Sunday, November 01, 2009

Report on Goldman's Bets on the Housing Crash

by Calculated Risk on 11/01/2009 09:03:00 AM

From Greg Gordon at McClatchy Newspapers: How Goldman secretly bet on the U.S. housing crash

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
...
A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."
The last section of the article "I've got a secret" discusses the selling of Goldman's MBS and the disclosure rules.