Monday, November 2, 2009

How to steal a mortgage.

Goldman Sachs has it all figured out.

First, buy up lots of mortgages, and bundle the mortgages into securities.

Second, get a friendly rating agency or two to give the bundled securities high high high high ratings.

Wait, maybe first-first is get your employess into the highest positions of power: Henry Paulson Jr. (Treasury Secretary under Bush, and former President of Goldman Sachs), Tim Geithner, (Treasury Secretary under Obama and former Goldman lobbyist); find many more here.

( ... many steps deteted here for readablility ... )

But, now, that housing prices have tumbled, wrest those houses from the poor homeowners who bought your exploding interest rate mortgages by refusing to let the homeowners know who is foreclosing on them. Wow.

From the article:

When she wrote to Paulson, however, lawyers for Goldman denied that it owned the Beckers' mortgages. So did Germany's Deutsche Bank, a trustee that was holding thousands of subprime mortgages Goldman had converted to bonds.


As the months dragged on, Fabos-Becker finally found a filing with the Securities and Exchange Commission confirming that Goldman had bought the mortgages. Then, when a lawyer for MTGLQ showed up at a June 2007 court hearing on the stock battle, U.S. District Judge William Alsup of the Northern District of California demanded to know the firm's relationship to Goldman, telling the attorney that he hates "spin."

The lawyer acknowledged that MTGLQ was a Goldman affiliate.

That was an understatement. MTGLQ, a limited partnership, is a wholly owned subsidiary of Goldman that's housed at the company's headquarters at 85 Broad Street in New York, public records show.

In July, after U.S. Bankruptcy Judge Roger Efremsky of the Northern District of California threatened to impose "significant sanctions" if the firm failed to complete a promised settlement with the Beckers, Goldman dropped its claims for $626,000, far more than the couple's original $356,000 in mortgages and $70,000 in missed payments. The firm gave the Beckers a new, 30-year mortgage at 5 percent interest.

That lowered their monthly payment to $1,900, less than half the maximum $4,000 a month their subprime loans could've demanded.

But it's even worse. Goldman, those clever fellows, created the conditions for the crash, bet that it would happen, and are now reaping the benefits.

From McClatchy, again,
At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.

The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.

In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.

Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.

I suggest you read the whole thing.

Naked Capitalism has an illuminating article up, as well.

1 comment:

kerfuffler said...

It was is infuriating that the tea party crowd likes to blame a lot of the mortgage meltdown on "minority borrowers" and the government regulations that were meant to encourage widespread home ownership.
In reality, these "designed-to-fail" mortgages with small clients who would not likely be in a good position to fight back seem like a get even richer quicker scheme by the very wealthiest against the working poor.

It reminds me of the scurrilous behavior of some banks and insurance companies right before WWII, issuing accounts and policies to people (Jews mostly) they hoped would never be able to prove ownership later without proper paperwork. Really sinister....