Did Paulson's secret meeting with Goldman Sachs break the law?

When Henry Paulon left his position as CEO of investment bank Goldman Sachs in 2006 to become George W. Bush's Secretary of the Treasury, he signed an ethics letter promising to avoid conflicts of interest by not getting involved in any dealings with his former firm.

Paulson received a secret waver of that promise at the height of the financial crisis last year -- but a new book by New York Times columnist Andrew Ross Sorkin reveals that Paulson had already met secretly with the Goldman Sachs board of directors in June 2008, after the collapse of Bear Stearns but three months before the waiver. The meeting took place in Moscow, where Paulson had gone in an unsuccessful attempt to seek Russian investment in the US economy.

According to Sorkin, "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 organize a meeting with them. Nothing formal, purely social — for old times’ sake. ... Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored 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."

"For the next hour," Sorkin goes on, "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."

Sorkin's revelation is already raising eyebrows. Felix Salmon, who blogs on economics issues at Reuters, complains, "This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along. ... There was nothing in the way of extenuating circumstances which could possibly justify the secret rendezvous."

Goldman Sachs, which received billions of dollars in federal bailout money last year both directly and through insurance firm AIG, has come out of the financial crisis that destroyed its former major competitors in a dominant position. Last July, writer Matt Taibbi blamed Goldman Sachs for "every major market manipulation since the Great Depression" and described it as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

"Former Goldman CEO Henry Paulson was the architect of the bailout," Taibbi noted, "a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street."

Representatives of two watchdog groups who spoke to Mother Jones have already suggested that Paulson may have broken the law. Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington, told the magazine:

"It's hard to imagine why he thought such a meeting would be okay. ... It wasn't purely social -- purely social is when you don't discuss business. You talk about movies, books, your kids, but not what the Treasury Secretary is going to talk about next week. That's basically inside information that the Goldman board received. It certainly merits further inquiry with people who were there about what exactly Paulson said to them and whether they acted on that information. It seems like Congress might want to ask some questions of Goldman."

Danielle Brian of the Project on Government Oversight agreed that "it was completely inappropriate for Paulson to discuss internal matters at the Treasury Department, and to preview an important speech he was about to deliver. This could potentially be a criminal or civil matter."