Deep in an article Friday on the government's bailout of AIG, The New York Times cites sources saying that the Treasury Department's "point man" on AIG, Don Jester, was a former Goldman Sachs employee who owned stock in the bank even as he was making decisions on the bailout that ultimately channeled billions of taxpayer dollars to Goldman.
Owning stock in a company an official oversees typically is verboten, but because Jester was working as an outside contractor rather than an official employee, he was exempt from conflict-of interest rules.
Goldman Sachs stood to benefit from the AIG bailout because Goldman had roughly $20 billion in insurance-like credit-default swaps with AIG -- essentially bets by the investment bank that the housing market would go south. But if AIG collapsed, Goldman wouldn't be able to collect on the bets. When the government instead bailed out AIG, taxpayers paid out the swaps at full face value, and Goldman Sachs got $12.9 billion -- more than any other of AIG's customers.
Jester was Goldman's deputy CFO when he left the firm in 2005. And here's what the Times says about his investments in Goldman:
Mr. Jester, according to several people with knowledge of his financial holdings, still owned Goldman stock while overseeing Treasury's response to the A.I.G. crisis.
We contacted Jester this morning to comment on the story and confirm the stock ownership; we'll post an update when we get a response. His spokesperson, Michelle Davis, told the Times that Jester followed what the paper paraphrases as an "ethics plan to avoid conflict with all of his stock holdings" (According to a federal database search, Jester received $30,000 for six months consulting at the Treasury Department.)
Earlier this year, a Times op-ed online dubbed Jester one of the "mystery men" of the financial crisis and noted that Jester was at the center of the Treasury Department's response to AIG's impending collapse. During the chaotic two months in the fall of 2008, Timothy Geithner, then the head of the Federal Reserve Bank of New York, spoke on the phone with Jester 103 times -- more than other person aside from then-Treasury Secretary Henry Pauslon. Jester relocated to AIG's offices for a period of time, the paper reported.
The government's decision to have AIG pay out Goldman and others bets at full value has been controversial. The Times said while several of the Federal Reserve Bank of New York's outside advisors recommended it force banks to take losses on their bets with AIG, Jester advocated for full repayment:
According to the documents, Mr. Jester opposed bailout structures that required the banks to return cash to A.I.G. Nothing in the documents indicates that Mr. Jester advocated forcing Goldman and the other banks to accept a discount on the deals.
As an example of the advice against paying full value for the deals, the Times cited a presentation from an advisor to the New York Fed, which outlined five reasons banks should agree to concessions. The Federal Reserve Bank of New York defended its decisions to the Times:
"This was not about the banks," said Sarah J. Dahlgren, a senior vice president for the New York Fed who oversees A.I.G. "This was about stabilizing the system by preventing the disorderly collapse of A.I.G. and the potentially devastating consequences of that event for the U.S. and global economies"

Pro Publica is a non profit dedicated to investigative journalism in the public interest. Photo of the Goldman Sachs tower taken by BigMac on September 9, 2005. Wikipedia.