Paulsons calls to Goldman tested ethics

Before he became President George W Bushs Treasury secretary in 2006,Henry M Paulson Jr agreed to hold himself to a higher ethical standard than his predecessors.

Before he became President George W Bushs Treasury secretary in 2006,Henry M Paulson Jr agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs,the investment bank he had run,but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.

But today,seven months after Paulson left office,questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars,including aid that directly benefited his former firm. Testifying on Capitol Hill last month,he was grilled about his relationship with Goldman. Is it possible that theres so much conflict of interest here that all you folks dont even realize that youre helping people that youre associated with? Representative Cliff Stearns,Republican of Florida,asked Paulson at the July 16 hearing. I operated very consistently within the ethic guidelines I had as secretary of the Treasury, Paulson responded,adding that he asked for an ethics waiver for his interactions with his old firm when it became clear that we had some very significant issues with Goldman Sachs.

Paulson did not say when he received a waiver,but copies of two waivers he received from the White House counsels office and the Treasury Department show they were issued on the afternoon of September 17,2008.

That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group,which used the money to pay off Goldman and other big banks that were financially threatened by AIGs potential collapse.

It is common,of course,for regulators to be in contact with market participants to gather valuable industry intelligence,and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.

While Paulson spoke to many Wall Street executives during that period,he was in very frequent contact with Lloyd C Blankfein,Goldmans chief executive,according to a copy of Paulsons calendars acquired by The New York Times through a Freedom of Information Act request. During the week of the AIG bailout alone,Paulson and Blankfein spoke two dozen times,the calendars show,far more frequently than Paulson did with other Wall Street executives.

On September 17,the day Paulson secured his waivers,he and Blankfein spoke five times. Two of the calls occurred before Paulsons waivers were granted.