It Gets Worse for Hank Paulson

Just how extensive were the ties that bound Hank Paulson, Bush’s Treasury secretary, to his former employer, Goldman Sachs?

On Tuesday, two watchdog groups told Mother Jones that Paulson could have broken ethics laws by meeting secretly with Goldman’s board of directors in Moscow months before he obtained an ethics waiver allowing him to work on issues affecting the investment bank. That incident was reported by Andrew Ross Sorkin in his new book on the financial meltdown; today Felix Salmon points out another very questionable episode:

If all that weren’t enough to deal with, [Lehman president Bart] McDade had just had a baffling conversation with [CEO Dick] Fuld, who informed him that Paulson had called him directly to suggest that the firm open up its books to Goldman Sachs. The way Fuld described it, Goldman was effectively advising Treasury. Paulson was also demanding a thorough review of Lehman’s confidential numbers, courtesy of Goldman Sachs.

McDade, though never much of a Goldman conspiracy theorist, found Fuld’s report discomfiting, but moments later was on the phone with Harvey Schwartz, Goldman’s head of capital markets. “I’m following up at Hank’s request,” he began.

After another perplexing conversation, McDade walked down the hall and told Alex Kirk to immediately call Schwartz at Goldman, instructing him to set up a meeting and getting them to sign a confidentiality agreement.

“This is coming directly from Paulson,” he explained.

As Felix explains, this latest Sorkin anecdote looks even worse for Paulson than the clandestine meeting in Moscow: Paulson is basically “forcing Lehman to open its books fully to a direct competitor, for no obvious reason.” There’s no evidence that Treasury’s lawyers signed off on the move, either. Felix says that there’s more than material out there to prompt a congressional investigation of Paulson. I’m asking around to see if there are any members of Congress who agree.