The SEC, Goldman Sachs, and John Paulson's Money Trail

The public relations fallout from Friday’s announcement of civil fraud charges filed by the Securities and Exchange Commission has so far focused primarily on Goldman Sachs, not John Paulson or his hedge fund Paulson & Co. Fair enough: the SEC charges were against Goldman Sachs, not against Mr. Paulson or Paulson & Co., whose actions figure in the SEC’s complaint but who have not been charged with any wrongdoing by the SEC.

But suppose, as some predict, the next phase of the anti-Goldman backlash is going to feature Congress or the press parading before the cameras real people who lost their homes when they defaulted on the mortgages that were at issue in the bet that Mr. Paulson asked Goldman to structure for him in the trade that is the focus of the SEC charges.

As this reader wrote: “a CDS only pays when there is a default event. … So, Paulson et al had a HUGE incentive to make sure the underlying mortgages actually defaulted. No grace periods, no working out the terms, no excuses for late checks, etc. Paulson needed default in the technical and legal sense; not delinquent or non-performing, but default as defined in the actual mortgage. Think about that: if a local bank still held the mortgage it would do anything to prevent default; Paulson needed to trigger default and fast before the U.S. government created any type of plan that would allow homeowners to stay in their homes as terms were re-set.”

Not exactly the sort of behavior that you’d think Democratic Washington politicians, for whom foreclosure prevention has been a big public cause, would have wanted to be associated with, right?

So it’s intriguing to check Mr. Paulson’s Washington money trail.

Goldman Sachs’s trail of money and influence in Washington has been widely noted; Timothy Carney reported in the Washington Examiner that “Goldman was Obama's No. 1 corporate source of funds in 2008.” Former Goldman Sachs officials such as Bush Chief of Staff Joshua Bolten, Democratic Senator then Governor Jon Corzine, and Treasury Secretaries Henry Paulson and Robert Rubin are well known.

But Mr. Paulson’s political proclivities are more obscure.