Warren Buffett’s Berkshire dumps most of Goldman Sachs stake

Warren Buffett’s Berkshire dumps most of Goldman Sachs stake
ft.com

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1].

Commercial real-estate was already going to absolutely hammered.

> Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.

> Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).

> Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.

> ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

> It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

Exact same trick as last time, just last time residential and this time commercial.

Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.

Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now.

The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc.

Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem.

The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas.

[1] https://www.propublica.org/article/whistleblower-wall-street...

That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.

https://soundcloud.com/djdsolmusic

GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s.

And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.