With so much effort put into attacking Goldman Sachs over profiting from the housing bubble you might think that Goldman Sachs actually caused the bubble. Goldman is being held responsible for AIG's foolish bet that bubble era mortgage securities were sound.
WASHINGTON — A congressional commission pressed Goldman Sachs executives Wednesday to spell out how much their company has earned from its exotic bets against the housing market, including $20 billion in wagers that helped force a $162 billion taxpayer bailout of the American International Group.
It takes two to tango. Goldman couldn't have bet on a collapse of the housing bubble without AIG there to bet that This Time Is Different. Of course, AIG was betting the same way that the US government was betting at the time. Goldman is being blamed for betting against the conventional wisdom of the day.
Many of Goldman's trades with AIG offset protection it wrote for clients on mortgage securities, but McClatchy reported Tuesday that Goldman wagered its own money on some swaps purchased from AIG.
But I have a question: Who decided to have a big housing bubble that would inevitably collapse whether or not Goldman bet against mortgage securities? Who created the conditions that made Goldman's bet possible? Was it Goldman? Nope, not really. So who did the dirty deed? Top inflators Fannie Mae and Freddie Mac led the charge. Fannie and Freddie are creations of Congress. Congress is part of the government.
Countrywide Finance, Washington Mutual, and a whole host of other retail banks (and Goldman is not a retail bank to any appreciable extent) did the field work of generating the mortgages to sell to Freddie and Fannie.
The US government promoted the housing bubble. George W. Bush and Congressional Democrats were united in their desires to see more poor NAMs take on more mortgages regardless of their credit worthiness. The Federal Reserve supplied the liquidity to make it happen.
So what is going on here? The guilty are trying to use Goldman Sachs as a fall guy. They are trying to shift attention away from their own culpability.
|Share |||By Randall Parker at 2010 July 03 09:07 PM Economics Housing|