How US Treasury Secretary Hank Paulson tipped off hedgie chums about Fannie bailout
November 28th, 2011
In the above clip, William D Cohan talks about how US Treasury Secretary Henry Paulson tipped off hedge fund managers and other Wall Street executives about Washington’s plan to put Fannie May and Freddie Mac into “conservatorship”, a move that would wipe out common shareholders in the GSEs.
According to an in-depth report by Richard Teitelbaum published in January’s Bloomberg Markets magazine, Paulson hinted of a Fannie Mae and Freddie Mac rescue at a meeting with hedgies and other Wall Street executives held at the Manhattan offices of Eton Park Capital Management in July 2008. It was move that gave the dozen or so investors to whom he spoke – who included five alumni of Goldman Sachs – privileged and confidential access to “material, non-public information” from which they could profit – or at least avoid losses.
The information provided by Paulson, a former chairman and chief executive of Goldman Sachs, differed from his public proncouncements on the future of Fannie Mae and Freddie Mac at the time.
Cohan, author of “Money and Power: How Goldman Sachs Came to Rule the World” and a Bloomberg columnist, was speaking to Erik Schatzker on Bloomberg Television’s “InsideTrack.”
Here are some choice excerpts from Tietelbaum’s Bloomberg Markets article:-
Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern. “What is this but crony capitalism?” she asks. “Most people have had their fill of it.”
William K Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers. “You just never ever do that as a government regulator — transmit non-public market information to market participants,” says Black. “There were no legitimate reasons for those disclosures.”
… Black says there’s no question that the plan to take over Fannie and Freddie — however uncertain — was material nonpublic information that could not be lawfully traded on. “What Paulson said put those managers in an untenable position,” he says. “They were exposed to all kinds of liabilities.”
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