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Hank Paulson Tipped Off The Goldman-Led "Plunge Protection Team" About Fannie Bankruptcy
Zero Hedge ^ | 11/29/2011 | Tyler Durden

Posted on 11/29/2011 9:55:23 AM PST by SeekAndFind

Hank Paulson Tipped Off The Goldman-Led "Plunge Protection Team" About Fannie Bankruptcy 7 Weeks In Advance

Today, BusinessWeek's Michael Serrill and Jonathan Neumann have released a blockbuster report based on a FOIA response by the Treasury, which proves that in America rules are only for little people, that this country has been a banana republic for years, that Animal Farm was spot on, and gives excruciating detail of how Hank Paulson tipped off a select group of Goldman diaspora hedge fund managers about the eventual failure of Fannie and Freddie 7 weeks ahead of this information becoming public knowledge. The report basically is a summary of a meeting that took place at the offices of Eton Mindich's Eton Park headquarters on July 21, 2008, 7 days after his famous '“If you have a bazooka, and people know you have it, you're not likely to take it out," speech and 7 weeks before both GSEs effectively filed for bankruptcy and were put into conservatorship. Now if it only ended there it would have been fine - a case of potential criminal collusion between the government (although nothing specific against Paulson as he didn't actually trade: he just made sure his former Goldman colleagues made money), and the 0.00001% in the face of a few multi-billionaires who most certainly did trade on material non-public information sourced by Hank. Where it however gets worse is when one considers the actual role of one Eric Mindich in the hierarchy of the Asset Managers' committee of the President's Working Group on Capital Markets, better known of course as the PPT: a topic we discussed first back in September 2009 when we asked "What Is Goldman Alum Eric Mindich's Role As Chair Of The Asset Managers' Committee Of The President's Working Group?" Back then we did not get an answer. Luckily, courtesy of a few answered FOIA requests, some real investigative journalism, and not reporting for the sake of brown-nosing just so one can get soundbites for their next name dropping "blockbuster" and straight to HBO movie, we are starting to get the full picture of just how high in US government the Goldman Sachs controlled "crony capitalist" adminsitration truly runs.

Before we get into the details of Mr Mindich's curious relationship with the government, here is the gist of the BusinessWeek piece, which as noted focuses on Paulson who "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."

The gathering comprised some of Wall Street's most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. [Dinakar] Singh, a former head of Goldman's proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd. Lone Pine's [Stephen] Mandel worked as a retail analyst at Goldman before joining Julian Robertson's Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. [Daniel] Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November. One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.

In other words the point of the meeting was nothing short of the former Goldman CEO telling all his former Goldman colleagues just what he was planning on doing in his capacity as Treasury Secretary.

Others also benefited:

Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc.; and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government's Automotive Task Force. Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson's book on the financial crisis, “On the Brink” (Business Plus, 2010), which makes no mention of the Eton Park meeting.

No mention? What a shocker. Perhaps it may have to do with this:

The fund manager who described the meeting left after coffee and called his lawyer. The attorney's quick conclusion: Paulson's talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

 

The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.

Of course, it only means that one would not have to cover shorts on "existing positions." The market's shift from a NYSE to OTC Pink Sheets listed stock would do it for them.

That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer's advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.

Naturally, the one defense of this criminal disclosure comes from a former Fed president:

“It seems to me, you've got to cut the guy some slack, even if he tipped his hand,” says William Poole, a former president of the Federal Reserve Bank of St. Louis. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you're trying to avoid? What is he supposed to say without misleading these people?”

So going back to Eric Mindich. Why is he so special? Presenting Exhibit A, the members of the Asset Managers' Committee of the President's Working Group on Capital Markets, aka the PPT:

Just what is this curious committee consisting of all key hedge fund managers?

The Asset Managers’ Committee and the Investors’ Committee are private sector committees established by the President’s Working Group on Financial Markets (“PWG”). The first task of the Committees was to develop and publicly release best practices so that market participants may enhance investor protection and systemic risk safeguards consistent with PWG principles and guidelines. The final reports are available through the homepage of the respective Committee.

In other words, these are the hegde funders who comprise the Plunge Protection Team.

But this will be nothing new to our readers. Here we refer to our article from back in September 2009:

 

On September 25, 2007, the President's Working Group on Financial Markets, better known as the Plunge Protection Team, announced the formation of two private sector committees, one comprising of Asset Managers and the other, of Investors. It is the first one that is more interesting, as the committee is chaired by one Eric Mindich, best known for his Goldman Sachs wunderkind status, who at 27, was the youngest Goldmanite ever to be promoted to partner. In 2004, Eric split off from Goldman, nonetheless maintaining a favorable relationship with the mothership through its "Fund of Funds" division (we jest), and its various Prime Brokerage client platforms, by starting Eton Park, which with its starting capital of $3 billion, is still likely a record of highest AUM at a fund's inception.

So what was the justification for the creation of this specific committee. From its Mission Statement:

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS

ASSET MANAGERS’ COMMITTEE

 

Mission Statement

 

The Asset Managers’ Committee is comprised of representatives from a broad array of asset managers. Its purpose is to facilitate an exchange of information between the alternative asset management community and the agencies comprising the President’s Working Group on Financial Markets (“PWG”). It will be a standing committee, and its members serve at the behest of the committee’s chairperson for three-year terms. Members may be reappointed for additional terms. It is expected that the committee will develop best practice guidelines, as described below, and also subsequently review and reassess, and if necessary revise, those guidelines.

 

The first task of the committee is to develop detailed guidelines that would define “bestpractices” for the alternative asset management industry, including practices regarding information, valuation, and risk management systems. They would foster efforts to enhance market discipline, mitigate systemic risk, augment regulatory safeguards regarding investor protection, and complement regulatory efforts to enhance market integrity. These guidelines would review and build on existing industry work and the principles and guidelines released in February 2007 by the PWG, particularly Principle 9, where possible. The initial focus will be on practices for hedge fund managers.

Yet less than a year later, the economy and capital markets collapsed, forcing Hank Paulson to launch an  unprecedented sequence of events to prevent the full meltdown of the Western World. Indeed, the same Hank Paulson who one year prior to Lehman's collapse had this to say regarding the Asset Managers' committee:

"These groups are drawn from among the industry's finest in their respective areas," said Treasury Secretary and PWG Chairman  Henry M. Paulson, Jr. "The market will benefit if experienced participants develop and implement best practices."

It is safe to say that whatever the committee's true mission was, its stated one was an unmitigated failure. For reference purposes, the full committee consists of the following:

Pardon our hypocrisy, but virtually all of these funds (with the likely exception of Kynikos) would have gotten destroyed had Bernanke, the Chairman of the PWG and the President, decided not to intervene. Furthermore, as is well know, the President's Working Group on Financial Markets has long been not only the front for the elusive Plunge Protection Team, but is an organization this is so wrapped in secrecy that not even minutes of its meetings are kept as John Crudele of the NY Post found out post his US Treasury FOIA submission. Yet the Asset Managers' Committee seems to be in that gray area where it is not totally consumed by the PWG, and thus it is possible that a record of its actions may actually not disappear into the void once any market critical decision is made.


We concluded our article from over two years ago as follows:

Zero Hedge is submitting a FOIA request to the US Treasury to disclose any and all information, records, emails, telephone conversations, with and amongst members of the committee and specifically focusing on former Goldman Sachs employee and Chair of the Asset Managers' Committee Eric Mindich, at and around the time of the Lehman collapse. We expect nothing but heavily redacted pages at best. Yet with recent scrutiny of latent Goldman interests in virtually every segment of the executive branch, Zero Hedge does find it oddly convenient, that in those dark (for Goldman Sachs) days, the two key people making capital markets related decisions were yet another two Goldman Sachs alumni: Hank Paulson and Eric Mindich. And we believe in the spirit of fake transparency so heavily endorsed by the President, it is worth at least attempting to get some additional information on the deliberations by the proxy entities that truly run this country's economy and capital markets.

We are happy that Bloomberg was more successful in getting a FOIA response than Zero Hedge. We urge Messrs Serill and Neumann to enjoin our request for data on what Paulson may have leaked to his Goldman buddies in advance of the Lehman collapse. Because maybe, just maybe, if the Goldman-run Plunge Protection Team let Lehman fail, it was under direct instructions from Hank Paulson... just as he tipped Mindich et al to the GSEs failure. And all those rumors about a directed run on the bank (whose failure benefited none other more than Goldman Sachs) coordinated by none other than the man in charge of it all, will suddenly come true.

Because we have a sinking feeling we will have been proven absolutely spot on in our "paranoid conspiracy theorism" all over again...



TOPICS: Business/Economy; Government; Society
KEYWORDS: fanniemae; goldman; goldmansachs; hankpaulson

1 posted on 11/29/2011 9:55:33 AM PST by SeekAndFind
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To: SeekAndFind

Strip him naked, tattoo “I am a rich banker” onto his back, drop him into the middle of an occupy camp.


2 posted on 11/29/2011 9:59:24 AM PST by DManA
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To: SeekAndFind

Goldman Sachs in the White House...

http://www.nachumlist.com/goldmansachsobama.htm


3 posted on 11/29/2011 10:11:02 AM PST by Nachum (The complete Obama list at www.nachumlist.com)
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To: SeekAndFind
You know, if the clueless loons at OWS really stood for something other than their own selfish wants to feed off the government teat, they might be on to something.

But do any of the OWS morons actually mention Jon Corzine and MF Global? Or this, an example of the most egregious kind of corrupt crony capitalism?

No, of course not. Ironically, only Tea Partiers and conservatives seem to get angry at this kind of stuff.

4 posted on 11/29/2011 10:14:07 AM PST by mojito
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To: SeekAndFind
This was done at the same time politicians such as Barney Frank, Maxine Waters and others were blocking independent investigations of Fannie and Freddie and proclaiming that Fannie and Freddie were doing an excellent job. And higher level bureaucrats at Fannie and Freddie were getting multimillion dollar bonuses. And Senator Barack Obama was accepting huge cash contributions from Fannie.

Another government “public servant” (Paulson) was telling his friends at Goldman Sachs, etc. that Fannie Mae would go bankrupt.

And after being lied to and kept in the dark, the American taxpayers are now stuck with losses in the $100’s of millions from Fannie Mae and Freddie Mac.

5 posted on 11/29/2011 10:15:25 AM PST by detective
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To: detective

Millions in the last sentence should read billions.

And after being lied to and kept in the dark, the American taxpayers are now stuck with losses in the $100’s of billions from Fannie Mae and Freddie Mac.


6 posted on 11/29/2011 10:19:05 AM PST by detective
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To: SeekAndFind

I read another piece on this today...these people are despicable. And they wonder why people are pulling their money away from the stock markets? Fully corrupted.


7 posted on 11/29/2011 10:29:13 AM PST by SueRae (I can see November 2012 from my HOUSE!!!!!!!!)
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To: SeekAndFind
which proves that in America rules are only for little people, that this country has been a banana republic for years, that Animal Farm was spot on,

Colonel Cargill had the next idea. "Maybe I ought to phone Twenty-seventh Air Force Headquarters and see if they know anything about it. They have a clerk up there named Wintergreen I'm pretty close to. He's the one who tipped me off that our prose was too prolix."

8 posted on 11/29/2011 10:53:25 AM PST by Calusa (The pump don't work cause the vandals took the handles. Quoth Bob Dylan.)
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To: SeekAndFind
America rules are only for little people, that this country has been a banana republic for years

Couldn't have said it any better.

9 posted on 11/29/2011 11:18:34 AM PST by Digger (If RINO is your selection then failure is your election)
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To: SeekAndFind

mark


10 posted on 11/29/2011 11:21:44 AM PST by nkycincinnatikid
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To: SeekAndFind
I'd like to know what Schumer (we can't forget about him) got out of this...

Regulators to Schumer on IndyMac: Please shut up July 2, 2008
As noted here on Monday, Schumer sent letters to the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and the Federal Home Loan Bank of San Francisco, saying he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers."

The Crime of the Century: The Emergency Economic Stabilization Act of 2008 October 8, 2008
For months, Senate Democrats have been leaking negative financial information -- exploiting market sensitivities for political gain -- choreographed to burst precisely when it would do the most damage. Senator Chuck Schumer ignited this by leaking a letter regarding the lending practices of troubled Indy Mac. Indy Mac failed when the Schumer letter caused a "liquidity crisis," where depositors withdrew over a billion dollars.
Snip...

"If Schumer continues to go public with letters raising questions about the condition of individual institutions, he will cause havoc in the banking system. Leaking his IndyMac letter to the press was reckless and grossly irresponsible. I don't see how he can be trusted with confidential information in the future."
Former Comptroller of Currency John D. Hawke

11 posted on 11/29/2011 11:54:33 AM PST by philman_36 (Pride breakfasted with plenty, dined with poverty, and supped with infamy. Benjamin Franklin)
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