Blog on the Run: Reloaded

Thursday, June 18, 2009 9:14 pm

“First of all, generally speaking, when one apologizes for having done a bad thing (like for instance destroying the world economy), it is good form to wait at least until the end of the sentence to start bragging again.”

Filed under: I want my money back. — Lex @ 9:14 pm
Tags: , ,

Goldman Sachs CEO Lloyd Blankfein is really, really sorry that his company just somehow got swept up in the events that led to the current economic crisis. Really:

While we regret that we participated in the market euphoria and failed to raise a responsible voice, we are proud of the way our firm managed the risk it assumed on behalf of our clients before and during the financial crisis.

Tell it to my 401k, you schmuck.

Matt Taibbi brazenly dares to point out that Goldman’s role was actually, well, a little more involved than that:

Really, Lloyd? You “participated” in the market euphoria? You didn’t, I don’t know, cause the market euphoria? By almost any measurement, Goldman was a central, leading player in the subprime housing bubble story. Just yesterday I was talking to Guy Cecala at Inside Mortgage Finance, the trade publication that tracks statistics in the mortgage lending industry. He said that at the height of the boom, in 2006, Goldman Sachs underwrote $76.5 billion in mortgage-backed securities, or 7% of the entire market. Of that $76.5 billion, $29.3 billion was subprime, which is bad enough — but another $29.8 billion was what’s called “Alt-A” paper. Alt-A mortgages are characterized, mainly, by crappy documentation and lack of equity: no income verification, no asset verification, little-to-no cash down. So while “only” 38% of the mortgage-backed securities Goldman underwrote were subprime, more than three-fourths of their securities were what is called “non-prime,” i.e., either subprime or Alt-A. …

These [lousy] mortgages … would never have been possible had not someone devised a method for selling them off to secondary buyers. No local bank is going to keep millions of dollars worth of Alt-A mortgages on its books, because no sensible company lends out money to very risky customers and actually keeps those loans on its balance sheet.

So this system depended almost entirely on banks like Goldman finding ways to … chop the mortgages up into little bits, repackage them as mortgage-backed securities … and sell them to unsuspecting customers on the secondary market. … Next thing you know, a bunch of teachers in Holland are betting their retirement nest eggs on a bunch of meth-addicted “homeowners” in Texas and Arizona.

This isn’t really commerce, but much more like organized crime: it was a gigantic fraud perpetrated on the economy that wouldn’t have been possible without accomplices in the ratings agencies and regulators willing to turn a blind eye. …

I’ve been saying that last bit for some time. Glad to know that someone who knows significantly more about this than I do agrees with me.

But wait! There’s more!

Second of all, what is particularly obnoxious about this phrase is that Goldman is bragging about the fact that it actually made money while it was pumping the economy full of explosive leverage. … Goldman’s continual bragging about its mortgage hedges is one of the more obnoxious phenomena in the recent history of Wall Street, given that it was selling this [garbage] by the ton during that same period.

And it wasn’t just selling lousy mortgage-backed securities, either. It also was killing other companies and putting a screwing for the ages on the American taxpayer in the process:

AIG’s death spiral was triggered not so much by its bets going sour, but by companies like Goldman that demanded that AIG put up cash to show its ability to pay. These collateral calls were what killed AIG last September, and Goldman was one of those creditors pulling the trigger: what makes this fact even more obnoxious is that ex-Goldmanite Henry Paulson then stepped in and green-lighted an $80 billion taxpayer bailout. Ultimately another ex-Goldmanite named Ed Liddy was put in charge of AIG, and Goldman ended up getting paid 100 cents on the dollar for its AIG debt. So basically Goldman helped kill AIG, necessitating a federal bailout, after which time it got paid off handsomely for bets that it certainly would not have been paid off completely for had AIG simply been liquidated.

Go read the whole thing, not-safe-for-work language and all. And the Blankfeins of the world wonders why there’s still a small but persistent segment out there calling for the whole freakin’ finance industry to be nationalized….

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