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The Goldman Sachs shell game

Thursday, December 24th, 2009   7:44 am | Author: Jerry | Economy, Money |
Tags: , , ,

The NYT published an article about Goldman Sachs and their creation of complex mortgage related securities and selling them to their top clients.

 

Other financial institutions including Morgan Stanley and Deutsche Bank also created similar securities.

 

The problem is that these institutions created these securities so that they could bet against them in case the mortgage market imploded. Basically they sold short.

 

Goldman clients including “Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments.”

 

Meanwhile Goldman raked in the profits first on the fees they collected on selling these securities to their clients and then on their bets that these securities would tank, which they did.

 

“How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority.”

 

“..authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them.”

 

As expected “Goldman and other Wall Street firms maintain there is nothing improper about synthetic C.D.O.’s, saying that they typically employ many trading techniques to hedge investments and protect against losses.”

 

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

 

It looks like the fat cats will have another very Happy Holiday season while their clients count the few breadcrumbs left over from their investments.  

 

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