KeNo's Housing and Economic Portal: Monday May 10 Housing and Economic stories

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British regulator launches Goldman Sachs investigation - (www.washingtonpost.com) Goldman Sachs's woes in Europe heightened Tuesday as British regulators launched a formal investigation into its London operations in connection with a U.S. case alleging that the firm sold investments secretly intended to backfire on their buyers. The Financial Services Authority, Britain's chief financial regulator, was initially focusing on Fabrice Tourre, the 31-year-old, high-flying investment banker described by the U.S. Securities and Exchange Commission as "principally responsible" for putting together the deals, according to sources familiar the matter. Tourre, who the firm said was on voluntary leave as of Tuesday, was transferred from New York to the firm's London office in November 2008. But amid mounting concern in Britain over Goldman's activities, FSA regulators are also set to dig deeper into the bank's global structured products operations based out of London's financial district. "You see one problem; there might be more. And some of them might be in your own wood pile," said Richard Portes, president of the Center for Economic Policy Research in London. "What the FSA is saying is that it is now going to take a look at Goldman."

Questions for Banks That Put Together Deals - (www.nytimes.com) They were the black boxes of the subprime era, byzantine creations of the brightest minds on Wall Street that made — and then lost — vast fortunes. But now, after so much financial pain, Wall Street is nervously tallying the potential legal costs from its misadventures in collateralized debt obligations, known as C.D.O.’s, among the most toxic financial instruments ever devised. C.D.O.’s, which produced much of the financing for the mortgage explosion, are at the heart of the Securities and Exchange Commission’s civil fraud case against Goldman Sachs — as well as a broader S.E.C. investigation of sales and disclosure practices at many Wall Street firms. Until the bottom fell out, these instruments also powered an age of riches on Wall Street. Initially, bundling mortgage bonds into C.D.O.’s helped open the spigot of easy money that allowed Americans to buy more house than they could afford. But Wall Street, as it is wont to do, took the concept to another level, creating securities that allowed investors to make side bets on the housing market. Known as synthetic C.D.O.’s, they did not raise money for home loans or serve any other broad economic purpose. Instead, like a casino offering blackjack along with slot machines and Texas hold ’em, they were just one more way to bet against the housing market.

Ex-Goldman employee surfaces in SEC complaint - (www.reuters.com) She has yet to be mentioned by regulators, but one Goldman Sachs Group ex-employee could shed light on a mortgage-linked security at the center of the accusation that the firm defrauded investors. Gail Kreitman, the former Goldman bond saleswoman, is not named as a defendant in the Securities and Exchange Commission's lawsuit against Goldman and another of the investment firm's bond salesmen, Fabrice Tourre. Kreitman is not even identified by name in the complaint. But Kreitman, who left Goldman in June 2009, was interviewed by securities regulators during the course of their 18-month investigation, and some of her email communications are cited by the SEC in the 22-page complaint. The SEC points to some of Kreitman's emails as part of its claim that Goldman and Tourre misled ACA Capital Management, the outside manager tapped to oversee the transaction, about hedge fund giant Paulson & Co's economic interest in the deal.

Goldman cloud over securitisation drive - (www.ft.com) Securitisation has been a dirty word in financial markets ever since the collapse of the US subprime mortgage market. But any hopes of a much-needed revival have been put on hold pending the outcome of the financial market reforms being planned by the Obama administration and the impact of last week’s Securities and Exchange. The danger, executives say, is that less risky securitised and structured finance products such as those backed by non-mortgage loans could be tainted by the publicity given to the huge losses that resulted from the collateralised debt obligations linked to risky mortgages at the centre of the case against Goldman. In recent months, activity has resumed in parts of the asset-backed markets such as securities backed by car loans, but activity remains much lower than before the credit crisis. “We are worried all securitisation will again be thrown into the same bucket as CDOs and get labelled as highly dangerous for the financial system,” says one senior securitisation banker. “Now, with financial reform legislation possible much more quickly than we thought, on the back of the lawsuit, there may not be time to press for new rules which make sense.”

Where's the Hundreds of Billions in Healthcare Savings? Next Up - Price Controls - (Mish at globaleconomicanalysis.blogspot.com/) In a battle of political will vs. common sense, political will won out as it usually does. The healthcare bill was supposed to save hundreds of billions of dollars but proponents of the bill, especially president Obama never explained how. Already costs are spiraling out of control, so much so that Congress is resorting to price controls to prevent excessive rate hikes by insurers. Please consider Senate Bill Sets a Plan to Regulate Premiums: Fearing that health insurance premiums may shoot up in the next few years, Senate Democrats laid a foundation on Tuesday for federal regulation of rates, four weeks after President Obama signed a law intended to rein in soaring health costs. Mr. Harkin praised a bill introduced by Senator Dianne Feinstein, Democrat of California, that would give the secretary of health and human services the power to review premiums and block “any rate increase found to be unreasonable.” Under the bill, the federal government could regulate rates in states where state officials did not have “sufficient authority and capability” to do so. Reviving the proposal on Tuesday, Mr. Harkin said: “Rate review authority is needed to protect consumers from insurance companies’ jacking up premiums simply because they can. Protections must be in place to ensure that companies do not take advantage of current market conditions before health reform fundamentally changes the way they do business in 2014.”

A Backlash in Europe Has Politicians Calling for a Goldman Ban - (online.wsj.com) Goldman Sachs Group Inc. is in danger of losing business with a key group of clients as a result of the fraud allegations it faces: governments in Europe and the U.S. Politicians in the U.K. and Germany are starting to call on their governments to cut ties with Goldman, which has long been one of the top financial advisers to European policy makers. U.K. Liberal Democrat leader Nick Clegg, riding high in opinion polls less than three weeks before national elections, said on Tuesday that Goldman "should now be suspended in its role as one of the advisers to the government until these allegations are properly looked into." His comments follow Prime Minister Gordon Brown's recent characterization of Goldman's alleged behavior as "morally bankrupt." "We should let the business relationship with [Goldman] rest until the allegations are cleared up," lawmaker Frank Schäffler of Germany's Free Democratic Party, part of Chancellor Angela Merkel's governing coalition, told German newspaper Handelsblatt on Tuesday. Mr. Schäffler's office confirmed the comment. The New York-based bank denies allegations by the U.S. Securities and Exchange Commission that it committed fraud by withholding important information from investors to whom it sold mortgage-related securities.