December 14, 2017

Wall Street Slips Lower

Wall Street fell sharply Wednesday, with industrial and financial sectors leading the market down more than 1 percent.

The three major benchmarks — the Standard Poor’s 500-stock index, the Dow Jones industrial average and the Nasdaq composite — were all down about 1.1 percent in afternoon trading. The Dow was just above the 15,000-point level.

A private sector jobs report released earlier showed companies picked up the pace of hiring in May, though job growth remained sluggish. The report came ahead of the crucial nonfarm payrolls report on Friday.

“The market is overlooking this disappointing number, and putting greater emphasis on the nonfarm payrolls for better clues on what the Fed is going to do,” said Andrew Wilkinson, chief economic strategist at Miller Tabak Company.

A separate report showed a gauge of United States labor-related costs fell in the first quarter by the largest amount in four years, although the reading appeared distorted by a shift in employee compensation during the prior period to avoid a tax hike.

Trading has been volatile over the last few weeks amid a slew of economic reports and comments from Fed officials that have hinted on when the Fed may start reducing its stimulus efforts, which have powered this year’s stock market rally.

The market is expected to continue to be volatile this week, with intraday swings of more than 1 percent in either direction during a single trading session.

The American International Group said on Tuesday that a proposed $8.5 billion settlement between Bank of America and investors of Countrywide Financial mortgage-backed securities was not big enough. A.I.G. shares gained 1.2 percent.

The Treasury Department said it would begin another round of sales of the General Motors stock it acquired during the government’s bailout of the auto sector. The stock was down 2.1 percent.

European shares fell on concerns that the United States might begin to taper economic stimulus measures, with the FTSE 100 index ending 2.1 percent lower.

Comments late on Tuesday from two senior Federal Reserve officials highlighted divisions over the future of the central bank’s stimulus program.

Richard Fisher, president of the Federal Reserve Bank of Dallas, and Esther George, president of the Federal Reserve Bank of Kansas City — both long-term critics of the bond-buying program — reiterated their concerns over the risks of waiting too long to cut it back.

“The markets are hanging on every word of the central bankers in Europe and the U.S.,” said Richard Griffiths, a Berkeley Futures associate director.

Japan’s Nikkei share average sagged to a two-month low on Wednesday, as Prime Minister Shinzo Abe pledged to bolster incomes and attract foreign businesses, but did not mention a proposal to encourage Japan’s public funds to seek higher returns by investing more in riskier assets like equities.

“Investor expectations were for more specific growth policies and the disappointment has only exacerbated a trend for a correction in Japan’s stock market,” said Lee Hardman, currency analyst for Bank of Tokyo-Mitsubishi UFJ.

Since the Nikkei index rose to a five-and-a-half-year high on May 23, up more than 50 percent this year, doubts about the effectiveness of Mr. Abe’s economic reforms and the Bank of Japan’s stimulus efforts have led to a steady erosion of the gains.

Article source: http://www.nytimes.com/2013/06/06/business/daily-stock-market-activity.html?partner=rss&emc=rss

DealBook: Banks Reach Settlement on Mortgages

Bank of America bought Countrywide in 2008.Kevork Djansezian/Associated PressBank of America bought Countrywide in 2008.

11:38 a.m. | Updated

Bank of America agreed on Monday to pay more than $10 billion to Fannie Mae to settle claims over troubled mortgages that soured during the housing crash, mostly loans issued by the bank’s Countrywide Financial subsidiary.

Separately, federal regulators reached an $8.5 billion settlement on Monday to resolve claims of foreclosure abuses that included flawed paperwork used in foreclosures and bungled loan modifications by 10 major lenders, including JPMorgan Chase, Bank of America and Citibank. About $3.3 billion of that settlement amount will go toward Americans who went through foreclosure in 2009 and 2010, while $5.2 billion will address other assistance to troubled borrowers, including loan modifications and reductions of principal balances. Eligible homeowners could get up to $125,000 in compensation.

The two agreements are not directly related, but they illustrate the extent of the banks’ role in the excesses of the credit boom, from the making of loans to the seizure of homes.

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Under the terms of the Bank of America deal, the bank will pay Fannie Mae $3.6 billion and will also spend $6.75 billion to buy back mortgages from the housing finance giant.

The settlement will resolve all of the lender’s disputes with Fannie Mae, removing a major impediment to Bank of America’s rehabilitation. The bank had settled its fight with Freddie Mac, the other government-owned mortgage giant, in 2011.

Both Fannie and Freddie, which have posted billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble. Bank of America assumed those troubles when it bought Countrywide in 2008.

Brian Moynihan, chief of Bank of America.Win McNamee/Getty ImagesBrian Moynihan, chief of Bank of America.

Before the latest settlement announced on Monday, the Countrywide acquisition had cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements, according to several people close to the bank.

By removing part of the bank’s mortgage albatross, the move is a continued retreat from home lending by Bank of America, even as rivals including JPMorgan Chase and Wells Fargo compete for the profitable refinance business that has boomed with interest rates persistently low.

Bank of America also agreed to sell the servicing rights on about $306 billion worth of home loans to other firms. In separate statements, Nationstar Mortgage Holdings and the Newcastle Investment Corporation announced they were buying the rights. Those servicing costs, which were roughly $3.4 billion in the third quarter, have weighed on the bank’s profits, especially as borrowers fall behind on their bills.

Brian T. Moynihan, the bank’s chief executive, said in November that he intended to sell off about two million loans the bank currently serviced.

“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Mr. Moynihan said in a statement on Monday.

Bank of America said it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion because of costs tied to foreclosure reviews and litigation. The firm also expects to record a $700 million charge, an accounting move known as a debt-valuation adjustment, related to an improvement in the prices of its bonds.

The deal on Monday helps the bank move away from its troubled mortgage business. Still, the bank’s attempts to resolve other costly mortgage litigation have so far been stymied. Looking to appease investors that sued the bank for losses when mortgages packaged into securities imploded during the financial crisis, the bank agreed to pay $8.5 billion in June 2011. But the settlement, which would help mollify investors including the Federal Reserve Bank of New York and Pimco, has been stalled.

Further thwarting Bank of America’s retreat from the mortgage business, federal prosecutors sued the bank in October, accusing it of churning through loans so quickly that quality controls were virtually forgotten. The Justice Department sued the bank under a law that could mean Bank of America could pay well more than $1 billion to settle.

Bank of America has been embroiled with other legal woes, including accusations that it misled investors about the acquisition of Merrill Lynch. Shareholders, led by pension funds, had said the bank provided false and misleading statements about the health of the Wall Street firm, which, unknown to the public, was racking up huge losses in late 2008 amid turmoil in the markets.

The separate agreement with 10 banks on foreclosure abuses concludes weeks of feverish negotiations between the federal regulators, led by the Office of the Comptroller of the Currency, and the banks. That settlement will end a troubled foreclosure review mandated by the banking regulators.

The deal, which was hashed out over the weekend, had teetered on the brink of collapse after officials from the Federal Reserve demanded that the banks pay an addition $300 million to address their part in the 2008 financial crisis, according to several people briefed on the negotiations who spoke on condition of anonymity.

The Federal Reserve, though, agreed to back down on the demands in the hope that the pact could move ahead and bring more immediate relief to homeowners struggling to stay afloat in a time of persistent unemployment and a sluggish economy.

The multibillion-dollar foreclosure settlement was driven, to a large extent, by banking regulators, who decided that a review of loan files was inefficient, costly and simply not yielding relief for homeowners, these people said. The goal in scuttling the reviews, which were mandated as part of a consent order in April 2011, was to provide more immediate relief to homeowners.

The comptroller’s office and the Federal Reserve said on Monday that the settlement “provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process.”

The relief will be distributed to homeowners even if they did not file a claim for their loan files to be reviewed.

Concerns about the Independent Foreclosure Review began to mount in within the comptroller’s office, according to the people familiar with the matter. The alarm, these people said, was that the reviews were taking more than 20 hours a loan file at a cost of up to $250 an hour. Since the start of the review, the banks, which are required to pay for consultants to review the files, had spent an estimated $1.5 billion.

More vexing, the banking regulators said that the reviews were not providing any relief to borrowers or turning up meaningful instances where homes of borrowers current on their payments were seized, according to these people.

Michael J. de la Merced and Ben Protess contributed reporting.

Article source: http://dealbook.nytimes.com/2013/01/07/bank-of-america-to-pay-10-billion-in-settlement-with-fannie-mae/?partner=rss&emc=rss

Bank of America’s Mortgage Deal Questioned

Letters sent by Mr. Schneiderman’s office to the firms that agreed to the settlement point to concerns by the attorney general that the deal may have been struck without full participation by all investors who would be affected by its terms. The letters, obtained by The New York Times, were sent to BlackRock Financial Management, Metropolitan Life Insurance, Pimco, Goldman Sachs Asset Management and 18 other parties, asking for information “regarding participation by both your firm and clients” in the settlement.

A spokesman for Mr. Schneiderman declined to comment. But this request for information is part of a broad investigation that he has begun into all aspects of the mortgage bundling process that has led to billions of losses for investors.

The proposed Bank of America settlement covers 530 mortgage pools issued by Countrywide Financial, the lender purchased by the bank in a distress sale in 2008. But the investment firms that agreed to the deal held interests in only about one-quarter of those pools, leading some investors to question its fairness. Furthermore, the proposed settlement does not allow investors who do not like its terms to opt out and bring their own suits against Bank of America. Any outstanding claims against the bank by investors who hold any of these securities would be extinguished under the deal.

The agreement could also speed up the foreclosure process, pushing more delinquent borrowers out of homes more quickly.

The terms of the proposed settlement appear to be favorable to Bank of America. Given that the unpaid principal amount of the mortgages covered by the settlement is $174 billion, the $8.5 billion to be paid by Bank of America represents just under 5 cents on the dollar. On June 29, when the deal was announced, Bank of America’s shares closed almost 3 percent higher.

A final court hearing to approve the settlement is scheduled for Nov. 17. One investor, Walnut Place L.L.C., has already objected to the terms of the settlement in filings made last week with the court. Earlier this year, Walnut Place sued Bank of America, contending that many of the loans in the pools it invested in breached the underwriting characteristics and other representations made by Countrywide when it sold the pools. Under the terms of the Bank of America deal, this lawsuit will not be viable.

In objecting to the deal, lawyers for Walnut Place argued that the Bank of America settlement was negotiated in secret by Bank of New York Mellon, trustee for the Countrywide mortgage pools. As negotiator, Bank of New York Mellon was also conflicted, Walnut Place contends, because Bank of America has agreed to cover all the trustee’s costs and liabilities related to the settlement.

“It is very unusual, to say the least, for a trustee that says it is representing the interests of the beneficiaries of a trust, to demand and obtain an indemnity from the very party that is adverse to that trust and its beneficiaries,” lawyers for Walnut Place wrote in its filing.

David J. Grais, a lawyer at Grais Ellsworth who represents Walnut Place, declined to comment. A spokesman for Bank of New York Mellon declined to comment. But in its legal filings the bank maintained that Bank of America was required to reimburse legal costs under the terms of the original mortgage pools.

Additional questions about the terms of the settlement were raised by Representative Brad Miller, a North Carolina Democrat. In a July 8 letter to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the mortgage finance giants, Mr. Miller asked whether the regulator would join other investors objecting to the deal. He said the concerns of some investors that Bank of New York Mellon and Bank of America had refused to provide “information necessary to determine adequacy of the settlement.” For example, investors have been unable to review loan files to assess how many of the mortgages in the pools satisfied the characteristics and representations promised to investors who bought into them, Mr. Miller noted. “Independent investigations show that perhaps two-thirds of the mortgages did not comply with the representations and warranties,” he wrote.

Article source: http://feeds.nytimes.com/click.phdo?i=3509ebef06c9c944321594bacf1e1de7

Bondholder Group to Fight Bank Settlement on Securities

In court papers filed on Tuesday in New York State Supreme Court in Manhattan, 11 companies collectively calling themselves Walnut Place said the settlement was inadequate.

On Wednesday, Bank of America announced the settlement with 22 institutional investors, including BlackRock, MetLife, Pimco and the Federal Reserve Bank of New York.

The bank said that accord would be part of $20 billion of mortgage-related charges that it would take, hoping to resolve much of the liability from its $2.5 billion purchase of the mortgage lender Countrywide Financial in 2008.

Bank of New York Mellon is acting as trustee for 530 mortgage securitization trusts that would be covered by that settlement. It says it favors approval of the $8.5 billion settlement, calling it reasonable.

The settlement was also intended to cover Walnut Place’s claims. But the Walnut Place group said it had “serious concerns about the secret, nonadversarial and conflicted way in which the proposed settlement was negotiated and about the fairness of the terms.”

Walnut Place said it planned to ask Justice Barbara R. Kapnick, whose approval is required for the settlement, to excuse it from the accord or else to compel greater disclosures about the pact, on July 13. A hearing to consider approval of the $8.5 billion settlement is scheduled for Nov. 17.

In February, Walnut Place sued Bank of America, seeking to force it to buy back loans that underlay $1.06 billion of securities it owned, asserting misrepresentations by Countrywide.

It said these misrepresentations in part concerned whether underwriting guidelines had been followed, and the size of the loans relative to the underlying homes’ values.

“Far from being secretive, the conversations leading to the settlement have been publicly disclosed and widely reported,” a spokesman for Bank of America, Lawrence Grayson, said. He said that it was “difficult to believe” that the 22 investors had subordinated their clients’ interests to those of Bank of America.

A spokesman for Bank of New York Mellon, Kevin Heine, declined to comment on the Walnut Place filing. Owen L. Cyrulnik, a lawyer for Walnut Place, did not immediately return a call seeking a comment.

Article source: http://feeds.nytimes.com/click.phdo?i=4fd440bfa594427660c6948ce0bc79ba

$8.5 Billion Deal Near in Suit on Bank Mortgage Debt

The settlement would wipe out all of the company’s earnings in the first half of this year, and it could also provide a template for deals with other big banks that face tens of billions in similar claims.

“I think this is huge,” said Michael Mayo, a bank analyst with Crédit Agricole in New York. “It’s about time the industry resolves issues from the financial crisis and focuses more on righting their companies and improving the economy. This is the most significant step since the financial crisis that helps do that.”

The proposed settlement is with a group of more than 20 investors that include the asset managers Pimco, Metropolitan Life and BlackRock, as well as the Federal Reserve Bank of New York. Together they hold mortgage-backed securities that represent more than $100 billion in home loans from Bank of America, the nation’s biggest bank by assets.

The securities affected by the deal come from Countrywide Financial, the subprime mortgage lender whose practices have come to symbolize the excesses of the housing boom. Bank of America bought Countrywide in 2008.

The settlement goes beyond just the securities owned by these investors, however. 

It covers nearly all of $424 billion in mortgages that Countrywide issued, which were then packaged into mortgage bonds. That means that a broader group of investors will share in the proceeds, according to the people who were briefed on the proposed settlement, but were not allowed to speak publicly.

In addition, the deal will require Bank of America to improve its payment collection process by hiring specialists to focus on high-risk loans, and do a better job of tracking whether the bank is adhering to its own internal loan-servicing standards.

The negotiations began last fall but picked up speed in recent weeks as the end of the second quarter approached. For the investors, settling avoids a costly, multi-year legal fight, while Bank of America can clear away one of the biggest clouds hanging over the company.

Bank of America, JPMorgan Chase, Citigroup and Wells Fargo have the greatest exposure to the legal claims that they bundled troubled home loans and sold them as sound investments. Together, they are likely to absorb roughly 40 percent of the industry’s mortgage-related losses.

In a research note, Paul Miller of FBR Capital Markets projected that Bank of America could face a total of $25 billion of losses from the soured mortgages, the most of any of the major banks.

Bank of America has already paid out or set aside about $17 billion. So the settlement would bring the bank’s losses in line with those projections.

On Wednesday, the bank is expected to announce plans to set aside even more money, in addition to the $8.5 billion. Those funds will be earmarked to cover future losses on mortgage securities as well as other mortgage-related expenses not covered by the deal disclosed Tuesday. Some of that will be offset by one-time revenue gains.

Other big banks face sizable risks, too. Mr. Miller predicted that Chase could expect losses reaching as much as $11.2 billion. Wells Fargo has potential losses of up to $5.2 billion, while Citigroup could see losses top $3.3 billion.

Once it is approved by Bank of America’s board, which met Tuesday, the settlement will require court approval in New York. Bank of America is expected to take a $5 billion after-tax charge in the second quarter to cover the payout.

While the board has yet to approve the settlement, both sides are aiming to have it done as soon as Wednesday, said the people who were briefed on the deal. If successful, the bank hopes to turn investor attention away from the huge payout and to the bank’s performance in the second half of the year.

Under the terms of the accord, Bank of America would deliver the money to the trustee for the securities, Bank of New York Mellon, which would distribute it to the institutional investors.

The issue of how much Bank of America will have to compensate investors in mortgage securities it assembled has been hanging over the bank’s shares since last fall. But the bank does not anticipate having to raise capital or sell stock to find the money for the settlement.

Still, other huge risks loom from the fallout of the subprime mortgage crisis. All 50 state attorneys general are in the final stages of settling an investigation into abuses by the biggest mortgage servicers, and are pressing the big banks to pay up to $30 billion in fines and penalties.

What’s more, insurance companies that backed many of the soured mortgage-backed securities are also pressing for reimbursement, arguing that the original mortgages were underwritten with false information and did not conform to normal standards.

In an interview on Tuesday, before reports of the Bank of America settlement, Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, worried that the unresolved mortgage claims continued to hurt the broader economy.

“Unresolved legal claims could serve as a drag on the recovery of the housing market,” Ms. Bair said. “The healing of the housing market is essential to the recovery of the broader economy.”

The huge settlement represents a sharp move away from the position that Bank of America’s chief executive, Brian T. Moynihan, initially adopted last fall when the legal effort by the investors began.

Mr. Moynihan said in October, “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”

Not long after that, however, the bank started negotiations with the investor group, led by a Houston lawyer, Kathy Patrick. And in January, it reached a settlement with Fannie Mae and Freddie Mac, the government-controlled housing finance giants, to buy back $2.5 billion in troubled mortgages, settling potential claims from them.

Article source: http://www.nytimes.com/2011/06/29/business/29mortgage.html?partner=rss&emc=rss

Mortgage Executive Guilty in $3 Billion Fraud

After more than a day of deliberations, a federal jury in Virginia found Lee B. Farkas, the chairman of Taylor, Bean Whitaker, guilty on 14 counts of securities, bank and wire fraud and conspiracy to commit fraud. Mr. Farkas faces decades in prison for his role in the $2.9 billion plot, which prosecutors say was one of the largest and longest bank fraud schemes in American history and led to the 2009 collapse of Colonial Bank.

 “There’s no question that it is very momentous and a very significant case,” Lanny Breuer, an assistant attorney general, said on Tuesday.

The 10-day trial was the rare win for federal prosecutors in the aftermath of the financial mess. The Justice Department has yet to bring charges against an executive who ran a major Wall Street firm leading up to the disaster. An earlier case against hedge fund managers at Bear Stearns ended in acquittal. Prosecutors dropped their investigation into Angelo R. Mozilo, the former chief executive of Countrywide Financial, which nearly collapsed under the weight of souring subprime home loans.

Six other Taylor, Bean Whitaker executives — including its former chief executive and former treasurer — have already pleaded guilty. Some agreed to testify against Mr. Farkas at his trial.

Mr. Farkas took the stand during the trial to defend his actions and deny any wrongdoing. A lawyer for Mr. Farkas did not respond to a request for comment. 

 The Securities and Exchange Commission has also sued Mr. Farkas. That case continues.

The scheme began in 2002, prosecutors say, when Taylor, Bean Whitaker executives moved to hide the firm’s losses, secretly overdrawing its accounts at Colonial Bank by more than $100 million. To cover up the actions, the lender sold Colonial some $1.5 billion in “worthless” and “fake” mortgages, prosecutors said at trial. The government, in turn, guaranteed those fraudulent home loans.

During the course of the fraud, prosecutors said, Mr. Farkas pocketed some $20 million, which he used to buy a private jet, five homes and a collection of vintage cars.

 “His shockingly brazen scheme poured fuel on the fire of the financial crisis,” Mr. Breuer said.  

With the credit crisis in full swing, Mr. Farkas and other Taylor, Bean Whitaker executives persuaded Colonial to apply for $570 million in federal bailout funds through the Troubled Asset Relief Program. The Treasury Department approved the rescue funds, on the condition that the bank was able to raise $300 million in private funds. The Taylor, Bean Whitaker executives falsely led Colonial into thinking that was possible. Ultimately, the government did not give any money to Colonial. 

“Today’s verdict ensures that Farkas will pay for his crime — an unprecedented scheme to defraud regulators during the height of the financial crisis and to steal over $550 million from the American taxpayers through TARP,” Christy Romero, the acting special inspector general for the TARP program, said in a statement.

In August 2009, Colonial filed for bankruptcy, the same time that Taylor, Bean Whitaker failed.

 

 

Article source: http://feeds.nytimes.com/click.phdo?i=e575d25655491ac402c5823ed83caa70

Financial Crisis Report Finds Conflicts and Recklessness

The 650-page report, “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” was released Wednesday by the Senate Permanent Subcommittee on Investigations, whose co-chairmen are Carl Levin, a Michigan Democrat, and Tom Coburn, a Republican of Oklahoma. The result of two years’ work, the report focuses on an array of institutions with central roles in the mortgage crisis: Washington Mutual, an aggressive mortgage lender that collapsed in 2008; the Office of Thrift Supervision, a regulator; the credit ratings agencies Standard Poor’s and Moody’s Investors Service; and the investment banks Goldman Sachs and Deutsche Bank.

“The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions,” Mr. Levin said in an interview. “The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.”

The bipartisan report includes 19 recommendations for changes to regulatory and industry practices. These include creating strong conflict-of-interest policies at the nation’s banks and requiring that banks hold higher reserves against risky mortgages. The report also asks federal regulators to examine its findings for violations of laws.

The report adds significant new evidence to previously disclosed material showing that a wide swath of the financial industry chose profits over propriety during the mortgage lending spree. It also casts a harsh light on what the report calls regulatory failures, which helped deepen the crisis.

Singled out for criticism is the Office of Thrift Supervision, which oversaw some of the nation’s most aggressive lenders, including Countrywide Financial, IndyMac and Washington Mutual, whose chief executive was Kerry Killinger. Noting that the agency’s officials viewed the institutions it regulated as “constituents,” the report said that the office relied on bank executives to correct identified problems and was reluctant to interfere with “even unsound lending and securitization practices” at Washington Mutual.

The report describes how two risk managers at the bank were marginalized by its executives. One of them told the committee that executives began providing the regulator with outdated loss estimates as the mortgage crisis widened. After the risk manager told regulators that the estimates it had received were dated, Mr. Killinger fired him.

From 2004 to 2008, for example, the regulatory office identified more than 500 serious deficiencies at Washington Mutual, yet did not force the bank to improve its lending operations, according to the report. And when the Federal Deposit Insurance Corporation, the bank’s backup regulator, moved to downgrade the bank’s safety and soundness rating in September 2008, John M. Reich, the director of the Office of Thrift Supervision, wrote an angry e-mail to a colleague. Referring to Sheila Bair, the F.D.I.C. chairwoman, he wrote: “I cannot believe the continuing audacity of this woman.” Washington Mutual failed two weeks later.

The office was abolished last year, and its operations were folded into the Office of the Comptroller of the Currency. Mr. Reich declined to comment. A lawyer for Mr. Killinger did not respond to a request for comment.

The report was produced by the same Senate committee that conducted an 11-hour hearing last April with Goldman executives and employees of its mortgage unit, who testified about their trading and securities underwriting practices.

At the hearing, some lawmakers questioned Goldman’s assertion that it had not bet against the mortgage market as real estate prices collapsed. And on Wednesday, Senator Levin pointed out that his committee had found 3,400 places in Goldman documents where its officials used the phrase “net short,” a reference to negative bets.

“Why would Goldman deny what was so obvious, that they were engaged in a huge short in the year 2007?” Senator Levin asked in a press briefing Wednesday morning. “Because they gained at the expense of their clients and they used abusive practices to do it.”

The report uncovered a new aspect of Goldman’s mortgage activity during 2007. That year, as Goldman tried to build its bet against housing, the report says, it tried to drive up the price of a mortgage index, a practice known as squeezing the shorts. When the price of the index rose sharply, the cost of betting against the mortgage market fell. Goldman tried to put on the short squeeze, the report noted, so that it could add to its negative bets more cheaply and protect itself against the housing collapse.

Because Goldman was a large dealer in the marketplace, it had the power to drive prices in a certain direction. The report quotes from the self-evaluation of Deeb Salem, a mortgage trader, who wrote: “We began to encourage this squeeze, with plans of getting very short again.” He added, “This strategy seemed do-able and brilliant.”

Article source: http://feeds.nytimes.com/click.phdo?i=e5d24c7a020a71d956c80657ef2d9f7b