How’d ya think they managed this?
As the credit markets fell apart over the summer, causing the prices of hundreds of billions of dollars of mortgage-backed bonds to plunge, Goldman Sachs (Charts, Fortune 500) had already positioned itself so that it would profit massively from a decline in those securities. Thursday, Goldman reported earnings for its fiscal third quarter that were far above expectations.
Let’s review some history…
Goldman Sachs has a long history of sending some of its best & brightest to positions in the government, as this cloying homage points out.
Some “interesting” manipulations by Goldman Sachs in fall 2006 led to a massive drop in gasoline prices shortly before the 2006 elections, not that it saved the Republicans…
Now, GS is one of the few firms to come out smelling like a rose at this point in the subprime fiasco via some shrewd shorting of mortgage securities.
The CNN article also reports that Goldman hit a home run by “Amassing a large bearish position in mortgages would have required planning and direction from a senior level… [and] the bet was executed across the whole mortgage business, implying that it wasn’t the work of one swashbuckling trader or trading desk.”
Goldman wasn’t the only large firm to bet this way from the looks of it, but they took the biggest risk and received the largest payout. It’s tempting to wonder if someone in Goldman perhaps received a tip or other information in advance. Rumors abound on the net that Dick Cheney, who left Halliburton to become Vice President, has a cushy job waiting for him at his old firm when he leaves office. Considering the way oil prices (and Halliburton’s profits) have spiked during the Bush regime, I’m not surprised. Perhaps in the same vein, Mr. Paulson will be welcomed back at Goldman once his term is finished.