Unintended consequences

…the financial benefit to Paulson of accepting the call of duty is surely greater than that enjoyed by any other public servant in U.S. history.  Goldman Sachs has long had a policy that all deferred compensation becomes payable promptly to any partner who accepts a senior position in the federal government.  Congress passed a law a quarter-century ago that people taking senior appointed federal position who convert their investments into either an index fund or a blidn trust can do so upon assuming office with zero taxable capital gain until such investments are later sold.  If Paulson took advantage of these provisions, they enabled him to sell his shares in Goldman Sachs without raising any public questions without tax and to diversity his large personal invetments in a single stroke.  For just over two years’ service, the saings in Paulson’s personal income taxes could have been as large as $200 million.  Paulson had no interest in diversifying his investments and had never sold a share of Goldman Sachs stock.

I wonder what the total benefits for Paulson have turned out to be.  Indeed, it is rare that taking a job in government is such a good business decision (please note: I am not suggesting any conspiracy or evil intentions here).

That passage is from Charles Ellis’s The Partnership: The Making of Goldman Sachs.  This book gets better and better, as you keep on reading it.  Definitely recommended.


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