Goldman left foreign investors holding the subprime bag

Discussion in 'Wall St. News' started by ipatent, Oct 31, 2009.

  1. ipatent


    NEW YORK Inside the thick Goldman Sachs investment circular were the details of a secret, $2 billion deal channeled through a Caribbean tax haven.

    The Sept. 26, 2006, document offered sophisticated U.S. and European investors an opportunity to buy into a pool of supposedly high-grade bonds backed by residential, commercial and student loans. The transaction was registered through a shell company in the Cayman Islands.

    Few of the potential investors knew it, but the ratings of many of the mortgage securities hid their true risks and, in some cases, Goldman's descriptions exaggerated their quality.

    The Cayman offering one of perhaps dozens made through the British territory occurred as Goldman began to ditch the subprime mortgage business before the U.S. housing market collapsed under an avalanche of homeowner defaults.

    In all, Goldman sold more than $57 billion in risky mortgage-backed securities during a 14-month period in 2006 and 2007, including nearly $39 billion issued from mortgages it purchased. Meanwhile, the firm peddled billions of dollars in complex deals, many of them tied to subprime mortgages, in the Caymans and other offshore locations.

    Many of those securities later soured, but the sales allowed Goldman to become the only major U.S. investment bank to escape the brunt of the subprime meltdown.

    One bond analyst who reviewed the 2006 Cayman deal dismissed it in a report to clients as "a not so cleverly disguised way for Goldman Sachs & Co. to unload its unwanted exposures to the subprime real estate market onto foreign investors."

    Goldman spokesman Michael DuVally said that the firm "sold mortgage securities only to sophisticated investors" and disclosed "all the appropriate information available."

    McClatchy Newspapers also found at least two instances in which Goldman appeared to mislead investors. In one, the firm said that $65.3 million in securities were backed by safe "prime" mortgages when the same loans had been labeled a cut below prime in a U.S. offering. In the other, Goldman listed $10 million as "midprime" loans when the underlying mortgages had been made to subprime borrowers with shaky finances.

    DuVally said that the descriptions were consistent with the standards set by Moody's, the bond-rating agency.

    The secret Cayman Islands deals provide a window into one method that Goldman and other Wall Street firms used to draw European banks and other foreign financial institutions into investing hundreds of billions of dollars in securities tied to risky U.S. home loans.

    Experts estimate that Wall Street investment banks sold 25 percent to 50 percent of these bonds and related securities overseas, resulting in massive losses in Europe and elsewhere when the market collapsed.
  2. I read a book on 1929 crash. Goldman did something similar then, setting up phony company, selling stocks for it, then the stocks became worthless. Goldman was investigated for that.
  3. spinn


    asiaprop is going to be very angry with you........
  4. risky63


    are you suprised?
    thats how it works.
    if you think life is fair.......get on line w/ all the other "believers"
  5. pitz


    Doesn't Goldman Sachs get sued over this sort of stuff?

    Why does this outfit seem to have Teflon when it comes to the courts?

    Drug companies, ie: Wyeth, were essentially issued the corporate death penalty, for selling faulty products, and then lying about them (ie: fenfluramine in the case of Wyeth). How are outfits like Goldman Sachs able to escape responsibility for the garbage they sell?
  6. the1


    <b>VERY</b> angry!

  7. ipatent


    Foreign bankers are scared of them. Ultimately, Goldman, MS, JPM control the CIA and US foreign policy.
  8. ipatent


    <p><a class="postlink" target="_blank" href="">How Goldman secretly bet on the U.S. housing crash</a></p>
    <p>WASHINGTON &mdash; 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.</p>
    <p>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.</p>
    <p>Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.</p>
    <p>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.</p>
  9. The European and foreign banks have their own people to research the deals. I doubt they would spend so many billions before thoroughly investigating the nature of the market. If anyone is to blame, it is the rating agencies, not Goldman, which gave assets that were obviously crap high marks.
  10. TGregg


    GSC is very closely aligned with the government. In some ways, they are a training agency - a lot of the financial folks working for the feds came from GSC. It's a two way street though. GSC has occasionally done things not in it's best interest to help out the government.

    Listen to some libtard scream about Haliburton and Bush/Cheney (you might have to find old posts, not sure if this is still in style). GSC is more tightly coupled with the feds than those claims. And not just the republicans and not just the democrats. GSC is fully integrated with both major parties.
    #10     Nov 1, 2009