McClatchy Busts Goldman on Double Dealing

Today, McClatchy Newspapers added the how to the what Goldman did in its investment banking business.   Right after the 2008 election, Pro Publica
broke a story about Goldman urging key clients to dump California bonds
after Goldman had a big pay day from the state to sell the bonds in the
first place:

Sachs & Co. urged some of its big clients to place investment bets
against California bonds this year despite having collected millions of
dollars in fees to help the state sell some of those same bonds."  Pro Publica, Nov. 11, 2008

McClatchy Newspapers story shows the same pattern of self serving,
double dealing.  Goldman sold packages of high risk loans as though
they were premium securities.  This coincided with Goldman's assessment
that the subprime securities marked was a loser.   That's the type of
double dealing that gets you in serious trouble.  The article quoted
below has it all -- the story of the deceptive sales, a chart of the
revolving door for Goldman and the federal government, and some very
good writing.

Greg Gordon was the senior reporter for McClatchy's excellent investigative series on the Bush Department of Justice scandals.  He is an outstanding investigator, thorough, and persistent.  McClatchy is well worth watching on this story.  Michael Collins

How Goldman Secretly Bet on the U.S. Housing Crash

By Greg Gordon|McClatchy Newspapers

Nov. 1, 2009

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.

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.

"The Securities and Exchange Commission should be very interested in
any financial company that secretly decides a financial product is a
loser and then goes out and actively markets that product or very
similar products to unsuspecting customers without disclosing its true
opinion," said Laurence Kotlikoff, a Boston University economics
professor who's proposed a massive overhaul of the nation's banks.
"This is fraud and should be prosecuted."

More on this story from McClatchy Newspapers Washington Bureau:

Story | Mortgage crisis shows why financial regulation is needed

Story | Mystery: Why did Goldman stop scrutinizing loans it bought?

Story | How Moody's sold its ratings - and sold out investors

Graphic | Goldman's revolving door with government

Video | One couple stands up to Goldman Sachs

Video | Goldman Sachs' secret bets

On the Web | See our complete Goldman report


Full Goldman article at McClatchy Newspapers



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