Senate report to reveal mortgage crisis details: WSJ

The Journal said the Senate investigation's findings
would likely expose bad blood between
Goldman and Morgan Stanley
© AFP/Getty Images/File Chris Hondros

AFP

WASHINGTON (AFP) - The Senate will soon issue findings of a probe of the US mortgage meltdown that fueled the global financial crisis, with Goldman Sachs likely to face fresh embarrassment over its role, the Wall Street Journal reported Sunday.

The Senate Permanent Subcommittee on Investigations, whose high-profile inquiry commission subpoenaed Goldman's and other executives last year, is due to release its report on the subprime implosion of 2007 and 2008.

The paper, citing people familiar with the matter, said the report was expected to release emails from securities firms that developed or sold subprime mortgages and financial vehicles including collaterized debt obligations (CDO).

CDOs were used to help Wall Street firms bet against the housing market. When the housing bubble burst, several of the top CDOs were downgraded to "junk" status, and their values plunged.
Goldman, the Journal reported, created CDOs in 2006 and 2007 to shield its exposure to the US housing market, and has been accused of making large bets against the market while selling bullish positions to group that were not expecting the market to fall.

People familiar with the matter said Goldman and Deutsche Bank -- both of which have been criticized for misleading investors in the housing market -- were expected to draw particular scrutiny in the report, the Journal said.

In January, Goldman said it was renewing its commitment to the "primacy" of client interests, and laid out 39 recommendations stressing greater transparency in how the company does business, especially with regard to its own private trading and potential conflicts of interest.

The Journal said the Senate investigation's findings would likely expose bad blood between Goldman and Morgan Stanley, another Wall Street giant, over their roles in a deal involving a CDO called Hudson Mezzanine Funding 2006-1.

According to the Journal, Goldman had sold insurance on the CDO, allowing the company to make money if and when the loans backing the deal began to default.

The Senate report was expected to disclose that Morgan Stanley was a key counterparty in the Hudson deal, said the paper.

It said Morgan Stanley's involvement in the deal was one of the company's bad mortgage bets that contributed to its $9.0-billion trading loss in 2007, while Goldman's mortgage division lost some $1.2 billion in 2007 and 2008, the worst years of the crisis.

© AFP -- Published at Activist Post with license

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US Treasury to sell $142 bn worth of toxic assets

© AFP/File Karen Bleier

AFP

WASHINGTON (AFP) - The US Treasury Department on Monday said it would begin to sell-off toxic assets worth an estimated $142 billion, in an effort to close another chapter of the financial crisis.

"We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market," said Treasury official Mary Miller.

The department said it would offload up to $10 billion in mortgage-backed securities (MBS) -- assets which bundle together large numbers of often distressed mortgages -- each month.
The products, secured by state-backed mortgage giants Fannie Mae and Freddie Mac, were bought as part of the 2008-2009 financial sector bailout.

Their value plummeted after the housing bubble popped, prompting fears that a spat of asset write-downs could drag down individual banks and further plunge the financial system into panic.

The Treasury said the market for asset-backed derivatives is now much more robust, three years after the depths of the crisis.

"The market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009," it said in a statement.

The Treasury hopes to net $15-20 billion profit from the sale, depending on market conditions.

The Treasury has also recently offloaded equity stakes in Citigroup, General Motors, Ally Financial and AIG it took to help them survive the crisis.

US insurer American International Group recently offered to buy back $15.7 billion in mortgage-backed securities from the Federal Reserve as part of its efforts to emerge from a government bailout.

© AFP -- Published at Activist Post with license

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