Borrowing Under a Securitization Structure (Photo credit: Wikipedia)
English: Sign of the times – Foreclosure (Photo credit: Wikipedia)
I received a message courtesy of a news alert from New York Times on the morning of April 24 2010 saying breaking news alert. Now remember it was in 2008 when all hell was let loose on our economies and this was now 2010!
But the real story goes back to late 2007 as the mortgage crisis gained momentum and many banks were suffering losses! A fact that had never ever happened since well the great depression of 1930’s that started as this extract shows –
Extract One –
Economic historians usually attribute the start of the Great Depression to the sudden devastating collapse of US stock market prices on October 29, 1929, known as Black Tuesday; some dispute this conclusion, and see the stock crash as a symptom, rather than a cause, of the Great Depression.
Even after the Wall Street Crash of 1929, optimism persisted for some time; John D. Rockefeller said that “These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.” The stock market turned upward in early 1930, returning to early 1929 levels by April. This was still almost 30% below the peak of September 1929.
We never saw a return to so-called prosperity but in fact learned to embrace borrowing and lending as a way of life! Was this to protect our interests as consumers or just to play us like a game of chess, my personal believe is to play us and my reason will become clear very soon.
So let us return to this news alert of how as banks were suffering losses, Goldman Sachs executives traded email messages saying that they were making ” some serious money” betting against the housing markets!
It went onto say the emails released Saturday morning by the Senate Permanent Subcommittee on investigations, appear to contradict some of Goldman‘s previous statements that left the impression that the firm lost money on mortgage related investments!
It concluded in saying that in the emails Lloyd C Blankfein the banks chief executive, acknowledged in November of 2007 that the firm had indeed lost money initially. But it later recovered from those losses by making negative bets, known as short positions, ” enabling it to profit as housing prices fell and homeowners defaulted on their mortgages”
The final comment tells us all ” Of course we didn’t dodge the mortgage mess ” he wrote ” We lost money, then made more than we lost because of short’s”
As matters progressed it was revealed in statements made by people involved such as David A Viniar- In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, reacted to figures that said the company had made a $51 million profit from bets that housing securities would drop in value. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.
The sheer fact that betting on the fact of a falling mortgage market that could so easily have been manipulated by such cavalier attitudes to lending with the growing sub-prime market overheating! With of course the inevitable consequence of defaults was seen as a ” Gold Man” opportunity to make a lot of money, off the backs of people drowning in debt!
The additional factors of that selling short and buying long but in this case they had lent long at good over the top interest rates and now were selling short the borrowers.
Having used products designed with the intention of investment and utilising them to sell money and then to capitalise on the fact that people were failing to pay, it was a win win situation for making money. The fact that a number of companies set-up specifically to lend in this market were partners of Goldman Sachs made it so much easier and once it was all over just let them fall into bankruptcy or administration as examples of risky lending. This of course left the door open for tighter and tighter financial regulation. The fact that the banks would say yes but all the time having made their money in huge investments, they could now divest themselves of outside investors [The People] and concentrate on internal product design having learned how from this crisis. If they could make a billion then they could make a trillion by tweaking control of their products and sell them through ” third-party intermediaries” who should it all go wrong they would carry the can. As we all saw with a number of smaller financial companies going to the wall!
The world eventually recovered from the 1930’s crash and again in the 1990’s [ which l will cover in more depth in another post] but this disaster is still not over! It looms like a black cloud daily overhead, blighting our lives and the imminent words uttered by governments and politicians alike about austerity. The fact is a lot of people suffered and some are still suffering from the 2008 crisis, but a lot made a lot of money and they made it out of manipulation of your savings, investments and borrowing! They never suffered like so many they have just got wise to the fact of how to avoid taxation and also make more money!
So in conclusion l say these banks and especially Goldman Sachs cannot fail not they are too big but they are like so many corporate entities, they know how to manipulate the system and most worrying how to manipulate people, using the simple watchwords! WANT – AND – GREED !