Goldman’s fixed housing bet

Goldman Sachs sold more than $40 billion in AAA-rated securities backed by 200,000 risky mortgages in 2006 and 2007, at the same time it was secretly betting that the U.S. housing market would crash, according to a five-month investigation by McClatchy reporter Greg Gordon. (Watch McClatchy reporter Greg Gordon talk about Goldman Sachs.) Now, the pension funds and other institutional investors burned by the investments are looking to Goldman for violating securities laws. Did Goldman break the law?

How much did Goldman know, and when? The fact that Goldman Sachs hedged against a collapse in housing prices, says Kimball Corson in Seeking Alpha, “suggests Goldman understood what was coming.” If that’s true, the legal question centers on “what who knew when”—and that includes former Goldman CEO Hank Paulson, whose decisions as Treasury secretary during the period in question “pulled much of Goldman’s fat out of the fire.”

“How much did Goldman know?”

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

This is an old, debunked story: The “conspiracy theory” about Goldman “being on both sides of the mortgage trade” just won’t die, says John Carney in The Business Insider, and “it’s time to finally lay to rest” this two-year-old claim: “Far from being ‘secretly’ down on the U.S. housing market, very early on Goldman was publicly and privately warning that home prices would decline,” bringing down the securities with it.

“Sorry, folks: Goldman’s bet against housing was hardly a ‘secret’”

Don’t let Goldman profit from its crimes: It’s bad enough that Goldman’s “snake oil” securities turned a profit while helping bring down the U.S. economy, says Allison Kilkenny in True/Slant, and that the bank continues to fleece taxpayers. But Gordon also shows how Goldman is kicking hundreds of delinquent homeowners out of their houses. We need a “Son of Sam”-type law to keep Goldman and other Wall Street banks from “profit from their crimes.”

“We need a ‘Son of Sam’ law for corporations”