When Paulson accepted the Treasury job he took advantage of the loophole in the tax code which allowed him to divest stock holdings and avoid taxes on the windfall - a $50 million windfall for him! Prior to accepting the job (and the crisis) he was a strong advocate to nullify ANY regulation of derivatives which were still in their Wild Wild West days, and he continued to do so as Treasury Secretary. It is my contention that he and Wall Street leadership knew the ticking time bomb could not be disarmed, and his job at UST was to mitigate the damage to save the chosen cronies.
This is how Goldman Sachs was paid every penny on the dollar while others failed or were hit much harder which was one of the main reasons all nationally chartered or regulated banks were FORCED to take the TARP bailout - regardless of need. They wanted to make sure that while Goldman and other favored Wall Streeters were paid the maximum amount possible the counterparty risks would be covered by the TARP funds spread among the connecting branches. Derivatives, not the common vanilla flavored sort, but the massive, esoteric structures that had no real long-term history to evaluate were a MAJOR cause of the 2008 crisis. The GSEs were a large enough, accessible, controllable, and easy to vilify - the perfect patsies.
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