne, head of Bear Stearns; Mack; O'Neal;
Ned Johnsonof Fidelity InVestments;
Larry Finkof BlackRock; Fuld; and
Bill Grossof Pimco, the influential bond-trading firm.
Paulson received a phone call at 3:40 p.m. from Bernanke that lasted 15 minutes. Within five minutes Paulson was fielding a call from Blankfein, the third time that day.
So, my questions are: Was Paulson really the Secretary of the (U)nited (S)tates Treasury or the (W)all (S)treet Treasury. Was he looking out for our inter ests or those of his friends? Was there such a grave threat to the US economy that all the normal boundaries between Washington and Wall St. ceased to exist?
On Tuesday I'll have more leads investigators should follow.
John Crudele
