POWIP Piece of Work In Progress

Hudson on the Moskva?

Andrew Ross Sorkin’s new book, “Too Big to Fail”, was released yesterday, and among the many episodes it recounts is a surprising meeting between then Treasury Secretary Hank Paulson and the directors of Goldman Sachs.  This meeting took place “off the record” at the end of June 2008 when both Paulson and GS directors were in Moscow at the same time.

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.
[snip]
For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.
[snip]
For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

All this went on just a little more than two months before the collapse of Lehman and the market meltdown that possibly contributed positively to Mr. Obama’s election.  And after assiduously avoiding any apparent improper contact for two years, what in the world was Mr. Paulson thinking when he not only took this meeting, but did so “off the record”.  It really begs the question of what precisely was discussed at the get together, although at this point that would probably be difficult to nail down; unless one of the directors had a CYA tape recorder on his person or anyone who successfully conducted any eavesdropping of the event came forward with a recording.  Also, one wonders, did any similar "unofficial" meetings take place during Paulson’s time at Treasury?

To be clear, I’m not accusing Paulson of any intentional wrongdoing, and I believe him to be an honorable man.  But that said, this meeting at best gives an impression of recklessness at a sensitive time.  And at worst?  Well at worst it could be a terrible example of “insider info” upon which profits were gleaned at the expense of an unwitting public.  This is something that federal investigators should probably look into, discreetly of course, lest Paulson's honor be unfairly sacrificed on the altar of public opinion.

Tangentially related, being an act originally formulated by Secretary Paulson, and done at  the expense of a largely unwitting public, TARP IG Neil Barofsky characterized the probability that all of the public finds would be repaid as “extremely unlikely”.

His 256-page report, out Wednesday, said TARP played a significant role in bringing the financial system back from the "brink of collapse" but questioned its effectiveness in increasing lending to small businesses or reducing the risk of foreclosures. Initially designed by the Treasury to buy toxic assets that threatened the financial system, TARP funds ended up invested in 685 banks, bailing out auto companies and funding a program on home mortgage modifications.
[snip]
The report criticized Treasury's implementation of the program and its lack of transparency, making 41 recommendations, 18 of which were implemented. Barofsky says it's "extremely unlikely" that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages "will yield no direct return."

Recall that TARP was the program implemented hurriedly at the behest of Secretary Paulson and Fed Chairman Bernanke.  It has been implemented poorly, treated as a slush fund, and is due to expire at the end of the year.  One of the IG’s chief complaint is the program’s transparency; a theme that seems to be reoccurring in the most ethical and transparent administration and Congress-EVAH!  I’m of a shared mind with Representative Lipinski (D-Ill) who believes that the program should not be extended through next year but be allowed to lapse in December.

And I'll remind all who wonder why I’m criticizing Paulson, and siding with Lipinski, that patriots who consider issues with classical disinterest will always choose their nation and what’s best for her, over partisan politics or ideology.

Rocketman