Last week, we learned that Treasury Secretary Paulson disclosed material non-public information to Wall Street insiders regarding his plan to take Fannie Mae and Freddie Mac into conservatorship. In a July 21, 2008 meeting at Eton Park Capital Management LLC, which included at least five Goldman Sachs alumni, Mr. Paulson "explained that under [the conservatorship scenario], the common stock of [Fannie and Freddie] would be effectively wiped out."
We also learned that the insiders present in this meeting may have traded on and profited by this information. One participating fund manager immediately contacted his attorney, who concluded that "Paulson's talk was material non-public information, and his client should immediately stop trading shares of [Fannie and Freddie]."
These are very troubling revelations. What is equally troubling is that in public, Secretary Paulson was telling a different story. Just before his meeting at Eton Park, Secretary Paulson answered questions for a New York Times story that would run the next day and "emphasized that he still believed that [Fannie and Freddie] have an adequate cash cushion to withstand further declines in the housing market."
Regardless of whether Mr. Paulson's conduct was legal, the fact that this information was only disclosed to a small group of Wall Street insiders raises serious ethical questions. At a time when trust in government is at an all time low, even the appearance of impropriety can undermine trust in vital public institutions like the Department of Treasury.
I share the outrage of concerned citizens like Richard Teitelbaum, Janet Tavakoli, and Professor William Black of the University of Missouri - Kansas City. During a time of budget-busting bailouts and skyrocketing debt, it is wholly inappropriate and wrong that an elite group of insiders would be able to profit by their personal connections to Washington policymakers. Last week, my staff spoke to Ms. Tavakoli and others to ascertain the scope of Secretary Paulson's potential wrongdoing, and subsequently sent a letter requesting an oversight hearing on this matter to Chairman Patrick McHenry of the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, of which I am the ranking member. Unfortunately, I believe Ms. Tavakoli misunderstood the reason for our call and hope that this post clarifies our mutual position.
Ever since I arrived in Washington in April 2009, I have been fighting for more transparency and accountability in government. I introduced the Transparency in Government Act, a multi-faceted transparency bill that would bring unprecedented access and accountability to the federal government. I also introduced the Lobbyist Disclosure Enhancement Act, which would establish much stricter disclosure requirements for lobbyists. Last week, the House Judiciary Committee passed by unanimous consent the Clean Up Government Act, which included legislation I introduced requiring public officials to disclose potential conflicts of interest and prohibit them from using their elected positions for personal gain.
Washington suffers not only from a budget deficit, but also from a deficit of trust. Secretary Paulson's conduct has further jeopardized that trust. Going forward, we can't think about ethics once a month or once a year -- it has to be incorporated into everything we do. I am committed to working towards a more transparent, accountable, and ethical federal government worthy of the public's trust.