Banks Bundled Bad Debt, Bet Against It and Won - NYT front page above the fold

[Bozita]

This makes my blood boil.


http://www.nytimes.com/2009/12/24/business/24trading.html?_r=1&adxnnl=1&ref=global-home&adxnnlx=1261674319-t/ZchMEpwkDkJoml2sVNTA

December 24, 2009
Banks Bundled Bad Debt, Bet Against It and Won

By GRETCHEN MORGENSON and LOUISE STORY


In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman’s own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

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, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, 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, people briefed on the matter say.

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.

more, lots more...

[aquart]

1. And yet that securities bundling HAS NOT BEEN OUTLAWED.

[msongs]

2. good thing nobody from Golman Sachs has any power position in the administration nt

[grasswire]

3. maybe we are safer with them inside the government

....than working for Wall Street. Dunno.

[femrap]

4. Now they will destroy

our Treasury and Dollars!

[Vinnie From Indy]

5. Geezus gawd almighty!

Apparently, this must not be illegal. I have yet to hear of many these folks going to jail for these activities. It's good to be a bankster!

Let's hope the pension funds and others fire up their lawyers and sue the shot out of GS and the others. At the very least, I hope these organizations think twice about parking their members money in these criminal enterprises.

[blue97keet]

6. Isn't this kinda like betting against your own team and throwing the game?

[amborin]

7. not yet outlawed & at least one is working in O's treas. dept

[amborin]

8. look at how many have key administration jobs:

The Bankers on Obama's Team

The latest round of Wall Street muckety-mucks now in charge of regulation.

— By Andy Kroll


Here's a short list of Obama officials who got their start in the private sector—many, like Paulson, at "Government Sachs."


Neal Wolin
Deputy secretary of the treasury (Tim Geithner's No. 2)
Exec at one of the largest insurance and investment firms

Mark Patterson
Treasury secretary's chief of staff
Goldman Sachs lobbyist

Gene Sperling
Counselor to the treasury secretary
Made nearly $900,000 advising Goldman Sachs

Larry Summers
Obama's chief economic adviser
Made $5 million as managing director of a hedge fund

Rahm Emanuel
White House chief of staff
Made $16 million as a partner at a Chicago investment bank

Herbert Allison
Assistant secretary of the treasury (oversees TARP)
Longtime exec at Merrill Lynch; headed Fannie Mae

Kim Wallace
Assistant secretary of the treasury for legislative affairs
Managing director at Barclays Capital and Lehman Brothers

Karthik Ramanathan
Acting assistant treasury secretary for financial markets
Foreign exchange dealer at Goldman Sachs

Matthew Kabaker
Deputy assistant secretary of the treasury
Made $5.8 million at the Blackstone Group in 2008-2009

Lewis Alexander
Counselor to the treasury secretary
Chief economist at Citigroup; paid $2.4 million in 2008-2009

Adam Storch
Managing executive of the SEC's Division of Enforcement
VP of Goldman Sachs' Business Intelligence Group

Lee Sachs
Counselor to the treasury secretary
Made more than $3 million at a New York hedge fund

Gary Gensler
Chairman of Commodity Futures Trading Commission
18 years at Goldman Sachs, where he made partner

Michael Froman
Deputy assistant to Obama, deputy nat'l security adviser
Managing director of a Citigroup investment arm

http://motherjones.com/politics/2010/01/henhouse-meet-fox-wall-street-washington-obama

[w4rma]

9. Obama is screwing up on economic issues. He listened to these people, now we're all going down. (nt)

[Enthusiast]

10. Oh, come on.

You are just being 'far left'.

[Phoebe Loosinhouse]

11. This has been hiding in plain view for quite a while

It all began when they threw underwriting standards for bank loans out the window. Who cares if you write bad loans if you are able to toss them out with the garbage as they become securitized? It becomes someone else's problem. Then, YOU know how crappy the underlying loans are and you get to bet that they'lll fail. No great intellect at work there

I maintain this was a huge, broad criminal conspiracy with lots of bad actors and we need someone like an Elliot Spitzer to come in and charge them all under RICO. These folks made off with the Treasury and then they get hired into the government!

And we know the next prizes they are looking to plunder are Social Secuirty and Medicare.


I'm glad this is making the front of the New York Times, but if the will to prosecute is not there, what matter? I am placing my hopes on some entity like Calpers raising the first serious lawsuits for outright fraud. They have taken a few good stands before, just not enough.

[amborin]

12. +10

why are we not only NOT prosecuting, but why is one of them named in the ny times article employed in the O admin?

(along with all the other banksters O has surrounded himself with!)