Cashing in on Broken Dreams

For those of us trying desperately to wrap our heads around the Security and Exchange Commission’s allegations against Goldman Sachs, the Wall Street Journal’s recent article on the alleged fraud is a real boon.  The article is clear and concise (or at least as clear and concise as can be expected when a describing multi-stage transaction that involved more than 500,000 mortgages in 48 states), and, perhaps just as importantly, it frames the events in a way that recognizes that the economic collapse was a fundamentally human event—caused by human greed at the cost of human suffering, and leading to even greater human suffering.

According to the article, the allegations involve a massive bet, booked by Goldman Sachs and placed by hedge fund manager John Paulson, that would pay off if people across the country could not pay their mortgages.  He allegedly took a particular interest in adjustable rate subprime loans issued to people with poor credit scores, rightly believing that the people who had taken out these shady mortgages didn’t really understand how big their monthly payments would eventually become.  As we all now know, Mr. Paulson was all too right, and he profited to the tune of more than $1 billion as foreclosure rates shot up.

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