Former Treasury Secretary Henry Paulson
· While Paulson was CEO of Goldman Sachs, (May, 1999 – June, 2006) at the height of the boom, in 2006, Goldman underwrote $76.5 billion in mortgage-backed securities, or 7% of the entire market. Of that $76.5 billion, $29.3 billion was subprime and another $29.8 billion was what’s called “Alt-A” paper. Alt-A mortgages are characterized, mainly, by lack of documentation and lack of equity: no income verification, no asset verification, little-to-no cash down. Thus, 38% of the mortgage-backed securities Goldman underwrote were subprime, and more than three-fourths of their securities were what is called “non-prime,” i.e., either subprime or Alt-A.
· The Paulson-era Goldman Sachs bonds have an average delinquency rate of almost 22% – higher than most of the other bonds. Many GSAMP (Goldman Sachs Alternative Mortgage Product) trusts have been cut to junk bond status and are selling at less than 47% of the original investment.
· Goldman set a Wall Street record for securities firm’s profits in 2007.
· Goldman’s biggest creditor was AIG (through financial guarantee insurance) so Goldman was a major beneficiary of the 2008 bailout of AIG.
· Goldman profited from the losses in its subprime portfolios by using derivatives to bet that the value of the mortgage securities would continue to fall. (Goldman says: “Less than 1% of bonds had this protection.’”)
· Paulson’s Compensation? Goldman paid a salary to Paulson of $38.5 million for 2005. Paulson also regularly received bonuses of over $10 million.
“While we regret that we participated in the market euphoria and failed to raise a responsible voice, we are proud of the way our firm managed the risk it assumed on behalf of our client before and during the financial crisis,” Lloyd Blankfein, CEO Goldman Sachs, Testifying Before Congress, June, 2010 (This quote is now called “the greatest non-apology of all times.”)
“Penalizing Wall Street for packaging mortgage loans is not the answer to the problem.” Henry Paulson, October 16, 2009, Georgetown University
“But it sure is a good place to start.”
Lynn Szymoniak, July 13, 2010, West Palm Beach, FL
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