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:
“Goldman, 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
The 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
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.
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.
“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:
Graphic | Goldman’s revolving door with government
Video | Goldman Sachs’ secret bets
On the Web | See our complete Goldman report