How Goldman Sachs secretly bet on the housing crash

Banker's actions were fraud, some experts say

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With the help of more than $23 billion in direct and indirect federal aid, Goldman Sachs appears to have emerged intact from the economic implosion, and by repaying $10 billion in direct federal bailout money -- a 23 percent taxpayer return that exceeded federal officials' demand -- the firm has escaped tough federal limits on 2009 executive bonuses that accompanied bailout money.

It announced record earnings in July, and is on course to surpass $50 billion in revenue in 2009 and pay its employees more than $20 billion in year-end bonuses.

From 2001 to 2007, Goldman Sachs hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.

Its financial panache made its sales pitches irresistible to policy-makers and investors alike, and helps explain why so few of them questioned the risky securities Goldman Sachs sold off in a 14-month period that ended in February 2007.

Since the collapse of the economy, however, some investors have changed their views of Goldman Sachs.

Several pension funds, including Mississippi's Public Employees' Retirement System, have filed lawsuits, seeking class-action status, claiming that Goldman Sachs and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.

Mississippi Attorney General Jim Hood, whose state lost $5 million of the $6 million it invested in Goldman Sachs' subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.

California's huge public employees retirement system, known as CalPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman Sachs on March 1, 2007. In July, CalPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.

In May, without admitting wrongdoing, Goldman Sachs became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.

McClatchy Newspapers researcher Tish Wells contributed to this report.