Goldman Sachs bought indulgences from Obama

We’ve known for a long time that: * Goldman Sachs “earned” (at least) tens of billions of dollars betting against CDOs it put together and sold off to sheep its naive customers * Presidential candidate Obama took more money from Goldman Sachs than from any other company * President Obama practically handed control over U.S. financial policy to Goldman Sachs * Former Goldman Sachs officials running U.S. financial policy have been EXTREMELY kind to Goldman Sachs

We now know that:

  • Goldman Sachs employees knowingly structured CDOs so horrible they were virtually guaranteed to collapse and then bet against them
  • Some Goldman Sachs customers — to whom Goldman was trying to sell its toxic assets — smelled out Goldman’s duplicity/fraud at the time Goldman was marketing its garbage while trying to bet against it

Here’s a snippet from a pretty damning New York Times article):

The woeful performance of some C.D.O.’s issued by Goldman made them ideal for betting against. As of September 2007, for example, just five months after Goldman had sold a new Abacus C.D.O., the ratings on 84 percent of the mortgages underlying it had been downgraded, indicating growing concerns about borrowers’ ability to repay the loans, according to research from UBS, the big Swiss bank. Of more than 500 C.D.O.’s analyzed by UBS, only two were worse than the Abacus deal.

Goldman created other mortgage-linked C.D.O.’s that performed poorly, too. One, in October 2006, was a $800 million C.D.O. known as Hudson Mezzanine. It included credit insurance on mortgage and subprime mortgage bonds that were in the ABX index; Hudson buyers would make money if the housing market stayed healthy — but lose money if it collapsed. Goldman kept a significant amount of the financial bets against securities in Hudson, so it would profit if they failed, according to three of the former Goldman employees.

A Goldman salesman involved in Hudson said the deal was one of the earliest in which outside investors raised questions about Goldman’s incentives. “Here we are selling this, but we think the market is going the other way,” he said.

A hedge fund investor in Hudson, who spoke on the condition of anonymity, said that because Goldman was betting against the deal, he wondered whether the bank built Hudson with “bonds they really think are going to get into trouble.”

Indeed, Hudson investors suffered large losses. In March 2008, just 18 months after Goldman created that C.D.O., so many borrowers had defaulted that holders of the security paid out about $310 million to Goldman and others who had bet against it

It’s a logical assumption that Goldman Sachs' outpouring of “generosity” to candidate Obama was actually an attempt to buy indulgences for its sins/crimes that should have landed many of its employees in prison, rather than cushy Treasury offices. Perhaps shaping a massive taxpayer bailout to Goldman’s great benefit was not the main objective of funding Obama’s campaign but an added bonus.

Posted by James on Sunday, December 27, 2009