Michael Lewis Was Right
Today’s lead financial news story appears to be the just-released U.S. Senate report on the financial crisis (formal title of the 650-page report, “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse”).
Not much new news, at least as far as I can tell: the mind-boggling greed and skulduggery of actors such as Goldman Sachs — and their lack of accountability through, well, today — has been in the news (and on the blogs) for at least three years now.
But what jumped out at me was this nugget:
The [Senate] report uncovered a new aspect of Goldman’s mortgage activity during 2007. That year, as Goldman tried to build its bet against housing, the report says, it drove down the cost of shorting the mortgage market by squeezing those who had made negative bets. Goldman tried to put on the squeeze, the report noted, so that it could add to its negative bets more cheaply and protect itself against the housing collapse.
–“Naming Culprits in the Financial Crisis“; The New York Times (4/13/2011)
Fans of Michael Lewis’ superb “The Big Short” will recall that this was precisely the charge hurled at Goldman Sachs by “small fry” investors who were early to short the housing market, only to find relative latecomer Goldman Sachs trying to muscle them out by manipulating the prices of CDO’s and other credit derivatives.
P.S.: if you don’t have a weekend free to read “The Big Short,” take two hours to watch Charles Ferguson’s “Inside Job,” the Oscar-winning documentary on the financial crash.
Combined, the two works offer a primer on the dynamics of the housing bubble, Wall Street’s role, and the subsequent financial melt-down.