By Dominique de Kevelioc de Bailleul
Ever wonder how the Goldman Gang does it?
According to the smoking gun report released Tuesday by BusinessWeek following a response to its FOIA request of the US Treasury into the events leading up to the meltdown of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, it appears that the, then, US Treasury Secretary and former Goldman Sachs CEO Hank Paulson had tipped off at least five other Goldman expats among a wider group of the 12 members of the Working Group of Financial Markets, better known as the Plunge Protection Team (PPT), of the coming collapse of the two GSE giants. Sign-up for my 100% FREE Alerts
According to an unnamed hedge fund manager who was present at the now-infamous ‘Elton Park Meeting’ of July 21, 2008 between the Treasury Secretary and the members of the PPT, Paulson disclosed to the group a plan to place Fannie and Freddie in receivership amid the financial difficulties both had with its combined $5 trillion mortgage portfolio exposure during the quickly deteriorating housing crisis following the failure of Bear Stearns months earlier.
Authors of the BusinessWeek article, Michael Serrill, Jonathan Neumann stated:
At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc., of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Stock Wipeout
Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.
The BusinessWeek article goes on to state that the hedge fund manager who relayed the particulars of the incident called his lawyer immediately to seek advice regarding Paulson’s shocking disclosure to the group. After the hedge fund manger stated to his lawyer that, to his mind, Paulson intended to pull the trigger on Fannie and Freddie, the lawyer advised the client to immediately close out all trades relating to the Paulson disclosure.
And to lend credibility to the anonymous hedge fund manager’s take on the events of Jul. 21 Elton Park Meeting, “the manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee,” according to the BW.
Why would a public official disclose such sensitive information to a select group of individuals? Professor of Law William Black of the University of Missouri-Kansas City believes Paulson should have known better, according to BW.
“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” Black told BW.
And what should we think of the 57 percent of respondents to a CBS/NY Times poll released Oct. 25 who still question the message of the Occupy Wall Street movement?
Janet Tavakoli of Tavakoli Structured Finance told BW that Paulson’s criminal behavior is merely par for the course in the US.
“What is this but crony capitalism?” she asked rhetorically. “Most people have had their fill of it.”
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Post Written By: Mr. Dominique de Kevelioc, de Bailleul
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