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Report: Goldman Sachs Secretly Bet on the US Housing Crash

HeadlineNov 03, 2009

An investigation by the McClatchy Newspapers has found that banking giant Goldman Sachs made secret bets on an imminent housing crash while selling off billions in soon-to-be worthless securities. In 2006 and 2007, the bank reportedly 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 US housing prices would send the value of those securities plummeting. Goldman’s sales and its clandestine wagers enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the US and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk. By doing so, Goldman Sachs may have violated securities laws. Several pension funds, including Mississippi’s Public Employees’ Retirement System, have filed suits alleging that Goldman and other Wall Street firms negligently made “false and misleading’’ representations of the bonds’ true risks.

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