Shaggieman

Wall Street Breakfast: Must-Know News

The Fed is counting on the dollar based consumers picking up the spending as they withdraw. So If the dollar goes to freefall so does the hopes of a recovery. Then the consumers buying power is gone and the Fed will have to look to the Chinese to fund the recovery.

<<<Yellen warned that the Fed could not maintain its loose money stance for too long, regardless of the pace of recovery. "It is a core responsibility of the Federal Reserve to preserve price stability," she said.>>>

Wall Street Breakfast: Must-Know News

Goldman betting on crash, review shows
Investment bank's strategy should be investigated as securities fraud, critics say

By Greg Gordon
McClatchy Newspapers

Published on Sunday, Nov 01, 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 on falling home prices, completed at the brink of the housing market meltdown, enabled one of the nation's premier investment banks to pass most of its potential losses to others before a flood of mortgage loan defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman promoted as triple-A 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 Newspapers 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 has proposed a massive overhaul of the nation's big banks. ''This is fraud and should be prosecuted.''

John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers hinges on what its executives knew at the time.

''It would look much more damaging,'' Coffee said, ''if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless.''

Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurancelike bets, called credit-default swaps, to ''hedge'' against a housing downturn.

Although the company had secretly bet on a downturn, DuVally told McClatchy that Goldman ''had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so. . . . Other market participants had access to the same information we did.''

FBI investigations

In piecing together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars and lawsuits and interviewed numerous people familiar with the firm's activities.

McClatchy's inquiry found that Goldman Sachs:

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.

• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean used by companies to bypass U.S. disclosure requirements.

• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.

Record earnings

With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, and by repaying $10 billion in direct federal bailout money — a 23 percent taxpayer return that exceeded federal officials' demand — the firm has escaped tough federal limits on 2009 executive bonuses that accompanied bailout money.

It announced record earnings in July, and is on course to surpass $50 billion in revenue in 2009 and pay its employees more than $20 billion in year-end bonuses.

From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.

Its financial panache made its sales pitches irresistible topolicymakers and investors alike, and helps explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.

Since the collapse of the economy, however, some investors have changed their views of Goldman.

Adding up losses

Several pension funds, including Mississippi's Public Employees' Retirement System, have sued, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made ''false and misleading'' representations of the bonds' true risks.

Mississippi Attorney General Jim Hood, whose state lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose ''hundreds of millions of dollars'' on those and similar bonds.

California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprimemortgage-backed bonds from Goldman on March 1, 2007. In July, CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.

In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.

Wall Street Breakfast: Must-Know News

<<which bank executives fear will hamper its abilities to recruit talent>>

They keep talking about a mysterious talent only a few folks possess. Do they mean the babes or are they talking about hiring the best scammers that truly can game the system to perfection?

Wall Street Breakfast: Must-Know News

<<<Creditors are outraged that the Fed, which lent Lehman $46B last September just before it went under, were paid back promptly and in full, while they've languished in bankruptcy courts hoping to recoup at least some of their losses.>>>

When going to learn, ya have to be in the club, GovSacs and the Fed never lose.

Wall Street Breakfast: Must-Know News

China's rushing to unload dollars for oil while they still have a little value left. Perhaps there's a message here for all of US.

Wall Street Breakfast: Must-Know News

Now with CD's paying next to nothing POOR retires trying to make it on a fixed income might as well just die. I say the rates need to raise now to defend what few dollars long term savers have left. Disgusted retiree!

Wall Street Breakfast: Must-Know News

Toast - why do you hate e-trade? Seems like they'll be getting TARP money to me or perhaps a buy-out. My WFC brokerage could really use them but they probably don't realize it. Thanks

Wall Street Breakfast: Must-Know News

Drew you hit on something there. I think if the government fibers-up every house in America (where it makes sense to do) then a lot of trips become unnecessary. I believe the new Obama package has some money in there for that purpose.

Wall Street Breakfast: Must-Know News

I totally agree with what your saying and think the bail outs are a consequence of all the foreign debt. I believe the government's caught in "A Catch 22" as it must zero out U.S. shareholders stakes by the bailouts to preserve the foreign debt so that the foreign money keeps flowing. Found out that 2/3 of money available to loan comes from foreigners; the rest comes from our banks. If we fold "AIG" it's bigger problems down the road when the foreign banks stop loaning. Incidentally the new "AIG" loan yesterday was a just new $30B credit line which most of reports I heard failed to mention. Best to you and let's hope we get it right.

Wall Street Breakfast: Must-Know News

Sorry meant "soldiers" and may god bless them.

Wall Street Breakfast: Must-Know News

know nothing: I here what your saying and I commend you for your hard work but do you realize the middle class, or what's left of it, has been supporting this group for a long while now. What's different is the new administration is asking the very well off to put the same amount in the pot as they did during the Clinton years; the last time we had a balanced budget.

I believe "the Iraq wars" the problem and if we had a constitutional amendment stating "NO WARS OR INSURECTIONS WITHOUT A MANDATORY 10% TAX INCREASE" we wouldn't be in the poor financial shape we're in today and having to ask folks like you to please pay a little more. This amendment would have forced all America to feel a small part the pain our solders have been feeling everyday.

Wall Street Breakfast: Must-Know News

Yeah, fat chance. What planet did you say your from.?


On Feb 03 10:57 AM Econ 101 wrote:

> We are being stolen from and our grand children will
> have to pay it off.

Wall Street Breakfast: Must-Know News

Wall St has taken over the Treasury. They've learned how to get free money by acting and saying they're broke.

Wall Street Breakfast: Must-Know News

Great points Axelrod, as usual. Your discussion made me think why not use Fed funds to make some failed institution whole again and set the greed mindset flowing again? Take LEH for instance; resurrecting them might do it and besides I think they were to big to have failed and we're now paying the price for it.