Barbarians At The Gate
Henry Paulson, our illustrious Treasury Secretary pushing a wall street bailout, was appointed to that position by President Bush in May of 2006. Prior to that time, Paulson was Chairman of Goldman Sachs.
Perceptions that Paulson’s allegiance to Wall Street were driving his role in the present financial crisis begain to take root when he presented a bailout plan that vested him with sole authority to dispense $700 Billion from the US Treasury. That plan followed the outright bailouts of Fannie Mae, Freddie Mac, AIG Insurance and Bear Stearns. While his interests do seem more aligned to Wall Street than to Main Street, his actions may be driven by interests of a much more personal nature.
When Paulson left Goldman Sachs, he beneficially owned over 3.2 million shares of Goldman Stock. His last SEC Filing as a Goldman Insider filed in April of 2006 outlines his ownership interests. In June of 2006, prior to the current financial turmoil, Marketwatch reported that Paulson sold over 3 million of those shares in a separate offering for approximately $490 million:
“In addition to the 3.2 million shares, Paulson also owns restricted stock units representing 494,054 shares of common stock, all of which are vested and deliverable. Based on Goldman Sachs’ closing price of $152.50 on Thursday, the restricted units are worth about $75 million. He also owns options to purchase 680,474 shares of common stock, all of which are exercisable.”
In the initial stages of the economic crisis, there was much hand wringing over which companies were worthy of rescue and which were not. After riding to the rescue of Bear Stearns, Fannie Mae and Freddie Mac, the government decided to allow Lehman Brothers to fail and file for bankruptcy. And right after the decision was made to allow Lehman Brothers to meet their demise , Paulson convinced Washington that the giant insurer, AIG, could not be allowed to suffer Lehman’s fate. An $85 billion taxpayer-funded rescue package was promptly awarded to AIG to allow them to continue their existence.
But the events leading up to AIG’s rescue are very enlightening:
“Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.
As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.
One of the Wall Street chief executives participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.”
So the only private sector attendee at the the AIG deliberations with the New York Federal Reserve just happened to be Paulson’s successor at Goldman Sachs. And, as it turned out, Goldman Sachs stood to lose $20 billion in the event of an AIG failure.
But who else other than Paulson had in interest in insuring Goldman’s interests were protected here? Well, here’s another surprise – the one and only Jim Johnson. Yes that Jim Johnson, the former CEO of Fannie Mae, the former head of Obama’s vice presidential search committee, and the current Obama campaign adviser. That Jim Johnson:
“Mr. Johnson has been a Vice Chairman of Perseus, L.L.C., a merchant banking and private equity firm, since April 2001. From January 2000 to March 2001, he served as Chairman and Chief Executive Officer of Johnson Capital Partners, a private investment company. From January through December 1999, he was Chairman of the Executive Committee of Fannie Mae, having previously served as its Chairman and Chief Executive Officer from February 1991 through December 1998 and its Vice Chairman from 1990 through February 1991. Mr. Johnson has been a director of Goldman Sachs since May 1999. Mr. Johnson is on the boards of the following public companies in addition to Goldman Sachs: Forestar Real Estate Group, Inc., KB Home and Target Corporation.”
For the record, Johnson has 44,600 stock options in Goldman Sachs, with another 15,864 restricted stock units (See page 35 of Goldman’s latest Proxy Statement)
So, Paulson has a direct financial interest in the AIG bailout by virtue of his stock ownership in Goldman Sachs. With Goldman shares trading North of $100 per share, that is quite the nest egg to protect. And Jim Johnson likewise has a vested financial interest in Goldman Sachs’ well being. In addition, the Obama campaign has an interest in insuring that Jim Johnson does not find himself tied up in another scandal. If Johnson, after running Fannie Mae into the ground, also turned up on the Board of Directors of another threatened financial institution linked to the current financial crisis, Obama would find himself devoting precious campaign time and energy dealing with the issue.
After the US Treasury commited $85 Billion to AIG, Warren Buffet made a very public $5 Billion investment in Goldman Sachs giving him roughly a 10% ownership interest in the firm. Warren Buffet just happens to be one of Barak Obama’s “Core Economic Advisors”.
Is it no wonder that the vast majority of American voters do not trust the government to deal with this problem. Those barbarians at the gate include the gatekeepers.
UPDATE 10/1/08: The top corporate contributor to the Barak Obama Presidential Campaign is Goldman Sachs, with total contributions as of the latest reporting cycle of $691,930. In the 2008 federal election campaigns, Goldman has contributed a total of $4,567,301 to all candidates, with 73% of those contributions going to Democratic candidates.
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Stumble It!
September 30th, 2008 at 2:53 pm
Horatio asked me to be at the bridge. You point out a direct conflict of interest by Paulson and the obvious need for him to bail out his fellow jackels. Poor Bush, rolled by Paulson and some monkeys in suits. Time for Paulson to resign.