In making his push to administer the largest federal bailout of
Wall Street in history, Treasury Secretary Henry Paulson is seeking
unfettered authority. McClatchy poses the question today, “can
you trust a Wall Street veteran with a Wall Street bailout?,”
referring to Paulson, the former CEO of Goldman Sachs:
But the conflicts are also visible. Paulson has surrounded himself
with former Goldman executives as he tries to navigate the domino-like
collapse of several parts of the global financial market. And others
have gone off to lead companies that could be among those that receive
a bailout.
In late July, Paulson tapped Ken Wilson, one of Goldman’s
most senior executives, to join him as an adviser on what to about
problems in the U.S. and global banking sector. Paulson’s former
assistant secretary, Robert Steel, left in July to become head of
Wachovia, the Charlotte-based bank that has hundreds of millions of
troubled mortgage loans on its books.
Goldman Sachs cashed in under Paulson, with earnings in 2005 of $5.6
billion; Paulson made more than $38 million that year. A 2005 annual
report shows that “Goldman was still a significant player”
in issuing mortgage bonds. The conflict of interest is increasingly
clear today, as Bloomberg reports that “Goldman Sachs Group
Inc. and Morgan Stanley may be among the biggest beneficiaries”
of Paulson’s bailout plan:
Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest
beneficiaries of the $700 billion U.S. plan to buy assets from financial
companies while many banks see limited aid, according to Bank of
America Corp.
“Its benefits, in its current form, will be
largely limited to investment banks and other banks that have aggressively
written down the value of their holdings and have already recognized
the attendant capital impairment,” Jeffrey Rosenberg, Bank of
America’s head of credit strategy research, wrote in a report
today, without identifying particular investment banks.”
The conflict of interest provides all the more reason for the bailout
legislation in Congress to have more stringent oversight that the
administration opposes.
The Wonk Room notes six months ago, Paulson claimed, “our banks
and investment banks, are strong.”
