Document: Goldman 'shorted' mortgages because world wouldn't expect it

[babylonsister]

Document: Goldman 'shorted' mortgages because world wouldn't expect it


Protesters disrupt a Senate hearing on the role of investment banks, including Goldman Sachs, during the financial crisis. | Olivier Douliery/Abaca Press/MCT

By Chris Adams and Greg Gordon | McClatchy Newspapers


WASHINGTON — A key Goldman Sachs trading manager indicated in his personnel performance review that he could use the "fear" in the market of a coming collapse in the nation’s mortgage market to make profits for the Wall Street firm, documents released Tuesday show.

Former trader Joshua Birnbaum wrote that because "the world would think" Goldman Sachs would invest in the mortgage market for the long term, the firm should "flip our risk" and bet on an impending crisis.

“We could use that fear to our advantage if we could flip our risk,” he wrote.

The disclosure was among hundreds of documents the Senate Permanent Subcommittee on Investigations, chaired by Michigan Democrat Carl Levin, released at the beginning of a hearing into the role of investment banks — and particularly Goldman Sachs — in the nation’s recent economic collapse.

The Birnbaum memo also suggests that Goldman executives were creating a strategy to profit from risky mortgages at the same time they were selling similar products to unsuspecting clients.

more...

http://www.mcclatchydc.com/2010/04/27/92962/goldman-executive-wanted-to-profit.html

[Deep13]

1. So it wasn't only negligent, it was malicious. nt

[babylonsister]

2. You betcha; they knew exactly what they were doing. nt

[Rex]

3. So Goldman Sachs decided to make a lot of money off betting

on our economy TO FAIL? AND IT DID...no wait, that cannot be true. How could they be so 'off the chain' like that!? It is as if the SEC employed people who sat around and downloaded porn all day instead of defending our Treasury...oh wait.

And in defense of the SEC...what do you expect from a private orgainzation that has no real oversight? Same could be said about the MIC.

[elias7]

4. soulless, conscienceless a$$holes

[Clyde39]

5. Using "fear"----where have we heard that before?

This fear tactic seems to work well for authoritarian types.

[Mosby]

6. congress needs to put and end to shorting

Short selling is where all the BS games start - when you buy a share of stock your really buying something but with shorting all your doing is making a bet that a company stock will decline which is contrary to the original concept of exchanges in the first place.

[sixmile]

8. You're half-correct

It's NAKED short selling that must be stopped.

Goldman is simply too big and can dominate any security it chooses since there is no monopoly busting in the financial world.

[jgraz]

9. How 'bout we just enforce the laws on FRAUD and put these asshole in prison?

[Mosby]

11. Naked shorting can create worse outcomes

but ALL shorting needs to stop, the exchanges were created to allow companies to raise capitol from the public at large, not to allow people or investment firms to "bet" against companies.

And secondly all the major investment firms need to go back to private status, so they are playing with their own money not investor/stockholder money.

[elehhhhna]

7. roll out the RICO indictments, and get crackin'.

[jgraz]

10. BINGO

This is what RICO was invented for.

[Newsjock]

12. Picture of a douchebag

I was curious, so I went searching. Yup, knew it even before I saw it.

[Mike 03]

13. You know what is so ridiculous about this...

Any investor who was paying attention in the mid 2000s knew it was common sense to short subprime mortgages. This was the worst kept secret in the world. Anybody who was reading the NYT, WSJ or Barron's knew that this was easy money.

[malaise]

14. I have only one question

Who is going to prison for this?

[Mike 03]

16. Why should a money manager go to prison for making the obvious, wise investment decision to

short ludicrous mortgages?

[Mike 03]

15. I don't know the context in which he said that, but it makes no sense.

A lot of people and funds that saw the bubble did short subprime and, further more, shorted the entire stock market(s).

And it is easy to do, thanks to ETFs. I am surprised that anyone is surprised that smart investors shorted the bubble. I just don't understand the shock.

[morgan2]

17. thers nothing wrong with short selling

its a needed check to keep prices from becoming too inflated. The problem/fraud arises when they bet against something while they advise their clients to do the opposite

[Mosby]

19. It's not needed for anything

if a stock price is too high people won't buy it, shorting has nothing to do with it. When tech stocks rose to ridiculous levels in the 90s did shorting help anything? Hell no, the bubble eventually burst and millions of average americans lost billions of dollars. The investment firms made money of course because the hedge funds shorted everything. Shorting stocks is nothing more than the investment sector not being satisfied making money the old fashioned way so they moved beyond equity investments into the world of imagination. If anything shorting makes the markets more volatile, which not surprisingly benefits the institutional investor rather than the individual investor.

Bottom line is that gov regs should allow investment firms to engage in equity investing and prevented from creating literally non-real investment "products" like credit default swaps and other shorting derivatives.

[Mike 03]

18. This is so stupid. The bubble was so obvious, and I would expect my financial advisor to

short sell a disaster waiting to happen, and as much as I respect Senator Levin, he is making a fool of himself in these last two hearings. Does the guy know anything about investing? He doesn't know what rating agencies do, and today we learn he doesn't know what investment bankers do. He was great with Blackwater Contracts, but he SUCKS when it comes to how investing works, and it is damned embarrassing.