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How Did Goldman Sachs Make Money From 2008 Housing Crash?
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[QUOTE="Astronuc, post: 5564234, member: 15685"] Apparently Goldman recently (January 2016) settled with the government on this matter. [URL]http://www.reuters.com/article/us-goldman-sachs-settlement-idUSKCN0US2SI20160114[/URL] One has to look at individual deals. One, Abacus, completed in April 2007, in which John Paulson took the short side involved two major investors who took the long side: IKB, a large German bank, and ACA Capital Management, a New York-based investment firm. However, Paulson apparently worked with ACA to choose the 90 underlying mortgage-backed securities, which would seem to be a conflict of interest. Paulson and his company made about $20 billion on such deals. [URL]http://knowledge.wharton.upenn.edu/article/goldman-sachs-and-abacus-2007-ac1-a-look-beyond-the-numbers/[/URL] Short side means the investment in question decreases in value (due to defaults) while the long side means the investment retains or increases in value (mortgages are paid). Counterparties to Goldman's deals were other financial institutions and possibly some institutional clients. I don't know if GS took the short side on any deals. John Paulson took short sides on a number of deals that Goldman put together. One should read Michael Lewis's The Big Short, which describes some of what was going on during the 2005 - 2009 period. An excerpt from Lewis's book: [URL]http://www.vanityfair.com/news/2010/04/wall-street-excerpt-201004[/URL] From the Vanity Fair article, "Goldman Sachs made it clear that the ultimate seller wasn’t Goldman Sachs. Goldman Sachs was simply standing between insurance buyer and insurance seller and taking a cut." So as Vanadium indicated, GS was collecting fees for brokering the deal. Of course, Goldman is not going to admit that they knew the MBSs/CDOs were going bad in 2007-2009, but I would imagine they (and others) did know that was the likely outcome for securities based on sub-prime mortgages. [/QUOTE]
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