July 21, 2009 -- HANK Paulson must have been feeling a little guilty on Aug. 21, 2007, when he made a startling and unprompted confession on live television.
Speaking with Larry Kudlow, CNBC's clueless anchor, then-Treasury Secretary Paulson blurted out: "I think it's my job to talk regularly to market participants, but also talk regularly to key regulators and make sure that we are seeing the same issues, the same problems and working toward the same solutions."
On the surface Paulson was simply defending the way he was doing his job. The financial markets were just starting to unravel and the former chairman of Goldman Sachs, at that time leading President Bush's economic team, wanted to assure us that he had things under control.
OK on that level.
But Paulson's statement was a legal humdinger that should have caused investors to go nuts, Congress to rise up and demand answers and journalists to, at the very least, do their jobs.
I've brought all of this up in the past.
But since the House Committee on Oversight and Government Reform was on a fishing expedition last week with regard to Paulson's behavior during the Bank of America acquisition of Merrill Lynch, I figure it's appropriate to rehash this story. The next time Congress goes fishing for Paulson, the least it can do is put its hooks in the right pond.
By the way, I sent a copy of this material to the committee yesterday in case it really wants to understand what Paulson was up to and not just showcase its own ability to ask nasty questions that go nowhere.
As anyone with any sense of insider trading rules would know, it is not the role of the Treasury Secretary to speak with his friends on Wall Street -- whom he euphemistically liked to call "market participants."
And this situation isn't any more ethical if Paulson pretends that it is a part of a coordinated effort with regulators. In fact, meeting regularly with "key regulators" makes Paulson's contacts with "market participants" on Wall Street even more questionable. Goldman Sachs, of course, has been out-earning everyone else on Wall Street in recent years. It first claimed to have guessed right on the mortgage meltdown. And last year, during the only rough spot the company experienced, the government permitted Goldman to quickly become a bank holding company so it could partake of Washington's fiscal giveaway.
And when Washington was bailing out AIG, the insurance giant, Lloyd Blankfein -- Goldman's chairman and Paulson's former colleague -- was the only "market participant" who was reportedly invited to discussions. Blankfein's firm is said to have done a huge amount of business with AIG, although Goldman claimed it had no significant exposure to the insurance company's problems.
Just this past week Goldman reported a huge rise in quarterly profits -- raising all sorts of questions in the press about the firm's flawless trading in the financial markets with money supplied by Washington.
I'm not going to get into all of that. Nor am I going to mention how so many Goldman executives have become influential public servants that the company is now referred to, not so lovingly, as Government Sachs.
Instead, let's again go back nearly two years to Thursday, Aug. 16, 2007. That's the day before the Federal Reserve shocked Wall Street with the first of many cuts in interest rates. It was also a week before Paulson freely admitted on CNBC that he was in regular contact with people on Wall Street.
On Aug. 16, Paulson had a lunch with Fed Chairman Ben Bernanke, according to Benanke's schedule, which was obtained by a Wharton professor under the government's Freedom of Information Act. It would be reasonable to believe -- although it cannot be proven without questions under oath -- that Bernanke at that meeting somehow conveyed his growing amenability to lowering interest rates.
After all, what else could Bernanke and Paulson have spoken about for an hour? Wall Street had been lobbying hard for a rate cut for weeks, the markets were dropping steadily and this would likely have been a subject on Paulson's mind.
By 3 p.m. on the day of that lunch, there was a rumor on Wall Street that the Fed was "going to hold a press conference." That rumor alone was enough to cause a 344-point rally in the Dow Jones industrial index, which went from an enormous loss to a decline of just 16 points on the day.
There was no press conference. But before the market opened on Friday, Aug. 17, the Fed had lowered interest rates.
Forget Merrill and Bank of America. Even if Paulson and the Bush Administration engineered a shotgun marriage of the two firms, defenders will say it was done to protect the system. It was for the greater good. Paulson was no different than Dick Che ney, who says he did what he had to do.
Instead, Congress needs to ask questions about Paulson's relationship with Wall Street. And it needs to determine if the Treasury, the Fed (especially through the Federal Reserve Bank of New York) and Wall Street were in some sort of unholy and illegal alliance.
john.crudele@nypost.com
