Vanity Fair: Paulsen Attempted Secret Deal with Goldman Sachs

US Treasury Secretary Henry Paulson -- who was a former head of Goldman Sachs -- tried to quietly formulate deals in the midst of the financial crisis but found resistance from "The Oracle of Omaha" Warren Buffett.

Rawstory.com is reporting that Vanity Fair is about to break the story, shedding light on the back room deals that were being hatched as the U.S. economy sunk to it's worst levels since the great depression. In an excerpt from Andrew Sorkin's upcoming book "Too Big Too Fail", Sorkin details a plan that would have seen the merger of Goldman Sachs, and Wachovia bank. The merger was spearheaded by Paulsen, and apparently would have been backed by Government Funds. According to Sorkin, Paulsen made numerous calls to Goldman's current C.E.O Lloyd Blankfein and a member of Wachovia's board of directors. Wachovia's current C.E.O is also a long time Paulsen Associate, having served as Vice Chairman when Paulsen was Goldman's C.E.O and was also Paulsen's #2 man at the Treasury department. After Buffett was approached, and asked to invest in what would have been the new partnership, he saw the writing on the wall saying:

“By tonight the government will realize they can’t provide capital to a deal that’s being done by the former firm of the Treasury secretary with the company of a former vice-chairman of Goldman Sachs and former deputy Treasury secretary. There is no way. They’ll all wake up and realize, even if it was the best deal in the world, they can’t do it.”

Jim Wilkinson, Paulson’s chief of staff, also recognized the nightmare such a merger would cause, and recognized that a public already mistrustful of the banks that had caused the collapse, and the government that let it happen would focus their rage on Paulsen and the Treasury Department. At the same time this deal was falling through, Sorkin reports that several other mergers were being sought out by the Government, a merger between Morgan Stanley and J.P. Morgan was pursued briefly despite neither company's C.E.O wanting it. At one point Paulsen told J.P. Morgan C.E.O. John Mack that he should be willing to sell his firm to J. P. Morgan for $1 a share. According to Sorkin, Mack responded “There are 35,000 jobs that have been lost in this city between A.I.G., Lehman, Bear Stearns, and just layoffs. And you’re telling me that the right thing to do is to take 45,000 to 50,000 people, and put them in play, and have 20,000 jobs disappear? I don’t see how that’s good public policy.” While all this was going one, the Government was also trying to push Goldman Sach's and Citigroup together, but that plot was quickly squashed by Citi's C.E.O. Vickram Pandit.