The Biggest Lie

It’s hard to pick the biggest lie when the room is full of politicians and investment bankers defending their actions.

My personal nomination is for Mr. Sparks (head of mortgages at Goldman) with this gem:

“At the time we did those deals, we expected the deals to perform.”

I wish the geniuses at Monty Python were still doing their skits, because these hearings are briliant raw material.

After plenty of time spent establishing that the housing market had already turned south in the beginning to middle of 2006, Goldman had made the policy decision to go short the mortgage market by the end of that year.  Yet, Sparks had that to say about deals priced in 2007.

How about a little reality testing?  The late 2006 e-mail paper trail showed that all the way up to the top, Goldman was anxious to offload their mortgage risk.

Did they stop buying mortgages?

Hardly.

In fact, they cranked up their purchase and securitization programs well after the point they decided they didn’t want to own the risk.  As Sparks testified, the 2007 mortgage department revenue was over a billion dollars, and up by about 25% over 2006, and not what you would expect from a group of people who decided that the game was over and they didn’t want to take the risk any more.

What they did have was a generous supply of bag-holders, and they went about filling those bags. Some of the bagholders were pension funds and Norwegian towns, but those were the small fry.

The biggest risk-takers turned out to be taxpayers in Germany (IKB) and the US (AIGFP).

Only now do we know that a “savings and loan” charter in the US was used by a group of people sitting in London to take huge swaths of that risk, as it turns out, on behalf of the taxpayer, since there was no way they could ever pay the claims for the insurance they sold to Goldman and others.

Love the reading by Senator Levin of a CDO offering memorandum that claims Goldman’s interests were aligned with bond investors in one deal because they took a piece of the synthetic CDO equity (probably on the order of $10 million), all the while getting short the entire $2 billion of the deal via CDS.

Hmmm.  Net short $1.99 billion, but somehow “aligned” with the buyers of the bonds.

As I’ve said before, it’s not just the losers in the poker game that destabilized the system.  In some ways, especially if the game is being held at their house, the winners in the game are every bit as responsible.

hh

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3 Responses to The Biggest Lie

  1. J W says:

    These guys should have to walk the plank in shark-infested waters, after they have had every dime stripped from them, their families, their friends, cronies, you-name-it. To think that they knew what they were doing to countless people and others is unconscionable.

  2. geosaint says:

    Driving in the car listening…..I think it was Senator Olympia Snowe of Maine goes…..Mr. Chairman…..they’re wasting my allotted time……shuffling papers…..repeat the question…..at one point I was wondering if the not so arrogant today gsaxer could actually read……
    my verdict: contempt of congress and all americans / all humans
    fine: $23 billion

  3. Egor says:

    Senator Snowe, and most of the others behind the dais, were / are totally out of their league in conducting the hearings. They may be able to comprehend a no-doc loan … but, synthetic CDOs? Not so much. At a guess, even their staffers don’t really understand of what they speak. So, instead we get theater …

    The Senators were reading from selected snippets with highlights and staff notes in the border (indicating what their boss, the Senator should say). That those empaneled (under oath / under exam / in front of the cameras / with lawyers behind) wanted to read the items referred to by the Senators out of massive briefing books (which appeared to be the size of most legislative bills) is understandable.

    What we are left with is more dreary … akin to reading Edgar Allen Poe than Python (though the Brits would Shirley make good sport). The ill equipped and under informed powers are writing rules to regulate / legislate that which they don’t understand.

    May we live in interesting times (we do).
    E

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