Banks Bundled Bad Debt, Bet Against It and Won
By Gretchen Morgenson and Louise Story
New York Times
December 24, 2009
Goldman was not the only firm that peddled ... complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.
One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.
Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.
And some links:
Master of Disaster, John Dugan, Comptroller of Currency, from Chris Whalen at The Big Picture
John Dugan: Architect of “Too Big to Fail” Banks from Barry Ritholtz, also at The Big Picture
The Lost Science of Political Economy from Michael Hudson at Economic Perspectives from Kansas City
Sustaining Recovery: Medium-Term Prospects and Policies for the U.S. from Dimitri B. Papadimitriou, Greg Hannsgen, and Gennaro Zezza at the Levy Institute