Skip to comments.How Goldman secretly bet on the U.S. housing crash
Posted on 11/01/2009 1:55:03 PM PST by crosstimbers
WASHINGTON In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
(Excerpt) Read more at mcclatchydc.com ...
I think a lot of folks new the housing market was not sustainable at the rate it was going. Here in California at the height of the houseing market I could not afford to by my own house.
There’s a special place in hell reserved for these greedy bastards.
With the friends of Obama its like having tomorrow’s newspaper yesterday.
This is a fine line. Suppose you were the treasurer of a pension fund, and you called GS and said you wanted to buy some bonds rated AAA by Moody’s and S&P. They would say yes, they have some in stock, here’s the price.
The question that should have been asked was this: “Do you, Goldman Sachs, actually think these bonds are truly worthy of an AAA designation? What is your opinion and analysis of these securities?”
I would imagine most of the customers didn’t ask that.
It’s positively Randian. Give em what they want, and let them choke to death on their own puke.
GS would have just said that Moody’s assigned a AAA rating and that GS isn’t in the ratings business.
“...before a flood of mortgage defaults staggered the U.S. and global economies.”
Wait until the commercial defaults start rolling through...the Fannie and Freddie debacle has killed us...we just haven’t fallen yet...Thanks, Barney...
Goldman has been called A blood sucking squid stuck on to the face of humanity since 1920 ...........
and I agree.
Google Goldman Sachs Matt Tobias
Jon Corzine was from Goldman Sachs. So was Lawrence Summers.
Do you, Goldman Sachs, actually think these bonds are truly worthy of an AAA designation?
And Goldman Sachs would have just replied, “Shhhh,,,don’t tell *anyone else*,, but theres no way these deserve a AAA rating”? The bottom line is that they sold a AAA product which they new was garbage. Then they insulated theirself from the crash by instituting bankruptcy reform, and installing their tool,,,Obama. And he has done exactly what they want.
Our fully embracing and loving capitalism is the cloak these criminals hide behind. They pretend to be capitalists when it suits them, but they thrive by special relationships with the government.
Don’t call it bonds,,say it’s beef. A slaughterhouse labeling tainted “choice” as fresh “prime” would be prosecuted instantly. These arent capitalists,, they are criminals.
Here’s a great read from last year. It’s long but it’s a great report on the insiders view of the bankers.
Does this mean it's unethical to sell a stock if you think the company's no good?
Of course, if GS was being paid to give investment advice to the parties to whom it sold the junk, that would be wrong. But it seems that was not the case here. GS was simply the lesser fool selling to the greater fools. Nothing wrong with that.
McClatchey is just jealous.
They are no more greedy than you are, or those nurses that quit good-paying jobs to flip condos in Florida.
Moreover, GS is not a single monolith; it consists of largely independent divisions. Those at GS that were structuring and selling securities have no contact with those that were trading on the company account.
But facts don't matter to the anti-capitalist crowd. Envy of the "rich" is rampant, even here on FR.
Yep, they always envy the best.
I’ve never gotten on the horn and threatened the melt-down of financial markets unless I got favors from the Fed or Treasury.
So yes, they are more greedy than I am.
Goldman Sachs is as much of a criminal organization that supports liberals as is ACORN. One operates in the ghettos and the other on Wall Street.
"I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall."
So do many MBAs, and yet they are hired to do the job. One does not have to learn by the seat of one's own pants.
The man also describes Wall Street of 1985. There was a revolution in finance, to which he appears oblivious, since mid 1990s. The qualifications in present-day banks are incomparably higher.
Like the author, I was very much appalled at the extent to which finance lacked rigor. But that was the state of the art, and those who knew litte were giving advice to those that knew even less. That is how it always was, in all areas, and how it should be. Just look at the doctors in 1900s: it's amazing how little they knew. Were they frauds? Of course not: however little they knew, their patients knew even less and needed help. Doctors did their best. So do bankers.
You must like the link because it seems to confirm what you WANT to be confirmed -- your unfounded beliefs about Wall Street. It has little to do with reality however, and written by a man who obviously cannot see the forest for the trees.
Thank you for bringing some sanity into this thread. The hatred of Wall Street here on FR is at the level of leftist’s hatred.
I cAnnot possibly comment on that, since I don't know you. I've got to take your estimate as stated.
Observe, however, that you offer a criterion for comparison. Like other criteria, it can be debated, but you've followed the scentific method in arriving at your conclusion. The original poster's comment, in contrast, is just dumb hatred and class envy.
I am not talking about a small investor buying a $10K bond, but a pension fund treasurer buying $100 million worth. If the sales team declined to give an opinion on the bonds while pitching for the business, they probably wouldn’t make many sales. At the very least, an sensible buyer would consider such an answer highly suspicious.
Actually, I think it has more to do with intolerance of fraud and crony capitalism. I suppose GS is exempt from a fiduciary duty of full disclosure? Enron executives went to prison for the same kind of bs.
Repeating fancy words does not give this sentence any more meaning that it already lacks. Disclosure of what? When you sell a security --- for example, your house or car --- you have no duty to the buyer to disclose WHY you are selling it. Every time you sell a stock in a company or mutual fund, you obviously think that it has no future and is worse than cash. Your buyer clearly disagrees. Only one of you makes a correct guess, only one loses and only one wins. You have no duty whatever to explain to the buyer your rational.
"Enron executives went to prison for the same kind of bs."
Not at all: they went to prison for fraud.
You appear not to know how these entities function and yet throw around heavy accusations. Moreover, I already mentioned in my previous post how incorrect it is to think of Goldman as a single entity:
:Moreover, GS is not a single monolith; it consists of largely independent divisions. Those at GS that were structuring and selling securities have no contact with those that were trading on the company account."
In fact, it is government regulations that prohibit traders from interacting with research units.
It never ceases to amaze me how many people on FR fancy themselves conservatives althogh they have swallowed entire the Left's party line in the area of economics.
I would add this:
I research every bond that I buy. Doesn’t matter what the agencies are hanging on it for a rating - I treat the big three ratings agencies are all liars and frauds. I look at balance sheets and cash flows for corporate paper, pension liabilities, etc, and in muni paper I look at their budgets very carefully. This year, I’ve been buying muni paper in only six states - Wyoming, the Dakotas, Montana, Oklahoma and Alaska. Again, based on what I can read of their budgets. That’s due diligence, as I’m sure you’d say that investors must do for themselves.
Did I take some losses on some paper last year? Yep. Smart like hell, but I didn’t go whining to my government to make me whole. I have to say that the RBS situation caught me somewhat by surprise - or I should say, the savage way that RBS’ preferreds were hacked to bits in a few days caught me off guard. Didn’t change the situation. Sold what I could and took my lumps.
So.... why should we taxpayers be backstopping Goldman’s blow-ups? Did Goldman not do their own diligence in research when they leaped into the sub-prime paper market in 2001 with both feet? Why would a firm with Goldman’s supposed competence be caught so off-guard at events in the credit markets in 2008? They claim to be the best and brightest. Why didn’t they get clear of their exposure to Lehman and AIG sooner? Why did they need to be bailed out of their AIG position at a buck on the dollar? I saw AIG’s meltdown coming way back in March of 2008 - and I was clear of their nonsense by the end of March. No Ivy League degree or government connections here. Just looked at how the company was acting and what they were (and were not) addressing in investor information.
If champions of capitalism are saying that customers of Goldman “...should have done due diligence...” then apply that dictum to Goldman themselves. Because it is very clear that Goldman is just as ignorant of risks as the people they’re peddling to. Goldman is merely better connected to the Fed and Treasury than their victims, and has gained restitution for many of their losses, while their victims are left holding chump change.
Moreover, let us ask why does Goldman need to have multiple conversations nearly every day when there is market turmoil with the US Secretary of the Treasury, the Fed Bank of NY and possibly the Fed Chair? If they were really as competent as they claim they are... they wouldn’t need to be so chatty with the regulators and government.
If one is to be a capitalist, then one has to walk the walk - which is supposed to be done with one’s own capital and the courage of one’s own convictions, without a hand in the taxpayers’ pockets.
As such, and for a host of other reasons, I’m all in favor of big investigations into Goldman’s actions throughout the last 10 years.
The action that capped it for me was the following:
That settled it for me. That he’s on Goldman’s board and was invited to be on the NY Fed and the stock PURCHASE he made wasn’t enough to get him removed from the Fed... that just blew my fuse. I might have bought the idea that he needed a waiver for stock he owned prior to GS being made into a bank holding company; that was an extraordinary action that he probably had little control over at the time. But purchase of NEW stock, that clearly went outside the rules of the Fed? No way.
That, BTW, came after the CFO of Goldman lied to investors on the September 16th, 2008 investor conference call in which the CFO said that Goldman’s exposure to AIG would be “immaterial to earnings.”
Goldman is clearly using and abusing their network of former execs in government to help smooth their path for their benefit. This has to stop if people are going to believe in our financial system as being fair and equal for all investors. If we continue down this road, we’ll have a market that is seen by the populace as being rigged for the connected insiders and anyone who is a small retail investor is seen as a dupe and a mark.
I certainly have nothing against “the rich.”
I do, however, have a major beef with “the rich” who use connections to make their profit, rather than sound business sense and hard work.
And that is an understatement,Oh for the good old days of pitch forks and
They clearly bet right that the crash was going to happen. What I don’t get is how more folks didn’t bet that as well. Soft economy, market saturation, that’s pretty much a prescription for a hard crash. GS saw what was coming and abandoned ship and to be honest, I can’t say that I blame them. It’s not like I would expect any company or investor to see dangers signs ahead and decide to just risk it and eat the loss. They have investors to keep happy to.
You can argue that what they did was unscrupulous. But I have to wonder is why people didn’t see GS manning the lift boats by dumping housing securities and think to themselves “if they don’t want them, why do I?”
In this mix, the greedy Wall Street Bankers are being falsely blamed.
In truth, the real culprits are greedy politicians whose families were involved in self enrichment through real estate developements, in 6 major states: Florida, Nevada ( Reid was very active),Arizona( McCain Family and hangers on),Michigan, and California.It is bigger than Tea Pot Dome ever dared to be.
Added to that were the millionaire executives created at Fannie/Freddie.
This huge boondoggle was then trumped by a huge boondoggle in reference to the TARP monies which became crucial in avoiding a supposed melt down in World Economy, precipitated by an electronic bank run on the Fed on Sept 18th, 2008, in the order of 500 billion dollars.. The American people still do not know who those banks were , nor do we have a list of the executives behind it. Bets are that SOROS was in that mix, along with his ARAB friends.
THe overall goal of SOROS et al was the creation of panic before the election so that Obama would be elected,destroy the US dollar,and establish a new reserve currency to end US dominace in the world of finnance and trade.
Goldman Sachs was a bit player.The real culprits are withon outr own government, who are continuinng to do exactly the same as they had done before.
It is the job of a new and rejuvinated Republican party to get to the bottomm of the whole mess, and clean it up. No new regulatory laws are needed either. The enforcement of laws now on the books would tale care of it.Who an do it, who has done it before? Sarah Palin.
This in total was a vast criminal enterprise. And it all started inside our own goverment. Sachs was only a bit player, although an important one.But the fraud buck hardly stops with just them. Scape Goating is hardly justoce, It is a mere diversion. Fannie and Freddie as well as the FHA need to be demolished and replaced with two institutions which are beyond political influence and machination.
If we want to clean it up, there is no better placce to start than with an investigation into Chris Dodds, John Mccain, and Harry Reid.The trails established will lead to all of the culprits who are responsible for the biggest boondoggle since Tea Pot Dome.
There is a reason that Mccain, Reid and other established politicians are in fear of Palin.Their continued non exposure depends on keeping Sarah away from the reins of power.
CANDOR, YOU MAGNIFICENT BUSTARD!
But, in a Judeo-Christian country like ours, people are accused of what they do and not for who they are. The article describes, largely falsely, a simply act: one unit of GS (which by law is PROHIBITED from interacting with research units) has made a bet and won. That's all that happened. There is nothing nefrious here, but most people have not a clue of how these things are done and, on top of that, view GS as a monolith --- just as the NYTimes and other commies write about them. And they criticize GS falsely, showing nothing but hate.
However inadvertently, perhaps, you have done the same. You grievances, which I share, have nothing to do with the issue at hand.
And, as before, you are all to free to accuse people without evidence:
"I treat the big three ratings agencies are all liars and frauds."
As I pointed out on antother thread, bad outcomes need not result from fraud. They can result from poor state of the art, mistakes, and negligence, for instnance. A person that throws words like fraud so freely is a bad Jew and a bad Christian (depending on faith). And a bad American, because restraint from doing so is one of the things that differentiated us from Europeans for centuries.
"I certainly have nothing against the rich.
That well may be, and I take your word for it. Not knowing what's in your head and heart, I take your word for it (there is nothing more prone to error than imputing motives to people --- and you do that with an amazing ease). I can reply only to behavior. And when it comes to what you say, your words are indistinguishable from those that do hate the rich and attempt to bring about socialism in this country. Lening called them "useful idiots" --- well-meaning folk that nonetheless, however inadvertently, play in the hands of the commies.
As I wrote to you befre, your and mine motivations are not enough; it out duty to establish the facts and focus on wrong-DOING rather than personalities of those involved. Your analysis tends to be too cavalier and aimed at "easy truths," low-hanging fruit that is all to easy to pick. Having heard all this, you chose to continue, which is your right. But I shall not be writing such extensive posts in the future: were you simply to raise the standards of your analysis, you'd easily refute your own hypotheses yourself. And if you chose not to do that, then so be it.
Have a good day.
At any rate, they got a look at them and decided to bet against their value.
Now, why would the smart boys at AIG bet against the super smart boys at GS?
Does anyone really believe that GS having taken a position wouldn't use their market power to influence the outcome?
So many questions, so few honest answers.
EXCERPT Today, in these tumultuous times of bailouts and meltdowns when the investment banking leviathan needs Washington more than ever before, Goldman Sachs can leverage its most valuable asset yet White House chief of staff Rahm Emanuel.
Traditionally a Democratic booster, and one of Barack Obamas top sources of funds in this past election, Goldman has always had particularly strong allies in government.
Rahm Emanuel is one such ally. An interesting early chapter in the Goldman-Emanuel relationship took place in the setting of Bill Clintons 1992 campaign for the White House. Clinton hired Emanuel as his chief fundraiser.At the same time, however, Emanuel was on the payroll of Goldman Sachs, receiving $3,000 per month from the firm to introduce us to people, in the words of one Goldman partner at the time. This is certainly a noteworthy relationship, but its one that has almost entirely escaped scrutiny. (snip)
In his four terms in Congress, Emanuel raised $74,750 from Goldman, making the firm his number four source of funds. Goldman has helped Emanuel. How has Emanuel helped Goldman? The most obvious answer, as mentioned in this column two weeks ago, is in Emanuels lead role in shepherding the $700 billion bailoutfirst proposed by former a Goldman CEO, Bush Treasury Secretary Henry Paulsonthrough the skeptical House.
Of course, back in the Clinton days, Goldman benefited from NAFTA and the bailout of the Mexican currency, with Emanuel pushing NAFTA through Congress, and Rubin hammering out the peso bailout.
Did Goldman improperly funnel money to the Clinton campaign by subsidizing Emanuels salary in 1992? Did Goldmans help to Clinton spur the Democratic president to push NAFTA and the Mexican bailout?
The answers to these questions are opaque, and with Emanuel burrowed deep within the Obama White House, the continued relationship between Goldman Sachs and Obamas right hand man wont be easy to follow.
Watch which regulations of Wall Street Obama fights for. Watch where the bailout money goes.
SOURCE http://www.washingtonexaminer.com/opinion/columns/TimothyCarney/ Goldman_Sach_Will_Be_Sitting_Pretty_With_Emanuel_in_the_Obama_White_House_112108.html
THINGS WE DO NOT KNOW ABOUT RAHM EMANUEL Did Rahm reveal all of his ties to financial institutions involved in Obama's trillion dollar federal bailout of financials?
Excellent post supporting my belief that Goldman Sachs is the ACORN of Wall Street, funneling money into the Dem coffers.
Keep in mind——financial “geniuses” like Rahm are “licensed.” Financial licenses can be lifted for any number of reasons. For instance:
If licensees fail to disclose ownership in investment vehicles.
If licensees fail to file proper documentation with govt agencies.
If licensees fail to file reports with The Treasury.
If licensees fail to file state and federal tax returns (stolen money is taxable).
If licensees fail to pay state and federal taxes on hidden profits.
If licensees fail to account for investment proceeds.
HERE’S HOW JUDGES PREDICATE SENTENCING GUIDELINES:
Amount licensee lost to the the Treasury, the taxpayers and others. What role a licensee had in conspiracy schemes to defraud. Whether a licensee obstructed justice in the course of investigations or, later, during trial.
AND LOOK FOR THIS Orchestrating votes for funding schemes——while holding hidden equity positions in companies doing business with the govt.
Audits might uncover questionable banking activities, and fraudulent accounting practices. An audit might show two sets of books-—with off-the-books bank accounts accessed solely by govt looters. Illegal schemes might involve:
(1) money laundering,
(2) tax evasion (stolen money is taxable),
(3) violations of US banking and currency laws,
(4) conspiracy to commit wire fraud,
(5) commercial bribery in real estate schemes,
(6) establishing secret offshore bank accounts outside the purview of the IRS,
(7) fraudulent and casual accounting practices,
(8) non-existent financial oversight,
(9) computer trespass, computer tampering,
(10) grand larceny.
(2) IRS toll free 1-800-829-0433 You may stay anonymous.
(3) Govt officials mishandling tax-exempt revenue are subject to fiduciary negligence laws. EMAILaskDOJ@USDOJ.gov.
(4) Banks holding govt monies should be audited (or be subject to federal regulators).
Why do you feel it necessary to defend a blatently corrupt corporation such as GS?
I don’t hate Wall Street. I hate the corruption that some there engage in on a regular basis. Just as in politics I don’t care what stripe a corrupt individual or corporation is, if they’re corrupt they will be the objective of my wrath and much more importantly God’s.
What made you think that I was defending GS?
Jews and Christians believe that one should not serve as false witness even against a bad or immoral person: that is a violation of one of the Commandments, isn't it? GS may be full of sins but that does not give people the right to accuse them falsely of something they did not do. Punish them for their wrongs and nothing else.
What is happening instead is a witch hunt. Being leftist, newspapers entice envy and hatred against the "CEOs," the "rich," and Wall Street. And it appears to work, even among conservatives.
Do you have sufficient knowledge of finance and specific relevant facts to judge what's corrupt? Probably not: in the article being discussed there is not a shred of evidence of corruption; GS simply made a bet and won. And yet you are convinced that those actions constitute corruption.
"if theyre corrupt they will be the objective of my wrath"
Absolutely, I completely agree with you. But you wrath should be invoked for those actions that constitute corruption and NONE OTHER. The author of the article being discussed and many people on this board serve instead as false witness.
I hope this answers your question.
Unlike you, I’m not holding my breath for the justice department to investigate the near sole source of government officials at the highest levels in our government.
I have no idea how this is related to anything I said.
Goldman shorted your house!!