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.

The filings at the Federal Election Commission tell quite a tale: Senator Christopher Dodd of Connecticut, who as chairman of the Senate Committee on Banking, Housing, and Urban Affairs is in a position to have some say on any foreclosure relief provisions passing through Congress, received contributions of $4,800 in April 2009 and $2,300 in March 2010. In February 2009, Mr. Paulson gave $2,300 to the campaign of Senate Majority Leader Harry Reid, a Democrat. In February 2008, he gave $4,600 to the campaign of Senator Carl Levin of Michigan, another Democrat. In March 2008, he gave $4,600 to the campaign of Senator Max Baucus of Montana, the Democrat who is chairman of the Senate Finance Committee.

And there’s more, according to the Federal Election Commission: Mr. Paulson gave $25,000 to the Democratic Senatorial Campaign Committee in December 2007, another $30,400 to the DSCC in June 2009, and $4,600 to the campaign of Senator Richard Durbin, a member of the Democratic leadership, in November 2007. Senator Frank Lautenberg, a Democrat from New Jersey, got $4,600 in March 2008.

Not all of Mr. Paulson’s political giving has been to Democrats; he also gave $2,300 each to the presidential campaigns of Republicans Mitt Romney and Rudolph Giuliani, and $1,000 to a Republican congresswoman from North Carolina, Virginia Foxx. He gave $42,850 to a committee associated with Senator McCain’s presidential campaign. Senator Arlen Specter of Pennsylvania, a Republican turned Democrat, received $4,600 in September of 2007, back when he was still a Republican.


The overall profile, though, is of a big backer of Senate Democrats.

What was Mr. Paulson’s agenda in Congress? Here, one can get a picture from the lobbying disclosure forms filed by the two firms that Paulson & Co reported hiring. One firm, American Continental Group, reported being paid $80,000 in the first quarter of 2009 to lobby on, among other matters, the “Helping families save their home in the Bankruptcy Act 2009.”

Among the six lobbyists that American Continental Group deployed for Paulson & Co. were Senator Dodd’s former chief of staff, Sheryl Cohen; Senator Specter’s former chief of staff, David Urban; a former aide to Republican Rep. Tom DeLay, Carlyle Thorsen; a former aide to President Bush, Shawn Smeallie; and a former aide to Rep. Anthony Weiner, a New York Democrat, Joshua Fay-Hurvitz.

A second lobbying firm, Capitol Counsel, LLC, reported being paid $90,000 in the second quarter of 2008 to lobby on “Subprime Lending; Judiciary Issues – Treatment of Primary Residence Debt in Bankruptcy; H.R. 3609 Emergency Home Ownership Mortgage Equity Protection Act of 2007; S. 2133 Homes Act; S. 2136 Helping Families Save Their Homes in Bankruptcy Act of 2007.”

Capitol Strategies reported putting ten lobbyists to work on these issues, including John Raffaelli and James Gould, both former aides to Senator Bentsen, the Texas Democrat who was Michael Dukakis’s running mate and then served as Treasury secretary in the Clinton administration before Mr. Rubin.


Other lobbyists that Capitol Counsel had on the Paulson account included Zahra Buck, a former aide to Rep. Bennie Thompson, a Democrat from Mississippi; David Jones, a former consultant to the campaigns of both Senator Baucus and Rep. Charles Rangel, the New York Democrat who chaired the House Ways and Means Committee until he stepped down amid complaints over how he handled his financial disclosures; and Richard Sullivan, a former national finance director of the Democratic National Committee.

Mr. Paulson and his firm, of course, have every right under the Constitution to lobby Congress on matters that affect his business, and he has every right to donate to politicians. It’s as American as Taco Bell.

But at the moment, Goldman Sachs is facing an SEC case, while Mr. Paulson is still basking in the glow of being the hero who saw that the housing bubble was unsustainable. Under Michael Kinsley’s Law that the real scandal in Washington isn’t what’s illegal, it’s what’s legal, it might be nice if, say, 20% of the press attention that has gone in the past few days into figuring out what Goldman Sachs did or didn’t do wrong were devoted to figuring out just exactly what Paulson & Co. and its lobbyists wanted from those Senate Democrats and just what it meant to ordinary American homeowners who fell behind on their mortgages.



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