Follow this link to the story posted on the McClatchy web site.

This is a two parter.  The first is a video on the practices of granting so-called “liar loans” mortgages. The second is the text of the article about Goldman Sachs’ short bets on the mortgage market.

Goldman’s “short” bets, which it began to place as early as 2005, were carried out using insurance-like contracts known as credit-default swaps. Goldman would pay an annual premium that usually amounted to 1 to 2 percent of the face value of the contract but collect big if the securities collapsed.

There is one connection that the article fails to make.  I suspect that a good part of the credit-default swaps were bought from AIG.  If you recall, AIG did not set aside enough capital for the amount of insurance it sold.  The federal government had to bail out AIG to the tune of many billions of dollars.  The recipients of those billions were companies like Goldman Sachs.

So not only did Goldman Sachs sell junk investments to its clients, but it also made even more profits from its credit default swaps eventually funded by the taxpayer.

According to Wikipedia

Henry Merritt “Hank” Paulson, Jr. (born March 28, 1946) served as the 74th United States Treasury Secretary. He previously served as the Chairman  and Chief Executive Officer of Goldman Sachs.

Also to be noted is that it was Henry Paulson, in his role as Treasury Secretary, who insisted that the clients of AIG had to be made whole to prevent a world-wide disaster.  Paulson certainly knew how much Goldman Sachs stood to benefit.  It was well known publicly. Does it matter whether or not he knew how Goldman Sachs came to be in this situation?

I wonder if there is any way for the taxpayers to get some of this money back.