Dec. 5 (Bloomberg) — What should we make of the revelation last week — courtesy of Richard Teitelbaum and Bloomberg Markets magazine — that in July 2008 Treasury Secretary Henry Paulson shared some confidential musings with a group of plugged-in New York hedge-fund executives at the offices of Eton Park Capital Management LP?
According to the report, Paulson mapped out for the assembled honchos — many of whom had ties, like Paulson, to Goldman Sachs Group Inc. — a scenario to put the government- sponsored entities Fannie Mae and Freddie Mac into conservatorship. Seven weeks later, the government did exactly that, an action that wiped out the companies’ shareholders.
Was it nothing more than “crony capitalism” — the idea that the rich always seem to get better information about the markets before anyone else — as Janet Tavakoli, a former Goldman employee turned Chicago-based consultant, put it?
Or was it a way for Paulson to begin to disseminate into the market the momentous news that Fannie and Freddie could be taken over by the government and that their shareholders would be eviscerated, as argues William Poole, a former president of the Federal Reserve Bank of St. Louis?
