From Reuters reporting on a Wall St. Journal article

"Goldman Sachs is in talks to buy millions of dollars of tax credits from government-controlled mortgage giant Fannie Mae, but the deal is running into opposition from the U.S. Treasury, The Wall Street Journal reported Monday."

"Tax credits are incentives designed to bring more investment to low-income housing developments."

Ironically... Part 1 of a fascinating story is just now breaking about an extensive investigation into Goldman Sachs secretly betting against the housing market While it was Peddling Billions in Mortgage Securities.

"In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk."

Ummm... and then collected Billions in Taxpayer Dollars for a bailout while a major competitor was allowed to fail?

"For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst."

The Bailout of AIG also enabled Goldman Sachs to collect $12.9 Billion in those hedged bets against the housing market.

So... Let's summarize this into a simple paragraph...

Pour a bunch of money into a market where the originators rubber stamp the loans through and give a home loan to anybody willing to sign some documents. The recipients turn around and buy up homes which drives up the prices for everybody. Bundle these up in securities and sell them off as Triple A rated "safe" investments to pension funds and insurance companies. Then... buy up some credit default swaps betting that these same securities you are pawning off as Triple-A rated "safe" investments will be defaulted on. Cut off the investment money for the exotic loans, Wait for the defaults and collect your insurance money.

Make Billions.

Certainly a Fascinating Investigation and Part 2 promises some more worthy reading material.

"Since the economic collapse that swept millions of Americans out of their jobs and homes, Goldman Sachs has moved aggressively to recover losses. The firm is pursuing shaky borrowers into federal bankruptcy and state courts across the country and seeking to seize their homes. McClatchy examines one family's multi-year attempt to get Goldman Sachs to admit that it had purchased their mortgages."

Part 3 - Unloading the Securities to foreign Banks in offshore Meetings

"The Cayman offering - one of perhaps dozens made through the British territory - occurred as Goldman began to ditch the subprime mortgage business before the U.S. housing market collapsed under an avalanche of homeowner defaults."

And then..

"The 2006 Cayman deal was part of a flurry of Goldman activity in the hidden, unregulated parts of the securities industry. Goldman's traders also made huge bets that those securities would lose value by buying insurancelike contracts, called credit-default swaps, with private parties. Beginning early in 2007, they bought swaps on a London-based exchange."

Part 4 - Associations with Junk Loan Originators

"Goldman has yet to explain why it risked its blue-chip reputation and financial health to buy and repackage at least $135 billion in loans mostly originated by companies that have since gone bust."

As we know... loan originators that were funded with Billions of Dollars of investment money were rubber stamping loans through... which resulted in high home prices for everybody as people were practically handed money to go out and buy homes with no money down.

"Traversing the country in private jets and zipping around Southern California in Mercedes-Benzes, Porsches and even a Lamborghini, New Century executives reveled as the firm's annual residential mortgage sales rocketed from $357 million in 1996 to nearly $60 billion a decade later."

Guess who is getting stuck with the bill?

Paul Francis, CRS
Prudential Americana Group
Las Vegas Real Estate - Summerlin Homes
702.592.3058