Hedge Fund Titan John Paulson Made $1 Billion in an Illegal Goldman Sachs Deal; Trump Is Now Floating Him for Treasury Secretary

[Gunnar Larson]

https://wallstreetonparade.com/2024/03/hedge-fund-titan-john-paulson-made-1-billion-in-an-illegal-goldman-sachs-deal-trump-is-now-floating-him-for-treasury-secretary/


By Pam Martens and Russ Martens: March 14, 2024 ~


Hedge Fund Titan, John Paulson

According to headlines at Bloomberg News and Reuters this morning, Donald
Trump is floating the notorious hedge fund billionaire, John Paulson, to be
his next Treasury Secretary. Paulson has, apparently, earned consideration
for the post the same way Steve Mnuchin, Trump’s former Treasury Secretary,
got the job: by raising a lot of money for the Trump political campaign.
Paulson has hosted multiple fundraising events for Trump in the current
election cycle and in Trump’s failed run for reelection in 2020.

Paulson is the founder and President of the hedge fund Paulson & Co. On
April 16, 2010, the Securities and Exchange Commission had this to say
about Paulson’s business morals when it announced formal charges against
Goldman Sachs pertaining to the infamous 2007 ABACUS deal: “The SEC alleges
that one of the world’s largest hedge funds, Paulson & Co., paid Goldman
Sachs to structure a transaction in which Paulson & Co. could take short
positions against mortgage securities chosen by Paulson & Co. based on a
belief that the securities would experience credit events.” Translation,
Paulson helped Goldman select dogs that would default or receive credit
downgrades and then made easy bets that they would.

The SEC complaint goes on: “…after participating in the portfolio
selection, Paulson & Co. effectively shorted the RMBS [Residential Mortgage
Backed Securities] portfolio it helped select by entering into credit
default swaps (CDS) with Goldman Sachs to buy protection on specific layers
of the ABACUS capital structure. Given that financial short interest,
Paulson & Co. had an economic incentive to select RMBS that it expected to
experience credit events in the near future. Goldman Sachs did not disclose
Paulson & Co.’s short position or its role in the collateral selection
process in the term sheet, flip book, offering memorandum, or other
marketing materials provided to investors.”

According to the SEC’s complaint, Paulson & Co. paid Goldman Sachs
approximately $15 million for structuring and marketing ABACUS. By October
2007, 83 percent of the bonds in the portfolio had been downgraded and 17
percent were on negative watch. By Jan. 29, 2008, 99 percent of the
portfolio had been downgraded.

The SEC estimated that investors lost more than $1 billion in the ABACUS
deal while Paulson profited by approximately the same amount.

On July 15, 2010, the SEC announced that Goldman Sachs would pay $550
million to settle its ABACUS charges. Fabrice Tourre, a young Goldman
investment banker involved in the deal, was the only person to face a civil
trial. No one was criminally prosecuted.

Paulson walked free – ostensibly because he didn’t actually sell the
product or misrepresent it to investors – he just stacked the deck against
investors and, apparently, that’s not a big deal in the eyes of the SEC.

While Paulson’s involvement in the ABACUS deal was the subject of news
reporting, NYU’s Stern School of Business announced that it had received a
$20 million donation from Paulson and would name “the first floor lobby of
Tisch Hall and the School’s auditorium in his honor,” noting further that
those areas “are prominent locations for hosting business and policy
conferences as well as serve as central community hubs for students and
returning alumni.”

If, as Senator Bernie Sanders has correctly surmised, the business model of
Wall Street is fraud, and that is now an open secret in America, then it
makes eminently good sense to let students aspiring for jobs on Wall Street
come and go in a university hub honoring John Paulson.

It also meshes with Donald Trump’s view of American capitalism, where the
skill and cunning to commit crimes and avoid prosecution renders you fit
for the highest political offices. (What should deeply concern every
American, however, is why the national security agencies in the U.S. are
tolerating this view.)

Trump’s first Treasury Secretary, Steve Mnuchin, had such a challenged
history as a foreclosure kingpin that in January 2017 every Democratic
Senator on the Senate Finance Committee boycotted the vote on Mnuchin for
Treasury Secretary.

Democrats were repulsed by the prospect of Mnuchin as U.S. Treasury
Secretary. In a press release, Democratic Senator Jeff Merkley said:

“Donald Trump’s choice of Mnuchin is not only a fundamental betrayal of his
promise to stand up to Wall Street — it is a punch in the gut to the
thousands of American families who were thrown out of their homes by
Mnuchin’s bank. The voices of these Americans should be heard loud and
clear as the Senate examines his record and considers his nomination.”

Senator Bernie Sanders weighed in with this:

“During the campaign, President-elect Donald Trump told the American people
that he was going to change Washington by taking on Wall Street. But now
that the election is over, Donald Trump’s choice for Treasury Secretary is
the same old, same old Wall Street insider who made a fortune during the
financial crisis as millions lost their homes. If confirmed, Steve Mnuchin
would be the third Treasury Secretary to come from Goldman Sachs in the
last 17 years. That is not the type of change that Donald Trump promised to
bring to Washington — that is hypocrisy at its worst. The last thing we
need is another Treasury Secretary from Goldman Sachs and another broken
promise from Donald Trump.”

It emerged during Mnuchin’s confirmation hearing that the bank he headed,
OneWest, had illegally foreclosed on activie duty military and engaged in
other illegal foreclosure practices.

Mnuchin was confirmed by a slim margin of votes in the Senate, 53-47, along
party lines, with all Republicans voting for him and all Democrats voting
against him, except for Senator Joe Manchin of West Virginia, who voted yes.

The power and influence of the U.S. Treasury Secretary is sweeping. Its
bureaus include the IRS; the Office of the Comptroller of the Currency
which oversees national banks; the Bureau of Engraving and Printing and the
U.S. Mint that issues the currency and coin of the U.S.; the Financial
Crimes Enforcement Network (FinCEN) which is supposed to combat money
laundering; and numerous other units.

The Treasury Secretary not only sits at the helm of the U.S. Treasury but
as a result of the 2010 Dodd-Frank financial “reform” legislation, the
Treasury Secretary now chairs the Financial Stability Oversight Council
(F-SOC), which is responsible for preventing another financial implosion
like that of 2008 – where hedge fund guys and Wall Street bankers got
bailed out while millions of innocent Americans lost their jobs and their
homes to foreclosure.
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