Maxine's Links for November 5 2009

Award-winning McClatchy News provides the results of a 5 month investigation of Goldman Sachs

 A five-month McClatchy investigation reveals how Wall Street colossus Goldman Sachs peddled billions of dollars in shaky securities tied to subprime mortgages on unsuspecting pension funds, insurance companies and other investors when it concluded that the housing bubble would burst.

If you read nothing else this week, read this series of articles, please.

McClatchy's State by State breakdown of mortgage defaults and delinquencies

The rate of mortgage delinquencies has skyrocketed since 2004, when only 1 percent of traditional mortgages, known as prime, were 60 days in arrears and just 1.5 percent were in foreclosure. Even mortgages given to risky borrowers, known as sub-prime, had low rates of trouble then — 4.5 percent were 60 days late and 3.82 percent were in foreclosure. By July 2009, those rates were unbelievably high, as the chart below shows.

 Maxine will award points to anyone who can explain to her how this could possibly reflect the efficient allocation of capital.

Goldman Sach's Secret Bets Against Subprime Loan Recipients

 McClatchy's Greg Gordon details how Wall Street colossus Goldman Sachs sold billions of dollars worth of risky bonds, while secretly betting that the housing market would drop and send the values plummeting.

 Maxine is shocked...shocked....oh, wait. No. The business of business is business and if you don’t believe her, read about death futures below.

San Jose couple stands up to Goldman

Meet the Beckers, a California couple who stood up to Wall Street colossus Goldman Sachs in a multi-year battle to save their modest San Jose home.

 Remind Maxine please: why is it that we’re more afraid of the guvmint than we are of big business? Money and power in anyone’s hands, private or public, is a dangerous combination.

Forbes on the Death Futures Market

The market for the buying and selling of life insurance policies for investment purposes had a rational basis in the beginning. Increasingly, though, this market is evolving into transactions where the main purpose is to charge exorbitant fees and commissions. Life insurers are also going after the wealthy elderly, convincing them to rent their high net worths and their lives to become insured for the sole purpose of then selling the life insurance policies.

 Let’s see...these are the same companies who are going to provide sub-prime health insurance in private markets more efficiently than the feds...sure they are.

NYT: Wall Street Pursues Profits in Bundles of Life Insurance

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die. The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. “It’s not an investment product, a gambling product.”

Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.

Let’s hope the investors never learn the names of the people they’ve bet will die early. Maxine has no confidence that they won't find some way to "improve" the odds of an early (and larger) payoff. And let's hope the sub-prime version of this market is stopped before it gets started. Maxine isn't saying that old people shouldn't be able to sell their life insurance policies if they need the cash. She's saying the market needs to be regulated and transparent and the elderly need to be fully informed.

Goldman Sachs.  Maxine will say it again: please remind me why we’re all afraid of the guvmint, but we’re not afraid of big business?  Or, worse,  guvmint married to big business?