Paulson as head of Goldman Sachs lobbied for easing of debt limtations on banks - 2004

[JohnWxy]

From the NYT, a must read article:

http://www.nytimes.com/2008/10/03/business/03sec.html?pagewanted=1&_r=1

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.



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After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

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Among the five investment banks urging this change in regulatory limits was Goldman Sachs, ... headed by one Henry M. Paulson Jr.

Two years later, Paulson left Goldman Sachs to become Bush's secretary of the Treasury.