Secret Bets on US Housing Crash Reaped Billions for Goldman Sachs

A McClatchy News investigation reviewing hundreds of documents, SEC filings, copies of secret investment circulars and more reveals that Goldman Sachs Group negligently peddled more than $40 billion in risky Securities.

A McClatchy News investigation reviewing hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviews with numerous people familiar with the firm's activities reveals that Goldman Sachs Group peddled more than $40 billion in Securities that were backed by at least 200,000 risky home mortgages in 2006 and 2007 but never told buyers it was secretly betting on a sharp drop in U.S. housing prices that would send the value of those securities plummeting. In essence, Goldman Sachs Group effectively rid itself of most of their potential losses before the global economic meltdown that was created by their greed and fraud. Investors discovered that Goldman promoted junk securities as triple-A rated investments after the fact. Pension funds, insurance companies, labor unions and foreign financial institutions that were allegedly defrauded by Goldman Sachs Group all face massive losses. Goldman's failure to disclose its secret bets on an imminent housing crash, according to McClatchy's report, may have violated securities laws. In December of 2006, Goldman decided to reduce and sell off its mortgage risks by selling off sub prime-related securities creating credit-default swaps to 'hedge' --make arrangements to safeguard against loss on an investment -- against a housing downturn. Hedge funds have proved to be tools created by the financial sector that are being fraudulently used to create profits for a limited range of investors at the expense of a great many. More Than $20 Billion in Year-end Bonuses for Goldman Sachs Employees How does Goldman Sachs continue getting away with their fraudulent acts? It's simple: because of the culture of corruption of politics as usual in Washington. Goldman Sachs and Wall Street -- as well as many other powerful lobbies -- have paid a lot of money to most of our elected officials in Washington. Many millions of people worldwide have felt the effects of being defrauded by all the bubbles Goldman Sachs has created with the blessings of Washington but little attention has been paid to how Goldman became the only major Wall Street firm to extricate itself from the sub prime securities market before the housing bubble it created burst. In addition to making billions of dollars by creating various bubbles to defraud the world's populations, Goldman received billions of dollars from a potentially fraudulent 'bailout' courtesy of U.S. taxpayers. McClatchy's investigation revealed that Goldman Sachs bought and converted tens of thousands of mortgages from sub prime lenders into high-yield bonds that became the subjects of FBI investigations, used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide -- including European and Asian banks -- often in secret deals that were run through the Cayman Islands to bypass U.S. disclosure requirements, dispatched lawyers across the country to repossess homes from struggling individuals that were bankrupted by the fraud perpetrated by Goldman Sachs and that Goldman Sachs was buoyed last fall by key decisions regarding the fraudulent taxpayer bailout at least twice courtesy of then Treasury Secretary Henry Paulson, a former Goldman Sachs chief executive whose staff at the Treasury included several other Goldman Sachs alumni. Goldman Sachs profited greatly when Henry Paulson purposely let Lehman Brothers collapse and rescued American International Group (AIG) who used $12.9 billion it received in taxpayers' dollars to pay off every penny it owed Goldman. Due to the fraudulent taxpayer bailout, Goldman Sachs emerged from the economic implosion. And what thanks did the taxpayers get? Goldman's employees are poised to receive more than $20 billion in year-end bonuses. Total Losses from Goldman's Junk Bonds isn't Known yet For decades Goldman Sachs has been manipulating and destroying America's economy. Many former Goldman employees have been in key political positions, or worse, in key positions that are supposed to overlook and regulate Goldman's fraudulent activities. Adam Storch, a Goldman vice president, was appointed as managing executive of the U.S. Securities and Exchange Commission's (SEC's) enforcement division this past October 16. For decades Goldman Sachs has profited greatly from having its employees in high places. The devastating fallout that was created as a result of the economic meltdown has been felt worldwide. Many states that have lost or stand to lose hundreds of millions of dollars in their pension funds because they invested in the junk securities that Goldman Sachs was peddling have filed lawsuits, some seeking class-action status, alleging that they were negligently misled on the junk bonds. Insurance companies collectively paid $2 billion for risky high-yield bonds from Goldman's. Total losses from Goldman's junk bonds isn't yet known. McClatchy's investigation also revealed that from 2001 to 2007, Goldman hawked at least $135 billion in bonds that were keyed to risky home loans. Goldman sold about $39 billion of its own risky mortgage securities in 2006 and 2007 and marketed at least $17 billion more for others. Goldman marketed about $83 billion in complex securities -- many of which were backed up by sub prime mortgages via the Caymans and other offshore sites too. At least once, Goldman exaggerated the quality of risky securities. Knowing when to quit the high-stakes sub prime game before going bust has proved to profitable for Wall Street, and quite a trick for investment banks like Goldman Sachs. Knowing when to quit also reeks of insider trading. U.S. Housing Market Disaster Anticipated in 2006 John Paulson (no relation to Henry Paulson), a New York hedge fund manager, was among the first to anticipate disaster in the U.S. housing market. Paulson told Congress that by early 2006 his researchers discovered that the bonds would become worthless. He started betting against the housing market and made $3.7 billion in profits when home prices tanked and sub prime defaults soared in 2007 and 2008. Goldman, at least as early as 2005, was using multiple strategies to reduce its sub prime risk. Details for most of Goldman's swaps trades are not known yet because they are closely guarded. Until the end of 2006, Goldman Sachs was betting on a strong housing market. In early 2007 that changed. Goldman's mortgage traders bet heavily against the housing market on a year-old sub prime index on a private London swap exchange. Using multiple strategies has paid well for Goldman Sachs. Goldman Sachs denies any wrongdoing and claims that investors were fully informed of all risks. In addition to using bogus cries of anti-semitism as a trick to divert disclosure of their criminal acts from public scrutiny, Goldman Sachs hired a public relations firm to try and improve their image. Since the meltdown began, nothing has been done by the Federal government to regulate Wall Street or the financial sector and Wall Street has once again returned to betting big on bonds, commodities and exotic financial products, going so far as to bet on life insurance policies -- in essence, betting on when policyholders will die. More on Goldman's secret bets on the U.S. housing market crash can be found in this article from McClatchy News. Until the lawsuits are decided and Wall Street -- and their enablers in Washington -- are held accountable, Wall Street's defrauding of the world's populations will continue.