Sunday, April 25, 2010

Goldman's "Big Short"

Emails have been released that show that Goldman, contra their assertions, made a whole bunch of money by shorting in the face of the banking collapse.

From Huffpo:

In a July 25 email that year, Gary Cohn, the firm's chief operating officer, wrote Viniar to update him on the firm's mortgage market activities. The firm lost about $322 million on residential mortgages -- but it made $373 million on its bets against the market, bets that increased in value as the market tanked.

About 25 minutes later, Viniar wrote back, "Tells you what might be happening to people who don't have the big short." The firm made $51 million that day.

"There it is, in their own words: Goldman Sachs taking 'the big short' against the mortgage market," subcommittee chairman Sen. Carl Levin (D-Mich.) said in a statement accompanying the release of the internal emails.

"Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," Levin said. "They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients."

Levin's panel points out that in the firm's 2009 annual report, Goldman Sachs stated that the firm "did not generate enormous net revenues by betting against residential related products."

"These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market," Levin said.
Whoopsie. Pretty sure that out-and-out falsehood in your annual reports ain't gonna do much for your reputation.

Still interested in seeing where this goes. The real story isn't so much the revelations coming out now. We knew all this stuff, it is simply being (finally) proven beyond doubt. The real story is how the hell Washington handles it, since they're absolutely choked with both GS alumni and people who are beholden to GS alumni. The public knows that this thing is going on, and this situation is pretty easy to understand: "GS helped create a bad investment and then bet against it" is not going to be too tricky for even the most low-info voter to grasp.

They're already angry at the "big banks", and this will crystallize their anger. The only question is who to be angry at: and if the Dems (or the Republicans!) don't work damned hard to distance themselves and be seen to punish the bastards, they'll be punished themselves.

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