During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.
Andrew Ross Sorkin tells the tale of the meeting in his new book, Too Big To Fail:
When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organise a meeting with them. Nothing formal, purely social — for old times’ sake.
For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?
For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.
Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamoured of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.
Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…
“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.
For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.
Felix Salmon has the appropriate reaction:
How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.
This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favour of Goldman all along.
You might recall that trip to Russia. It was a disaster. Paulson had gone to encourage Russian investment in the US economy, which was rapidly sliding into a recession. He wound up just being mocked by Russian officials.
Here’s how Reuters described the debacle:
Paulson, who is in Russia to discuss trade and investment, told Putin the United States welcomes Russian investment and both sides were working together to outline best practices for SWFs, owned by governments of cash-rich countries.
“Since we do not have a sovereign wealth fund yet, you are confusing us with someone else,” Putin told Paulson during a meeting in the Kremlin, adding that Russia had indeed created “various funds”.
“But we are ready to do it (create a SWF), especially if you want us to,” Putin said, noting that all of Russia’s $8 billion investment in the U.S. economy was of private nature.