Hank Paulson's exercise in crony capitalism

No wonder the Occupy protests have generated such interest - Bloomberg Markets has a nifty piece about how former Treasury Secretary Hank Paulson clued in several hedge fund managers about the likelihood that the government would place Fannie Mae and Freddie Mac into conservatorship because of heavy mortgage losses. That was quite different from the story he had been pushing in the press.

He had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable. "If you have a bazooka, and people know you have it, you're not likely to take it out," he said.

Then came the July 21, 2008 meeting with fund managers.

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. There's no evidence that they did so after the meeting; tracking firm-specific short stock sales isn't possible using public documents. And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

By the way, at least five of the attendees were alumni from Goldman Sachs, where Paulson had been CEO and chairman. A system that was - and some would say still is - out of control.