Report: Goldman Sachs Peddled $40B+ In Subprime Securities While Betting On Housing Market Crash

In Washington, D.C., McClatchy Newspapers reports:

• 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.(1)

For more, see How Goldman secretly bet on the U.S. housing crash.

Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the stories.

(1) In a related story from McClatchy, see Mystery: Why did Goldman stop scrutinizing loans it bought?

• Before they bought pools of thousands of mortgages, Goldman and other Wall Street firms hired contractors to comb through sample batches of the loans to weed out unsound or fraudulent applications. Not much weeding occurred, however, several of the contractors said, because the Wall Street firms had agreed to accept mortgage lenders' relaxed credit guidelines. Melissa Toy and Irma Aninger, among scores of contract risk analysts who thumbed through mortgage files for the San Francisco-based Bohan Group from 2004 to 2006, said that supervisors overrode the bulk of their challenges to shaky loans on behalf of Goldman and other firms. They couldn't recall specific examples involving loans bought by Goldman, but they said their supervisors cleared half-million-dollar loans to a gardener, a housekeeper and a hairdresser.