How very quaint that this surprises you.Well, we know Lloyd and his tribe didn't kill Jesus. The Romans did. Plus, even if, millennia ago, Blankfein's forebears had a little hand in getting rid of a certain troublemaker, that would put a big dent in said troublemaker's claims of divine origin, if you know what we mean.
So they didn't kill Jesus. But even if the boys at Goldman celebrated Christmas, they'd be getting a whole lot of coal--or worse--this holiday season, according to the Gray Lady's one-time star business reporter and ARS nemesis Gretchen Morgenson.
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. They add that many prudent investors often do the same. Goldman used these securities initially to offset any potential losses stemming from its positive bets on mortgage securities.
But Goldman and other firms eventually used the C.D.O.'s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients' interests.
Oh, there's more people. Twenty-eight hundred more words, in fact, for you to spit up your coffee onto this Christmas Eve morn, accusing Deutsche Bank, Morgan Stanley, and everyone else--in the most restrained, journalistic terms, of course--of creating the housing bubble, levering the hell out of it and then betting the house against it.
"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."
Nice metaphor, Sylvia. But can we blame the ratings agencies instead?
Mr. Egol and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were, according to notes taken by a Wall Street investor during a phone call with Mr. Tourre and another Goldman employee in May 2005.
On the call, the two traders noted that they were trying to persuade analysts at Moody's Investors Service, a credit rating agency, to assign a higher rating to one part of an Abacus C.D.O. but were having trouble, according to the investor's notes, which were provided by a colleague who asked for anonymity because he was not authorized to release them. Goldman declined to discuss the selection of the assets in the C.D.O.'s, but a spokesman said investors could have rejected the C.D.O. if they did not like the assets.
Wow. Stuff so toxic even Moody's couldn't muster a triple-A rating?
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.
Well, why not? Those with the Big Guy on their side needn't explain themselves to mere mortals. Especially not on Christmas Eve.
Banks Bundled Bad Debt, Bet Against It and Won [NYT]