By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (87) | November 1, 2009 | Bad Products & Services, Wall Street Ethics

Goldman Sachs, one of the most visible names on Wall Street, may have scammed investors when it sold $40 billion of securities that were backed by 200,000 high risk home mortgages.

A McClatchy newspaper investigation reported Goldman Sachs passed most of its potential mortgage losses on to unsuspecting investors when it sold them “subprime” mortgage-backed securities before the market was flooded with loan defaults. Not only did Goldman Sachs get these toxic assets off its balance sheet, it also made secret company bets that enabled it to benefit from the collapse of the real estate market.

McClatchy’s investigation found Goldman did not disclose this major conflict of interest to investors, which may have been a violation of securities laws. Laurence Kotlikoff, a Boston University economics professor, said ”The SEC should be very interested in any financial company that secretly decides a financial product is a loser and then markets the product to investors without disclosing its true opinion.”  However, a Goldman spokesman said, “the company had no obligation to disclose how it managed its investment risk.”

Don’t be naive. The investment risk was passed on to investors who were lulled into a false sense of security by the Goldman Sachs name. Plus, there was no way Goldman would tell the truth about the securities. The truth would have negatively impacted sales. Goldman also had to keep their bets on the collapse of the real estate market secret. It was proof they knew what was going to happen, but chose not to disclose this information to clients because it also would have damaged revenues and profits.

The sale of the mortgage-backed securities and the secret bets should enable Goldman Sachs to produce more than $50 billion of revenue in 2009 and pay its employees more than $20 billion in bonus money ($700,000 per employee). Big bonuses keep employees happy, content, and quiet. What investors need is a Goldman Sachs’ whisteblower who knows the truth and has enough integrity to talk about it. This is another example of greedy Wall Street executives putting company need for profit ahead of investor need to achieve financial goals. The executives’ eight and nine figure bonuses are not bad either.

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