The Economy: How Goldman Secretly Bet On The U.S. Housing Crash

McClatchy is reporting that 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."

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses. It appears that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

Laurence Kotlikoff, a Boston University economics professor that McClatchy says has proposed a massive overhaul of the nation's banks, argues that the "Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion.

"This is fraud and should be prosecuted."

You think?

The rest of the story: How Goldman Secretly Bet On The U.S. Housing Crash by Greg Gordon (McClatchy Newspapers 2009-11-01)