Wednesday, September 30, 2009

The Treasury-Goldman Sachs Hotline

Nypo's John Crudele has finally recieved a response from the Treasury on a Freedom of Information request he filed seeking Hank Paulson's schedule and phone logs, while he was Treasury Secretary. He found that there was pretty much a hotline between Treasury Secretary Paulson and Goldman CEO Blankefien, during the height of the crisis. In a column titled, The Secret to Goldman Sachs' Good Fortune. Crudele reports:
On Wednesday, Sept. 17, 2008 -- the day before the one I am writing about -- the stock market performed horribly.

By the end of the session the Dow Jones industrial average tumbled 449 points as investors worried about the nation's financial system. The next morning, Sept. 18, Paulson placed his first call of the day at 6:55 a.m., to Lloyd Blankfein, who succeeded Paulson as CEO of Goldman. It's unclear whether the two connected because Blankfein called Paulson minutes later.

And then Blankfein placed another call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.

After that Paulson called Christopher Cox, Securities & Exchange Commission Chairman twice; British Chancellor Alistair Darling and New York Federal Reserve head (and now Treasury Secretary) Tim Geithner two times.

Then Paulson took another call from Goldman's Blankfein.

It wasn't even 9 a.m. yet -- 30 minutes before the stock market was to open -- and Paulson and Blankfein had already exchanged three phone calls.

This wasn't particularly unusual.

On Wednesday, Sept. 17, the day the stock market was in trouble, Paulson spoke with Blankfein five times, including a pair of calls at 7:20 p.m. and 8:45 p.m. One of the earlier calls -- at 12:15 p.m. -- is listed on Paulson's log in the same five minute interval as a call to Geithner, which could indicate that this was a conference call.

If Paulson did set up a conference call, it would have been an extreme instance of putting someone who wielded a lot of power -- Geithner -- together with someone -- Blankfein -- who could profit from that connection.

And all of this doesn't include possible cell phone calls. The Treasury turned over to me Paulson's official schedule and phone records after I made a request under the Freedom of Information Act.

There's no way for me, or anyone else, to know what Blankfein and Paulson talked about during those first three calls on Sept. 18.

But it would be reasonable to assume that the conversation, coming as it did in a period of market turmoil, had something to do with what was happening on Wall Street.

So no matter how you slice, dice or excuse it, Blankfein by 9 a.m. would have had information that was not available to anyone else who makes their money trading securities. And, as you can imagine, there is a whole lot of value in that kind of inside access.

Robert Scully, a co-president of Morgan Stanley, called Paulson at 8:50 a.m. on the 18th.

But he appears to be the only Wall Street-type who was in contact with Paulson until Larry Fink, head of the private investment firm Blackrock, called at 12:40 p.m.

By then the stock market was going down again. But the decline wouldn't last long.

Stocks began a miraculous recovery at 1 p.m. on Sept. 18, when rumors started to spread that Paulson was considering a "government entity to bail out troubled banks" and that a meeting was going to be held that night on the matter.

At 1:05 p.m. Blankfein called Paulson again. Paulson would call Blankfein for the last time that day at 4:30 p.m. when he "left word."

That was the sixth time these two men called each other on Sept. 18.

That's one time less than Paulson spoke with Federal Reserve Chairman Ben Bernanke, arguably the most important person when the financial markets are in trouble. But Bernanke didn't get his first call from Paulson until 9:30 a.m. -- and it included Cox and Geithner.

President Bush only spoke with Paulson twice that day. To be fair, on the afternoon of Sept. 18 Paulson did call John Mack, head of Morgan Stanley (at 1 p.m.) and Merrill Lynch's John Thain(at 1:10 p.m.).

But Fink is the only one who seems to have gotten through to Paulson anywhere near the time the market started rallying.

By the end of the day, the Dow was up 410 points in an astonishing comeback.

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