The D.C.-Wall Street relationship is suspect. The ethical barriers appear to have broken down and insider trading is acceptable in elite circles, making it difficult for the small investor to make money. Instead of passing more bills and laws, D.C. needs to enforce the laws they have and to redraw the ethical boundaries.
When Bush chose former Treasury Secretary Henry Paulson, many warned Bush that he was the wrong person. Paulson once said, “I’ve always said I don’t want to be irrelevant.” Paulson may be infamous, but he has his wish, he’s not irrelevant. Paulson was the person who eventually helped convince Congress to extend the line of credit for Fannie and Freddie.
Last week, Bloomberg Markets Magazine exposed Paulson as an insider trader. Paulson regularly leaked government information to chosen Hedge fund managers on Wall Street.
One story goes like this –
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. (GS), 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…
…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 fund manager says he was shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information…
John Crudele of the NY Post added another dimension to the story –
According to other journalists’ reports, the Federal Reserve voted on Monday, Nov. 28, to approve a financial bailout for Europe using our dollars. That’s the same day that the stock market staged a strong rally, which turned out to be only a preliminary event to the 400-plus point surge the Dow would have two days later — after the rest of us found out about the European bailout.
Was it just a coincidence that the stock market rallied nicely on the day of the Fed vote? Or was information from that Fed’s Open Market Committee leaked by someone to friends on Wall Street?
Only a few people know what happened on Nov. 28.
But this much I do know: Whatever games are being played between Washington and Wall Street must stop, or the American capital markets will cease functioning. Nobody with any sense will participate in a market that’s controlled by greedy people looking out only for themselves.