“Bank Sells New Jersey Bonds, Then Warns of Default” is the headline succinctly paraphrasing this conflict-of-interest story appearing in the Newark Star-Ledger. The November 23 story reports on how one unit of Goldman Sachs marketed New Jersey state bonds to investors while another unit advised investors how they could profit by betting that the bonds will decline in value.
Of course, the governor of New Jersey, Jon Corzine, is the former chairman of Goldman Sachs.
The newspaper developed the story with the help of Pro-Publica, the nonprofit investigative journalism program funded by the liberal philanthropists Herb and Marion Sandler. Of course, the Sandlers’ philanthropy was made possible by the $25.5 billion that Wachovia stupidly paid in May 2006 to acquire their S&L, Golden West Financial, whose $199 billion loan portfolio was made up almost entirely of option adjustable rate mortgages (ARMs). Option ARMs sank Wachovia (also Countrywide, IndyMac and Washington Mutual) when the California real estate market went bust. The 5th largest writer of option ARMs, Downey Savings, was seized by federal regulators last Friday.
The Goldman Sachs ploy isn’t limited to New Jersey. On November 11, the Los Angeles Times, which also worked with Pro-Publica, reported that Goldman Sachs similarly encouraged investors to “short” the sale of California bonds at the same time that it was earning millions of dollars in fees selling them.