Former treasury secretary tipped hedge funds

Paulson reportedly gave advance word about Fannie Mae and Freddie Mac

Henry Paulson, former U.S. treasury secretary, depicted a scenario in which the government would take over troubled mortgage giants Fannie Mae and Freddie Mac while talking to a group of hedge fund managers in July 2008, even as he was reassuring Congress and the public that such heavy-handed intervention would not be necessary. The revelation, made on Tuesday by Bloomberg, raises serious ethical question for the former U.S. official, even as it is unlikely he will be found in breach of the law. The former secretary reportedly told the hedge fund managers that a government seizure of Fannie and Freddie would mean that the common stock of the two government-sponsored enterprises, as well as several classes of preferred stock, would be wiped out, an anonymous source who was present at the meeting told Bloomberg.