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 client before and during the financial crisis, he said.
The Great Derangement:... Best Price: $1.44 Buy New $8.90 (as of 01:40 EST - Details)
Anyone else out there find himself doubled over laughing after reading Goldman, Sachs chief Lloyd Blankfeins apology for his banks behavior leading up to the financial crisis? Has an act of contrition ever in history been more worthless and insincere? Even Gary Ridgway did a better job of sounding genuinely sorry at his sentencing hearing and he was a guy who had sex with dead prostitutes because it was cheaper than paying live ones.
Looking at Blankfeins one-sentence apology, Im struck in particular by a couple of phrases:
While we regret that we participated in the market euphoria
Really, Lloyd? You participated in the market euphoria? You didnt, I dont 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 whats 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. Theres a lot of crap in there too, says Cecala.
Lets be clear about what that meant. These crap/sham mortgages, a lot of them adjustable-rate deals with teaser rates that featured sudden rate hikes two or three years after closing, they 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 securitize these instruments, i.e., chop the mortgages up into little bits, repackage them as mortgage-backed securities like CDOs and CMOs, and sell them to unsuspecting customers on the secondary market, most of them large institutional buyers like pensions and insurance companies and workers unions, many of them foreigners. Most of those customers were snookered into buying this stuff because they had no idea what it was: in the case of pensions and unions particularly, a lot of these customers only bought this crap because the peculiar alchemy banks like Goldman used in devising their mortgage-backed securities made radioactive mortgages look like AAA-rated investments. (Or at least they were given these ratings by Moodys and Standard and Poors, ratings agencies that were financially dependent upon the very banks they were supposed to be rating but thats another story).
June 19, 2009