McClatchy Newspapers’ four-part series on Goldman Sachs is not merely a story of profligacy and corruption at one prestigious financial institution — though, of course, it is that.
Nor is it just one more snapshot of the arrogance and excess that preceded the financial meltdown from which we are still struggling to recover — though, of course, it is that as well.
Mostly the Goldman Sachs series is, or ought to be, a cautionary tale about recklessness and greed, about ill-conceived incentives to take high risks for quick profits at the expense of long-term economic health — of a company, and a country.
Hindsight, diligent reporting and devastating economic consequences have revealed so many holes in accounting and accountability processes, both private and public, that it’s still hard to understand how virtually every safeguard in the mortgage lending infrastructure was allowed to collapse. And yet, somehow, that is exactly what happened.
Somehow, Goldman Sachs was able to channel billions in junk loans through offshore accounts in the Cayman Islands and elsewhere, packaging those loans as high-rated bonds. By such means was Goldman able to avoid the worst of the subprime mortgage crash. In all, Goldman bought and repackaged more than $135 billion in creaky loans, most originally granted by companies like New Century Financial Corp. that have since tanked under the weight of gross fiscal mismanagement.
The forensics of this meltdown show intense, sometimes obscene pressures within financial institutions to cash in on a formerly growing mortgage market, and Wall Street’s demand for quick turnarounds and higher profits.
Goldman Sachs Mortgage in 2007 was approving loans of 90 percent of a home’s value, to clients whose financial status would never be checked. Account executives received commissions for recruiting clients; if those clients later defaulted on their mortgages, it became everybody else’s problem.
At the top level, the incentives for financial recklessness were even more tempting. Investment banks, including Goldman, could take a 1 percent fee for bundling groups of bonds — backed by subprime loans. That means an up-front take of $10 million for every $1 billion bundle of what was often mostly worthless paper from defaulting mortgage holders.
Such incentives, combined with a regulatory infrastructure obviously inadequate to the task, made the ground for abuse all too fertile. After-the-fact revelations of what went on within the walls of Goldman Sachs and other financial institutions make the collapse look, from this juncture, virtually inevitable. Those who saw it coming weren’t listened to; those who profited from it weren’t stopped. And the rest of us will be paying the price for years.
— Dusty Nix, for the editorial board
E-Mail
Print
@Nyx.CommentBody@