How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy StepsSubmitted by bobbyw24 on Fri, 01/01/2010 - 20:58
Investment banking giant Goldman Sachs has become perhaps the most prominent symbol for everything that is wrong with the U.S. financial system, but most Americans cannot even begin to explain what they do or how they have made tens of billions of dollars from the economic collapse of America. The truth is that what Goldman Sachs did was fairly simple, and there may not have even been anything "illegal" about it (although they are now being investigated by the SEC among others).
The following is how Goldman Sachs made tens of billions of dollars from the economic collapse of America in four easy steps....
Step 1: Sell mortgage-related securities that are absolute junk to trusting clients at vastly overinflated prices.
Step 2: Bet against those same mortgage-related securities and make massive bets against the U.S. housing market so that your firm will make massive profits when the U.S. economy collapses.
Step 3: Have ex-Goldman executives in key positions of power in the U.S. government so that bailout money can be funneled to entities such as AIG that Goldman has made these bets with so that they can get paid after they win their bets.
Step 4: Collect the profits - Goldman Sachs is having their "most successful year" and will end up reporting approximately $50 billion in revenue for 2009.
So is it right for the biggest fish on Wall Street to make tens of billions of dollars by betting that the U.S. housing market will collapse?
You see, when you are talking about a financial giant the size of Goldman Sachs, the line between "betting that something will happen" and "making something happen" gets blurred very quickly.
Not that Goldman Sachs was the only one betting against the housing market.
According to the New York Times, firms like Deutsche Bank and Morgan Stanley also created mortgage-related securities and then bet that they would fail.....
Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc.
But certainly Goldman Sachs was the most prominent financial player involved in this type of activity.
In fact, without mentioning specifics, Goldman has even admitted publicly to wrongdoing. On November 17th, 2008 Goldman Sachs CEO Lloyd Blankfein even issued a public apology....
"We participated in things that were clearly wrong and have reason to regret."
But complicated financial transactions are something that most Americans simply do not understand, so the public outrage towards Goldman Sachs and others has been somewhat limited. But that does not change the very serious nature of the activities that Goldman was involved in....
"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," Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, recently told The New York Times. "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."
But the sad thing is that many Americans do not even understand what Goldman Sachs is. Goldman Sachs was founded in 1869 and has forged a reputation as one of the elite financial institutions in the entire world. They only hire "the best and the brightest" and Ivy League graduates flock to the firm. Of the five major investment banks that dominated Wall Street before the crash, only Goldman Sachs and Morgan Stanley have survived. Merrill Lynch and Bear Stearns were severely damaged by the crash and ended up being purchased by retail banks and Lehman Brothers ended up folding.
There are persistent rumors that Goldman played a major role in the collapse of Bear Stearns and that ex-Goldman CEO Hank Paulson could have done much more to bail out Lehman Brothers, but perhaps nobody will ever know the full truth. All we do know is that at the end of the crash several of Goldman's competitors were destroyed and Goldman found itself in a more dominant position than ever.
The truth is that Goldman is a financial shark and they do not apologize for it.
An article in Rolling Stone recently put it this way....