John Paulson, the hedge fund billionaire and head of the firm Paulson & Co., was a vocal supporter of Donald Trump during the latter's campaign for president, at a time in which many prominent Wall Street managers would not voice their support. Paulson threw a large fundraiser party for Trump in June of 2016 before advising Trump's economic team throughout the campaign, and now Paulson will assist with the economic policy portion of the Trump administration's transition. In return, it appears that Trump is making appointments to the Office of Management and Budget (OMB) that are likely to help Paulson to grow his own business, which is deeply linked to Trump's own business interests.

Mick Mulvaney and the OMB

Trump has recently announced the selection of Rep. Mick Mulvaney, a Republican from South Carolina, as the nominee for the head of the OMB. Mulvaney made headlines earlier in 2016 for his efforts to introduce legislation blocking payments by Fannie Mae and Freddie Mac in support of low income housing projects until both of the housing lenders are recapitalized. It so happens that this policy of recapitalization is one of the prominent arguments that John Paulson has made.

Paulson and Housing Lenders

Paulson bought up massive amounts of Fannie and Freddie stock in and around the 2008 financial crisis. At the time, both Fannie and Freddie were taken over by the federal government and their stocks plummeted. During the remainder of Obama's presidency, the government has kept both of the lenders under the jurisdiction of the government, diverting their profits into governmental accounts.

Since buying up Fannie and Freddie stakes, Paulson has been lobbying government officials to remove control over the lenders and then recapitalize and release them back to the private market. The result of such an action would likely send the price of these stocks through the roof. Paulson and others who have invested heavily in these stocks when they were at a reduced rate would then profit immensely.

Trump Conflict of Interest

Trump's conflict of interest is not just in supporting Paulson in exchange for Paulson's support during his candidacy. In Trump's case, the conflict also affects his own fortunes. Trump invested somewhere between $3 and $15 million into Paulson's funds, according to his most recent financial disclosure from May. This means that Trump could stand to make a huge personal profit off of the recapitalization of Fannie and Freddie as well.

How likely is it that Fannie and Freddie will be privatized again? All of Trump's picks for economic policy and advisement support such an action. Treasury secretary appointee Steve Mnuchin has been an outspoken proponent of this policy as well. This is not to say that Trump's team would be able to fill the president-elect's coffers unopposed, as Republicans in congress do not uniformly support the release of Fannie and Freddie from government control.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.