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Did Henry Paulson tip off hedge fund managers on Fannie and Freddie?

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Uploaded on Dec 2, 2011

Did former US Treasury secretary Henry "Hank" Paulson engage in crony capitalism? A recent article charges that he revealed US Government plans to take over Fannie and Freddie to a room full of hedge fund managers before the move was public knowledge.

Rewind to July 21, 2008. It was the early days of the sub-prime mortgage crisis that would become the global financial meltdown. Then-US Treasury Secretary Henry Paulson told the New York Times that the government are not planning to take over mortgage giants Fannie Mae and Freddie Mac.

That very same day, according to a recent report by Bloomberg, Paulson met with a group of hedge fund managers where he said something very different. He told them that he was planning to put Fannie and Freddie into conservatorship, meaning they will continue to operate while the value of their stock drops down to nothing.

It's impossible to know whether any of the fund managers present took advantage of this insider information to short Fannie and Freddie's stock. But the fact that Paulson would reveal such a sensitive piece of information has shocked many, leading to questions of whether Paulson, the former head of Goldman Sachs, was too beholden to the financial sector as Treasury Secretary.

Paulson would go on to enact the Troubled Asset Relief Program (TARP) that's widely seen as a bailout for the banks. However, the $700 billion TARP is dwarfed by a recently-revealed program from the Federal Reserve that lent out a whopping $7.7 trillion to troubled banks.

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