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Was Goldman Sachs at fault for the mortgage crisis?

henry paulson goldman sachs executive

“Goldman Sachs are scum– that’s the bottom line. They have basically co-opted the government; they’ve co-opted the Treasury Department; the Federal Reserve functionality; they’ve co-opted the Obama administration. Barack Obama dances to Goldman Sachs tune.” — Max Keiser

Just remember, Hank Paulson [former CEO of Goldman Sachs then Secretary Treasury USA] took Congress hostage– took them in the backroom and said ‘give us $700 Billion or we’re going to crash this market. He’s an arsonist; he’s an outlaw– and yet he’s praised.”

Goldman Sachs hearings have been frustrating the sub committee of the US Senate. Banker Fabrice Tourre, a Frenchman, was grilled because of reports surfacing of the failure of the London-based Goldman Sachs and his involvement in a billion dollar fraud investigation. The complex mortgage-backed securities have been hit hard at a time when global economy is recovering.

In his defense, Tourre said: “Although I don’t remember the exact words that I used, I recall informing ACA that Paulson’s fund was expected to buy credit protection on some of the senior tranches of the AC-1 transaction. This necessarily meant that Paulson was expected to take some short exposure in the deal.”

Top company officials defended their conduct during the biggest economic crisis since the Great Depression, denying allegations from the U.S. government that they formulated a strategy to amass huge profits while selling out their unwitting investors. The firm was one of the few on Wall Street to emerge stronger and more profitable in the aftermath of the tailspin. “Unfortunately, the housing market went south very quickly,” CEO Lloyd Blankfein told skeptical senators during a heated hearing that stretched into the evening. “So people lost money in it.”

The issue that will determine whether they are guilt or not is whether they had a fiduciary responsibility to notify clients to whom they sold these mortgage pools after they started to go south. It was clear to me from testimony given by Sparks that they (Goldman Sachs) believed that these mortgages would continue to perform well as the housing market climbed.

Investment selections that people, counties/municipalities, governments, pension funds, and other entities make do not always go up in price. For Goldman Sachs or any other investment company out there selling these vehicles they are expected to continuously keep their clients abreast of their view of what they previously sold is not reasonable unless they are being paid to do so.

Did the investment managers holding these pools not see the writing on the wall circa early 2007 that housing was in trouble and put two plus two together? What might have been going through their heads was this: “Gee, I’m holding a bunch of sub-prime mortgages in my RMBS investments. Maybe I should take a short position to offset any losses that may be incurred there.”

Rather, they took the approach of sitting in their offices and waited until “it” hit the fan when it was too late to do anything about it. The real culprits here are those who authorized and put into action (government policies) which were the practice of giving mortgages to people with little to no assets/income and that was not Goldman Sachs.

With a subtitle like “From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again” run, don’t walk, to your nearest kiosk and buy Matt Taibbi’s latest piece in Rolling Stone magazine. One of the best comprehensive profiles of Government Sachs done to date. Speaking of GS, they sure must be busy today, now that Bernanke is about to be impeached and take the fall for all their machinations.


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