BAILOUTS AND BONUSES – BUT NOT FOR HOMEOWNERS
What are things coming too? I follow the financial markets very closely, as it not only effects my own personal wealth, but also to track and educate clients on how the activities, and actions taken by our Government distill to the general public.
On Tuesday, April 27th, Goldman Sachs executives testified before a Senate subcommittee on investigations into potential acts of unethical and even fraudulent activities committed by Goldman Sachs.
Goldman Sachs sold pools of mortgages (which included a high percentage of subprime mortgages) which at the time were rated as high as AAA investments to investors. Goldman Sachs sold these investments “long” (meaning the investor would make money if the loans performed as they were rated). At the same time Goldman Sachs was selling those AAA mortgage pools to investors, Goldman Sachs was “shorting” (betting the investment would drop in value or default) those very same mortgage pools in anticipation that those mortgage pools would suffer losses through loan default. It was a great bet. Those mortgage pools rated AAA by Moody’s and Standard and Poor’s defaulted at an alarmingly high rate.
Creditors were wiped out. Stock holders suffered substantial losses. Millions of homeowners lost (and continue to lose) their homes. Several European countries are on the verge of default. The global economy is now awakening from a U.S. housing boom hangover.
Goldman Sachs on the other hand made billions of dollars betting against those mortgage pools they were selling to investors. The U.S. Government even paid $13 billion to Goldman for bets it made against the mortgage bonds that AIG insured, but was unable to repay. AIG was bailed out by the U.S. government to the tune of $180 billion dollars.
As Goldman Sachs gets grilled by the Senate subcommittee on unethical and fraudulent activity, Goldman Sachs stock price closed up $1.01 on April 27th as the Dow Jones falls $213.04. Shares finally tumble 9% on Friday as Goldman Sachs rating is finally cut.
Lehman Brothers and Bear Sterns were allowed to fail, but most of the large Wall Streets banks were bailed out or broker off by the U.S. Government. CEOs and top executives in most cases were not fired, and still received huge year end bonuses; for making disastrous bets.
As the dust begins to settle and the U.S. housing market begins to show some signs of recovery, there will be no bailouts or bonuses for homeowners. Tax payers will simply float the bill for one of the largest financial disasters to hit the U.S. economy; as Wall Street firms continue to make billions. A broken system or capitalism at its finest?
If you have any questions, please give me a call (208) 866-8388 or email lesliewrightrealestate@gmail.com I am a licensed real estate agent in Boise Idaho. Lots of good nuggets available at www.LeslieWrightRealEstate.com – please join me there. Thanks.
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