Wednesday, May 31, 2006
Hoo Boy!
Somehow I have the distinct feeling that no major nationally-read US newspaper, nationally-heard US radio news program, or nationally-viewed US TV news program, will be mentioning this story during the runup to Paulson's confirmation hearings:
IT'S ONE THING TO have the chairman of Goldman Sachs on the witness stand during what promises to be one of the highest-profile and bruising courtroom battles Wall Street has seen in years. It's quite another to have the treasury secretary up there. That's the scenario President Bush has now set up.How so, you ask? This is how so:
Paulson is central in the ongoing, $140 million case that New York Attorney General Eliot Spitzer filed in May 2004 against former New York Stock Exchange chairman Dick Grasso over his pay package. For those with short attention spans, Grasso was ousted a couple of years back after he essentially backed his limo up to the Exchange doors and the board of directors filled the trunk with $140 million in compensation. It wasn't theft, mind you. Rather, his contract, approved by the board, made him entitled to it. But folks got a bit squeamish when the details came out and the board ousted Grasso. Spitzer, who never met a Wall Street scandal he didn't want to capitalize on, subsequently filed a lawsuit, claiming the pay package given by one of America's premier symbols of capitalism and profit violated the state's not-for-profit laws. Grasso and longtime friend and NYSE director Ken Langone, though, fought back, and both have shown few signs of settling. What does this have to do with Paulson? Well, he's widely credited for leading the boardroom coup that pushed out Grasso. If it were a simple story of a man of good conscience seeing a wrong and working against all odds to right it, Bush would have no problem with the latest pick. But Paulson's role is murkier. He was no average board member, but rather a member of the very compensation committee that approved the Grasso pay package in the first place. Paulson has contended he wasn't aware of the full details. In fact, as part of the investigation into the pay package, Paulson said he didn't attend a large chunk of the committee meetings and wasn't sure how much Grasso was paid. If the NYSE had been a public company at the time, shareholders would have shown up at Paulson's door with torches and pitchforks. In this era of supposedly better governance, directors are, after all, expected to show up rather than go bird watching. And, when you do warm your board seat, you should at least stay awake.In fact, the article goes on to note that some think Paulson may have engineered the whole thing so that in the ensuing fracas, he'd have the chance to install a fellow Goldman Sachser in Grasso's place -- which is exactly what happened. The hullaballoo didn't hurt Goldman's earnings, either.
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The financial markets are going to love this. At this point, the US is headed for Argentina-like levels of "political instability."
But at least Argentina has Hugo Chavez in Venezuela to bail them out. When the balloon finally bursts here, I suspect the rest of the world will be tempted to let us flail about in our own mire. (They might be tempted to do an intervention, but the presence of our nukes will stop that.)
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