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If there's potential for a conflict of interest related to resolving the current financial "crisis," Treasury Secretary Paulson's relationship with and ties to China might seem to fit the bill. Mind you, there's nothing to suggest anything underhanded is going on with Paulson, but his 70 or so trips to China during his tenure as Goldman Sachs CEO indicates that he has a strong interest in China. His commutes to the Far East culminated in an incredibly profitable investment for Goldman as described in October of 2006 by Bloomberg:

Goldman Sachs Group Inc. has managed to do in China what nobody on Wall Street has done anywhere: earn almost $4 billion from a six-month-old investment.

That, at least, is the profit so far on the $2.6 billion Goldman put up for about 5 percent of Beijing-based Industrial & Commercial Bank of China Ltd. ICBC's record initial public offering now values the nation's largest bank at $129 billion.

While Goldman and investors in its private equity funds are prohibited from selling their ICBC shares for three years, the gain of $3.9 billion would be the biggest for New York-based Goldman on any trade since it was founded in 1869, according to people with knowledge of Goldman's investments.

China's connection to the subprime crisis is, at least in part, a result of their being the single largest foreign holder of Fannie Mae and Freddie Mac bonds. According to this FreedomWorks posting at Market Watch:

Chinese Government is Top Foreign Holder of Fannie Mae, Freddie Mac Bonds

$376 Billion in Chinese Agency Bond Holdings Subject to Taxpayer Bailout Proposals According to FreedomWorks Analysts

As politicians call for taxpayer bailouts and a government takeover of troubled mortgage lenders Freddie Mac and Fannie Mae, FreedomWorks would like to point out that a bailout is a transfer of possibly hundreds of billions of U.S. tax dollars to sophisticated investors and governments overseas.

The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."

Cayman Islands and Luxembourg? Whose money might that be? Anybody's guess, I guess.

Also, in recent months there are reports of the Chinese bailing out of U.S. investments and reducing their foreign reserve holdings of U.S. dollars:

Bank of China Reduces Holdings in Fannie Mae and Freddie Mac Securities

The Bank of China has reduced its holdings in securities issued by Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) by 25% since June 30. Shares of Fannie Mae tumbled $1.11 to close at $6.84 while Freddie Mac stock dropped 77 cents to close at $4.51.

While the China Daily tells us:

China may cut its dollar holdings - CICC

China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation's biggest investment banks.

The US government this week seized control of the two mortgage-finance companies, which account for almost half of the home-loan market in the world's biggest economy, to prevent defaults from crippling them. China holds up to $400 billion in the two firms' debt, CICC Chief Economist Ha Jiming said in a report Thursday.

"The crisis has made Chinese officials realize it's a bad idea to put all their eggs in one basket," wrote Hong Kong-based Ha. "This will likely lead to greater diversification of foreign exchange reserve investments."

China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.

Have these moves helped precipitate the current crisis? Surely, they must have had some impact.

China would not be the only entity to benefit from a U.S. taxpayer-funded bailout of our "failed" financial system. Let's not forget that we must consider the interests of Japan and the Investors Anonymous Club members in the Cayman Islands and Luxembourg. But our relationship with China is as unique as is that of Goldman Sachs. Consider this from William R. Hawkins of the U.S. Business and Industry Council:

The "Goldman Sachs Effect" Transfers the Strategic Advantage to China

According to the Defense News report, "Pentagon officials, however, have kept quiet about China's efforts as part of a Bush administration policy to not anger Beijing, which is a leading U.S. trading partner and seen as key to dealing with North Korea and Iran. Even the Pentagon's recent China report failed to mention Beijing's tests. Rather, after a contentious debate, the White House directed the Pentagon to limit its concern to one line."

The desire of the White House not to "anger" Beijing is an attitude apparently not reciprocated in China, where there seems to be no fear of angering America by testing weapons against U.S. targets -- or even, on occasion, threatening nuclear attack against the U.S. homeland. Who instills fear, and who shows fear, is a measure of the real balance of power in a relationship.

Let's call this the "Goldman Sachs Effect" -- after the international banking firm that has supplied two Treasury Secretaries in the last decade, Robert Rubin in the Clinton Administration and now Henry Paulson in the Bush Administration. Current Treasury chief Paulson took the job after winning assurances from the White House that he would run China policy, even as Goldman Sachs continues to raise capital for Chinese industry and the dictatorial regime. In effect, Goldman has been able to substitute its trans-Pacific, private business agenda for a U.S. national strategy.

A mite too strong? Perhaps. But I am not comfortable having Mr. Paulson call the rescue shots. And I am certainly most fearful of giving him a $700,000,000,000 carte blanche using my money and yours.

Perhaps the Treasury Secretary, Goldman Sachs and the Chinese should use their own funds.

Whatever the plan, is Paulson the man?