McClatchy’s Greg Gordon reports that Goldman knew that mortgages were not being properly reviewed
GREG GORDON, MCCLATCHY NEWSPAPERS (VOICEOVER): This is Greg Gordon of McClatchy Newspapers. When the housing bubble burst and millions of Americans defaulted on their subprime mortgages, few places were harder hit than the Southern California city of Moreno Valley. As many as half the residents of this neighborhood lost their $300,000-$400,000 homes in foreclosures, or in sales for less than their mortgage balances. It’s no longer a secret that Wall Street made a big contribution to the millions of loan defaults that crashed the US and global economies. Big investment banks created a $2 trillion market for risky mortgages, converted them to high-yield bonds, and then sold them off for handsome fees. What’s puzzled many, though, is how the blue-chip firm headquartered at 85 Broad Street in Manhattan, Goldman Sachs, got so involved in the market for risky loans. Goldman was far from the biggest player, but it sold more than $135 billion in bonds backed by risky mortgages. Goldman and other Wall Street firms contracted with risk analysts, including Californians Irma Aninger and Melissa Toy, to review thousands of subprime mortgage files. Aninger said she was stunned as she saw from loan applications how much credit standards had deteriorated from 2004 through 2006.
IRMA ANINGER, RISK ANALYST: A gardener making $10,000 a month. A checker at Wal-Mart making $5,000 a month. What else was there? Oh, they were ridiculous.
GORDON: Aninger and Toy said they appealed to their superiors to reject shaky loans in which lenders had required no verification.
MELISSA TOY, RISK ANALYST: At times I didn’t understand why we were even working, because they were overriding our decisions, or if we question anything. If we tried to decline a loan, they were going beyond us and approving them.
ANINGER: The whole thing didn’t make any sense to me. That’s why I said earlier I didn’t even know why I was there, because the stuff was going to get pushed through anyway.
GORDON: Yet of all the Wall Street firms, Goldman was the only one that seemed to anticipate trouble ahead and safely exited the subprime market. A five-month McClatchy investigation found that in 2006 and 2007, Goldman sold more than $40 billion of the risky securities. At the same time, Goldman was secretly betting that the housing market would drop sharply and send the values of the securities it sold plummeting. Many of the buyers of Goldman’s bonds, including pension funds, insurance companies, foreign banks, and other institutions now face big losses. A spokesman for Goldman says it had no obligation to disclose its secret bets to its investors. But some securities experts say the Wall Street colossus may have violated federal disclosure laws. Greg Gordon for McClatchy Newspapers.
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