Congressman Issa to Investigate Paulson, Center for Responsible Lending

On April 22nd we published an article entitled IndyMac Attack: Did Schumer, Paulson, Soros, and the CRL Kill the Bank and Profit From Its Collapse? We summarized the story as follows:

At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.

…a top executive of CRL when this deal went down, Eric Stein, is now working at the Treasury Department, heading up the proposed Consumer Financial Protection Agency. Mr. Stein will be the chief federal official designing regulations to protect consumers. Right.

At the time, we asked if this could all be coincidence. Today, we are getting closer to answering this question.

As reported by hedge fund blog AbsoluteReturn+Alpha, Congressman Darrell Issa (R-CA), ranking member of the House Committee on Oversight and Government Reform is probing John Paulson on his relationship with the Center for Responsible Lending.

In a May 26th letter to Mr. Paulson, Issa notes that “While Paulson & Co. has not been named in the SEC’s suit [against Goldman Sachs & Co.], it donated $15 million to the Center for Responsible Lending, an organization that was pushing for risky ‘affordable’ mortgage lending while Paulson & Co. was simultaneously betting on a collapse in the housing market.”

This $15 million donation contributed to a 250% increase in revenue for the CRL in 2007, and helped enable the CRL to increase its lobbying activities by 220% over the following year.

As such, Issa continues:

The American people have a right to know the true impact of Paulson & Co.’s donation to CRL on CRL’s ability to push for the kind of mortgages that precipitated the financial crisis. In addition, it is unclear whether Paulson & Co. leveraged its financial relationship with CRL in order to further its strategy to profit from the collapse of the housing market CRL helped create, whether through receipt of information about specific at-risk mortgages to which Self-Help and its affiliates were privy or through CRL’s lobbying activities.

According to Issa’s letter, the House Committee is requesting a variety of documents including all records and communications between Paulson & Co., and the following organizations since January 1, 2005:

a. Center for Community Self-Help;

b. Center for Responsible Lending;

c. Self-Help Credit Union;

d. Self-Help Federal Credit Union;

e. Self-Help Ventures Fund;

f. World Savings Bank;

g. Golden West Financial;

h. Mr. Eric Stein;

i. Mr. Martin Eakes;

j. Mr. Herbert Sandler;

k. Mrs. Marion Sandler.

Given the information that will be obtained from this probe, it appears that Congress is at the tip of the iceberg of a major case against crony capitalism; a case that may well implicate the head of the soon to be created CFPA in Eric Stein, Senator Charles Schumer (D-NY), George Soros and all of the private equity investors in the failed IndyMac Bank.

The deadline for Mr. Paulson to respond to the probe is tomorrow. Stay tuned.