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How Goldman Won Big On Mortgage Meltdown
WSJ ^ | December 14, 2007 | Kate Kelly

Posted on 01/18/2008 5:48:47 PM PST by Lorianne

The subprime-mortgage crisis has been a financial catastrophe for much of Wall Street. At Goldman Sachs Group Inc., thanks to a tiny group of traders, it has generated one of the biggest windfalls the securities industry has seen in years.

The group's big bet that securities backed by risky home loans would fall in value generated nearly $4 billion of profits during the year ended Nov. 30, according to people familiar with the firm's finances. Those gains erased $1.5 billion to $2 billion of mortgage-related losses elsewhere in the firm. On Tuesday, despite a terrible November and some of the ...

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy
KEYWORDS: goldmansachs; mortgage; subprime; wallstreet; windfall
Article summarized and further commentary here:

What Does Goldman Know That We Don't?

http://www.bloomberg.com/apps/news?pid=20601039&sid=a5hq2xXdftEo&refer=home

1 posted on 01/18/2008 5:48:51 PM PST by Lorianne
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To: Lorianne
http://www.bloomberg.com/apps/news?pid=20601039&sid=a5hq2xXdftEo&refer=home
2 posted on 01/18/2008 6:02:51 PM PST by SunTzuWu
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To: Lorianne

Many knew it, but acted as if they did not know it.

A really smart guy has the self-confidence to act, even if others are not.


3 posted on 01/18/2008 6:03:57 PM PST by proxy_user
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To: SunTzuWu

thanks


4 posted on 01/18/2008 6:14:59 PM PST by Lorianne
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To: Lorianne
Thank you for posting this.

I was pleased this week to be part of a delegation of lenders, lot developers and homebuilders to attend a meeting with the editorial board of the highest-circulation newspaper in our state.

Even though we explained that they should stop using words like "crisis", "disaster", and "meltdown" when these events describe a few needed market corrections on the eastern seaboard, southern California and Arizona, they refused to listen.

This event has all the earmarks of the "Tulip Hysteria" of the mid-1600's.

5 posted on 01/18/2008 6:23:45 PM PST by elkfersupper
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To: elkfersupper

Okay, you can add Michigan, but the “Detroit Syndrome” is more related to a failure of socialism and attempted centralized planning than market forces.


6 posted on 01/18/2008 6:30:59 PM PST by elkfersupper
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To: Lorianne
Those Traders that followed their instincts and earned the billions for the company will reap huge comp. bonuses, then be crucified as having been earning "obscene incomes".

No financial gains are EVER the product of innovation or skill, in the eyes of Socialists/Democrats, and MUST be taken and given to the low-end of the food chain to keep them voting Democrat.

7 posted on 01/18/2008 6:35:58 PM PST by traditional1 (Thompson/Hunter '08)
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To: Lorianne

Great article, thanks for the post.


8 posted on 01/18/2008 6:38:56 PM PST by Sawdring
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To: Lorianne

You mean one persons loss is anothers gain?

Whhooddduaaa thought listening to the Lamestream Media...


9 posted on 01/18/2008 6:43:33 PM PST by ChinaGotTheGoodsOnClinton (To those who believe the world was safer with Saddam, get treatment for that!)
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To: traditional1

“Those Traders that followed their instincts and earned the billions for the company will reap huge comp. bonuses, then be crucified as having been earning “obscene incomes”.”

No, they won’t goldlman is a Democratic firm.


10 posted on 01/18/2008 6:55:02 PM PST by bilhosty
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To: traditional1

Well, you gotta wonder whether there might possibly be a conflict of interest when one group shorts all the stocks of companies that another group of the same company has been doing business with. (Namely, selling them CDOs and so forth.)


11 posted on 01/18/2008 6:55:15 PM PST by coloradan (Failing to protect the liberties of your enemies establishes precedents that will reach to yourself.)
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To: bilhosty

Goldman doesn’t have incentive comp?


12 posted on 01/18/2008 6:56:48 PM PST by traditional1 (Thompson/Hunter '08)
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To: coloradan
"you gotta wonder whether there might possibly be a conflict of interest when one group shorts all the stocks of companies that another group of the same company has been doing business with"

Happens all the time in ALL commodities. There have been (and I suspect still are) trading operations that keep only their top 10 performing Traders each year; the rest are gone. Then, new Traders come into the competition to enter the process....Traders tend to be independent functionaries, within their allowed limits.

13 posted on 01/18/2008 6:59:16 PM PST by traditional1 (Thompson/Hunter '08)
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To: Lorianne

It sure doesn’t hurt when your former CEO is made the sec. of the treasury.

Talk about insider knowledge!


14 posted on 01/18/2008 7:26:48 PM PST by Travis McGee (---www.EnemiesForeignAndDomestic.com---)
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To: Lorianne

I love GS.

If I were to get my finance degree, I’d be in their offices immediately.


15 posted on 01/18/2008 7:56:50 PM PST by abercrombie_guy_38
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To: traditional1

Totally different. If someone buys or sells copper or feeder cattle (or cattle futures, right Hillary?) and makes a bundle, that’s all well and good. But if one part of Goldman Sachs creates CDOs and SIVs and represents them as investment-grade securities, and sells them to ML and Citi and JPMorgan, and meanwhile another branch of Goldman Sachs, knowing about the transactions, sells ML and C and JPM short and makes a bundle, that isn’t like the commodities case at all. It would be more like Coldman Sachs having one unit that sold steel gondola cable to other companies, while another branch who knew about how the cable was made, sold the cable buyers short - and made a bundle when they went abnkrupt from so many of the cables snapping and killing people.


16 posted on 01/18/2008 8:08:55 PM PST by coloradan (Failing to protect the liberties of your enemies establishes precedents that will reach to yourself.)
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To: coloradan
What you're saying is that anyone who takes a "long" position on a commondity, then becomes aware of a trend/cause for concern and hedges by "short" positions on the SAME commodity; that's not allowed?

If I'm selling a product that becomes known to be inferior to a subsequent product, I should eat the loss on my low-end inventory, or can I discount it and sell it to limit my loss?

ONLY when a customer is FORCED to buy the inferior product (such as with government intervention/regulation) is there a problem, in my estimation, such as forcing TAXPAYERS to bail out the sub-prime/unqualified buyers who face foreclosure because they were ORDERED to be given loans or the lender would face "red-lining" charges in courts....

When complex commodity trades are un-raveled, portrayal of self-dealing can always be made, but the hedging that's done EVERY DAY boggles the mind of most. Going naked and rolling the dice on a positon, with no hedges in place to limit losses is a recipe for disaster, and computer home traders do it all the time....

17 posted on 01/19/2008 3:39:23 AM PST by traditional1 (Thompson/Hunter '08)
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To: traditional1

What I understand is that some people at GS knew or very strongly believed that the CDOs being created and sold by another part of the firm were financial toxic waste and would destroy the balance sheets of the companies buying them. This while they were being represented to the outside world as high-grade investments. GS doesn’t make copper or cattle, so any trades they do on these markets are purely speculative. But they themselves created the CDOs; they knew exactly what was in them. Like a cattle producer who processes diseased cows or sub-strength cables and sells them as prime, (and then shorts the buyers, knowing that they will soon face real trouble). I don’t see this as hedging, I see this as fraud.


18 posted on 01/19/2008 6:05:45 AM PST by coloradan (Failing to protect the liberties of your enemies establishes precedents that will reach to yourself.)
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To: coloradan
One man's "fraud" is another man's hedge, I suspect.

Continued sale of a known defective product (or instrument) is actionable, I suspect.

19 posted on 01/19/2008 7:09:09 AM PST by traditional1 (Thompson/Hunter '08)
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To: elkfersupper

>>>>>they refused to listen....

They are the propaganda wing of the DNC. The war has been won and lost as a factor to flog in the election. They only have the economy as an issue.

The fact that it is actually good is irrelevant. They have decided nation wide to destroy the economy to achieve poewer again. The newspaper you visited is our enemy as surely as is Al Queda.


20 posted on 01/19/2008 7:14:17 AM PST by bert (K.E. N.P. +12 . Moveon is not us...... Moveon is the enemy)
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