It is no secret that the axis of power in the Treasury Department is decisively tilted in favour of Goldman Sachs, through its ex-employees led by Henry Paulson and the culture and linkages they bring into the administrative machinery. The NYT has this description of the role being played by Goldman Sachs employees in administering the financial crisis and the bailout plan.
Given the central role played by firms like Goldman Sachs (ie, thier bankers and fund managers) in inflating the sub-prime mortgage bubble, using their services to administer the bailout program raises serious concerns on conflict of interests. As the report highlights, there are already allegations that by not allowing Lehamn Brothers become a bank holding company and letting it to fail, the Treasury and the Fed were favoring Goldman Sachs. In other words, this has the potential to turn out to be the mother of all moral hazards!
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