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.
More revelations of corruption? By GS no less!! OH WOW! I am so surprised.
“Exotic bets on an imminent housing crash may have violated securities laws.” And you think anything will come of this? We all know how well the SEC did on the Madhoff thing.
Whats really scary is all the corruption/crimes by the banker elite, that will never see the light of day, never be made public, never prosecuted.
Not only does it violate securities laws, it is considered fraud. Hope they can make a case of it, and fine the crap out of them. Make G-S pay for the bank bailouts that they are responsible for wrecking.
As for the title “Goldman Sachs Bet (ie, Knew) The Housing Crash Would Happen”, well I did too!
ArianeB said “Not only does it violate securities laws, it is considered fraud. Hope they can make a case of it, and fine the crap out of them.”
There is literally trillions in toilet over this type of activity. It’s a little late to fine the crap out of them and weaken the financial system even further.
“We all know how well the SEC did on the Madhoff thing.”
…the dude got life in prison. What else do you want?
So they sold some securities, thinking they were overvalued. What’s the big deal? By that argument no one should ever sell stock, if they think the value is going to drop.
Dave, it’s because the housing bubble and collapse were an inside job, just like 9/11.
Plenty of people knew what as going on, and they thought they (or their friends) would cash in before the bubble popped. And many did. And still are. And will again, because D.C. runs on BIG checks.
We are to big to prosecute!
@ The Aberrant #4
The point was, he only got life in prison after his ponzi scheme collapsed on its own. The SEC hand, was an after the fact issue.
The SEC was also alerted to his scheme, and was handed conclusive evidence, 10 years prior to its collapse, and did nothing.
Well now you know what that secret Goldman Sachs trading software they have does….
When a secretary has three spec homes, you have to be a complete incompetent to invest as though it would last.
Maybe we should kill all the bankers first, instead of the lawyers, as Shakespeare suggested. Then, I say, we get the war profiteers (Halliburton et al) who took billions in the Iraq war and wrap up with the lawyers.
The ethics of a snake but much smarter than Barney Frank or Nancy P who were saying lend, lend, lend to those in need to Freddy and Fanny right up till they turned belly up.
http://oddtodd.com/index2.html
… so they did an “investigation” that was described in the Washington Post early this year? Good to know reporters can find out the same things that were already found out by others.
The methodology they used was to have different tiers of risk, whereby the least risky were used to shore up the other tiers and make their grades better. AIG screwed up by insuring the grades with the assumption that the overall pie was solid. However, the whole thing was based on assumptions of continuing equity increases in the market and relatively low foreclosure rates, which is why it started falling apart so quickly.
Sachs and some of the others decided at one point that they didn’t have the balls to continue the bets and started selling things off quietly to pull their capital back.
In any case, there is blame for everyone involved, including the mortgagees. If you’re stupid enough to take a mortgage that you KNOW you can’t pay after a year or so unless you can sell the house for a profit, you deserve to lose everything you own.
The only people I have real compassion for are those who worked hard to keep up their payments and do the right thing — they are the ones getting screwed, as opposed to the asses that ran from their obligations as soon as they could.
I am mostly disgusted at the underwriters though… there are long-term formulae for risk determination with all this, and they decided to ignore them. The government is bailing them out and we’ll end up hurting for probably a decade because of it. If an engineer did crap like that they’d lose their cert, be fired AND be sued up the ass.
There seems to be little ethics at all in the “financial industry”
Simple as that
Woody Allen’s comment in the 1960’s that stock brokers were professionals who invested your money till it is all gone
What a bunch of self serving crooks
And the same thing is starting up with life insurance policies.
So what will you do about it now?
Cursor_
The point is that none of this was regulated, it fell outside the jurisdiction of the SEC and CFTC.
Not regulated huh? As I understand it, parts of whatever it is you want to talk about were regulated, and parts weren’t.
The AAA Mortgage backed securities that were closer to junk bonds got those ratings thru regulated rating agencies. They all committed a type of fraud.
You can bet against the housing bubble, and you can buy into the bubble and both are legal. Its only illegal when you do both===especially when you do the first with your money and the second with other people’s money.
So many things really are crystal clear here including the fact that no one has gone to jail other than those who confessed, the bubble is being rebuilt, laws to prevent this in the future are being avoided in favor of laws that will mandate this all happens again.
Yes, all very plain to see.
Now I know why the new head of the SEC came from GoldmanS.., to ward of any possible investigtion into securities fraud. Where’s the outrage?
Goldman Sachs would have never been able to sell these “securities” without the insurance companies guaranteeing their value. Thus the “moral hazard”: it didn’t matter what the actual value of the security was, it only mattered that the insurance company (and the ratings companies) said it had value. (Kinda like government issued carbon credits.)
You guys are making a sinister plot out of a typical case of one corporate hand doesn’t know what the other is doing.
ANybody who has worked in corporate american knows the level of Keystone cops activity in a US corporation is only exceeded by the keystone cop activity US Government.
These guys companies count pull off this kind of “Conspiracy” if they wanted to.