A Rant

Filed under: Market Comentary

It took our government three years to figure out (or at least publish) what the rest of us figured out two to three years ago.  The housing crisis we have been in for years now would never have been possible without the lies, conflicts of interest, deceit and greed of Goldman Sachs and the rating agencies, Standard & Poors and Moody’s. 

Many news outlets are reporting today about a 635 page report released yesterday by the US Senate on this topic.  Here’s a link to one short article found on CNBC.com this morning – http://www.cnbc.com/id/42576329.  According to this article, the report finds that banking giants were selling mortgage backed securities investments to their largest clients, securities which had the highest rating available through the rating agencies, while they were actually betting against the investments through their own proprietary trading.  

Does anyone remember Pete Rose?  Of course you do.  He was absolutely shredded to pieces the by the public, the media and the government for betting on baseball while he was involved in a management role in the league.  To the best of my knowledge he never actually bet against his own team though.  Now we have Goldman Sachs.  They were making tens of billions of dollars selling investments that their own organization was betting against. 

Don’t think Goldman Sachs has escaped this whole mess unscathed though.  Last year they were drug into court, and after a short trail they were ordered to pay $550,000,000 (that’s $550 million) in fines.  Wow, that seems like a ton of money.  Let’s look at the numbers though.  Goldman’s 4th quarter net income for 2010 was reported to be $2.4 billion, which, historically speaking for Goldman, wasn’t a huge quarter.  If you annualize that number their yearly net income would be $9.6 billion.  That would mean the fines Goldman was ordered to pay were about 5% of one year’s net income.  How does this compare to the price paid by Pete Rose?  Let’s assume Pete Rose makes $1 million per year.  Five percent of a million is $50,000.  I’m certain that just his legal fees were well over $50,000.  

I don’t believe Pete Rose should be nominated for sainthood, but there definitely seems to be a huge discrepancy in the punishment for the crime of betting while having a stake in the outcome.  Think about the tangible impact of what Goldman Sachs has admitted to doing vs. what Pete Rose did.  It’s an absolute joke what Pete Rose has paid, relatively speaking. 

Don’t get me wrong.  I definitely believe there is plenty of blame to go around for the mess we are all facing in housing.  Loan officers were certainly selling these cruddy loans and making good money doing it, and the general home buying public was certainly caught up in the amazing increases in home prices fueled by the unrealistic lending products.  It seemed that everyone was drunk on the juice that was the mid-2000’s housing market. 

Nobody will ever read the entire 635 pages of the government report on the housing debacle, but I’m going to surmise that the government wants us to use the report as a lesson on what we should do in order to not duplicate the mistakes that have gotten us to where we are today with housing.  Based on the punishment, or lack thereof, already handed down to Goldman Sachs, or any other parties involved, I’m thinking the lessons are very unlikely to have any real impact.  Just my humble opinion. 

P.S.  Sorry to Pete Rose for drawing the comparison between him and Goldman Sachs. If anything, it was my intention to show how far out of whack the priorities of some really high level decision makers in our country are.

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