I believe this story has gone too far under the radar and needs to be repeated because, as it turns out, academia has fallen to the same deplorable depths of asinine behavior as corporate America by rewarding failure. This past June, The University of Chicago rewarded Henry M. Paulson Jr.’s gross ethical failures by appointing him as a “distinguished senior fellow” at its Harris School of Public Policy Studies — which took effect July 1.
What makes this appointment by such a respectable institution even more ridiculous is that media reports from Bloomberg to Reuters now say that Paulson tipped off hedge funds about Fannie Mae’s rescue in 2008 while he was serving as the U.S. Treasury Secretary. By prostituting high-level inside information, Hank Paulson’s egregious behavior gives new meaning to the phrase “hanky-panky.”
According to legal experts, Paulson’s Fannie Mae tip was not illegal because, although he did share sensitive data, he didn’t personally profit from any trades. OK, but what about dereliction of duty by an acting U.S. Treasury Secretary? Aren’t there any laws against that? Apparently, it’s all right to be an inside traitor while at the same time it’s not alright to be an inside trader.
Together with Freddie Mac, both quasi-government agencies held around $5 trillion in mortgage-backed securities and other debt, allowing for plenty of room for hedge fund insiders to profit from the inside information being shared with them by government officials like Paulson. And they did.
Did the University of Chicago’s trustees not know about Paulson’s unethical conduct before his appointment as a “distinguished senior fellow?” And if they did, isn’t their decision to appoint Paulson anyway a brash show of poor judgment?
In any capacity, other than a high-level government official, what Paulson did is illegal insider trading. And if the U.S. government, through its web of ineffective scarecrows like the SEC, refuses to enforce its own rules on insider trading, that’s its problem. None of that, however, should diminish the University of Chicago’s public stance against malfeasance and unethical conduct by the individuals or corporations it chooses to associate with.
Like all places for higher learning, the University of Chicago has a moral responsibility to shelter its students from crony capitalists, unethical types and people of ill repute.
The total cost of undergraduate education for just one year at the University of Chicago is now more than $53,000. For that kind of money, shouldn’t the university’s trustees be doing a better job at screening who it puts in front of its student body?
The next generation of business students and leaders should be protected from suspect characters like Paulson. Any contamination of the educational system will have serious consequences not just for places like the University of Chicago, but for society. Proverbs 13:20 says, “Walk with the wise and become wise, for a companion of fools suffers harm.”
The historical record shows that the penalties for insider trading are high, but the rewards for not getting caught are even higher — Mr. Paulson is living proof of that.
Individuals with a pattern of unethical behavior should not be allowed to buy their way into academia, no matter how much political or corporate influence or money they have. We must flatly reject all attempts to contaminate America’s educational system with their corrupting influences. They are not role models for anyone.
Paulson and his Paulson Institute are an acute threat to the University of Chicago’s reputation, along with its students and faculty. The fastest resolution to this serious matter is for the university’s board of trustees to immediately cut all ties with Mr. Paulson.
In the name of sound judgment and in the name of good education, let’s hope they do.
Ron DeLegge is the editor of ETFguide.com and author of “Gents with No Cents: A Closer Look at Wall Street, its Customers, Financial Regulators, and the Media“ (Half Full Publishing, 2011).
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