During the period leading up to the collapse of the economy that reached a crescendo in the fall of 2008, we got trapped into thinking bad credit decisions could be overcome with good collateral. Those of us tied to the mortgage industry saw the poor loan underwriting that added , or maybe even created, the housing bubble.
What makes it more bizarre is that many of these institutions contributed to the market collapse by profiting from the sub prime housing fiasco throughout much of the last decade. It seems to me that what is most unfair is that none of these institutions have had to pay much of anything in the form of retribution for all the financial carnage that they have caused. Goldman Sachs is a good example of this.
This is a disgrace!
1. How is it that Goldman Sachs convinced the Justice Department that it was feasible to combine thousands of sub prime mortgage loans that were poorly underwritten into an investment grade quality investment?
2. How is it that Goldman Sachs convinced credit rating agencies, that received fees from Goldman, to give an investment grade rating on securities that were backed by a pool of poorly written loans?
Was the convincing done by logic or by contributions and huge fees? Below might provide a clue. The chart was taken from Opensecrets.org and represents what the top contributors paid Sen.Charles E. Schumer since 1989.
|Click on Chart To Enlarge|
Under current law Goldman Sachs can recommend a security, like sub-prime mortgages, to a client and at the same time decide to sell short the same product for its own account. Therefore, if it happens to own a boat load of securities that they feel are overvalued there may be a temptation to encourage their clients to buy it.
Someone please post on the front page of the New York Times which congressman or senator would be opposed to changing this law along with the amount of money they received from wall street firms in the form of campaign contributions.
This rule defies common sense, encourages graft and corruption.