What a pleasure it is to see Bank of America running from its fees program and everyone’s favorite investment bankers facing $15.8 billion in lawsuits over the sub-prime mortgage hocus pocus they helped pioneer and from which they derived great wealth even after the 2008 implosion.
Goldman Sachs Group Inc submitted a regulatory filing that states the bank is facing lawsuits to the tune of $15.8 billion related to their sub-prime mortgage machinations.
In 2007, with the sub-prime mortgage crisis not long off, Goldman Sachs and hedge funder manager John Paulson teamed up to bundle 3,000,000 sub-prime mortgage loans together into a collateralized debt obligation called ABACUS 2007-AC1, and then shorted mortgages to unwitting investors. John Paulson made $1 billion (Goldman took a $15 million cut) and investors lost $1 billion.
A new SEC proposal would ban these sort of financial instruments, but Goldman Sachs, once triumphant in the spoils of the sup-prime mortgage bonanza, is looking more and more impotent every day. Aside from an SEC assault, they are being hit by investors and foreign banks.
According to Reuters, “Goldman said HSH Nordbank, Norges Bank Investment Management and IKB Deutsche Industriebank AG have threatened to assert claims related to mortgage offerings, in addition to insurance giant American International Group Inc and Manulife Financial Corp’s John Hancock unit, whose legal threats it disclosed last quarter.”
$11.1 billion of the $15.8 billion figure stems from lawsuit filed in September by the Federal Housing Finance Agency, which accused Goldman of misrepresenting the quality of $11.1 billion worth of mortgage-backed securities.
Capitalists eating their own. Priceless.
And for a bank that deals in a great deal of illusion, Goldman Sachs is getting one hell of a dose of reality.