According to a study by a pro-health reform group published Thursday, the nation's largest five health insurance companies posted a 56 percent gain in 2009 profits over 2008. The insurers including Wellpoint, UnitedHealth, Cigna, Aetna and Humana, which cover the majority of Americans with insurance.

The insurers' hefty profit gains came even as 2.7 million more Americans lost their insurance coverage due to the declining economy.

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Republican Talking Heads Making A Big Deal Out of Democrats Stepping Down From Office

Senators Dodd and Dorgan have served with
extraordinary distinction and have incredible legislative achievements.

They will be missed and they deserve the country's gratitude for decades
of public service.  Governor Ritter has also presided with distinction
in Colorado.

Retirements are a moving target - but at this stage the
numbers don't lie -- more Republicans than Democrats have decided not to
run for reelection in every category:

o    In the Senate, six Republican Senators have decided not to seek
reelection - while only two Democrats have decided not to.  These six
Republican retirements have created five competitive races in Missouri,
Ohio, New Hampshire, Kentucky and Florida and Democrats have strong
candidates running aggressive campaigns in each. 

o    Regarding the two Democratic retirements in the Senate. We believe
very strongly we'll hold on to Connecticut. While Republicans are
putting North Dakota in the win column, everyone should remember that
while North Dakota has been a red state in Presidential politics, all of
its federal office holders - two Senators and one House Member - are
Democrats. The last time a Republican Senator represented North Dakota
it was 1986.

o    In the House, 14 Republicans are opting not to run - while 10
Democrats have made the same decision. 

o    And in Governors' races across the country, four Republicans have
decided not to run (Douglass (VT), Rell (CT), Crist (FL), Pawlenty (MN)-
while two Democrats (Doyle (WI) and Ritter (CO))have made the same
decision.  Many others, of course, are term limited out of office.

(Editor's Note: this isn't counting the fact that Sarah Palin resigned from office, as Governor of Alaska, with almost two years left to her term, after spending most of her first - and only term - campaigning with Sen. McCain.  Her reason?  A book signing tour, worth millions of dollars to her.  Even though the book was written by a ghost writer, and not by Palin herself.  And isn't it telling that Sarah Palin would put her name, as author, on a book that she didn't write; and that right-wingers would gobble it up as gospel, in spite of the fact that it is well known that she didn't write it!) 

·         History suggests that the 2010 election will be tough for
Democrats. If you look at the past 17 midterm elections, the president's
party has lost an average of 28 seats in the House, and an average 4
seats in the Senate.
·         But Election Day is a long way away, and a lot can happen
between now and then.

·         Democrats are going to field strong candidates and we're
going to wage aggressive campaigns for every seat. 

·         Democrats have a very strong case to make to the American
people. In the past 12 months, Democrats have brought our economy back
from the brink, come closer than ever before to enacting health
insurance reform and achieved historic accomplishments that will help
the American people and keep us safe.

·         There is a corrosive civil war going on within the Republican
Party.  The extreme right wing is chasing moderates - like Dede
Scozzafava and FL GOP Chairman Jim Greer - out of the GOP in an attempt
to "purify" the Party at any cost. 

o    For example, Republicans face competitive primaries in nearly
every Senate race, including Nevada, California, Connecticut, Kentucky,
Florida, Arkansas, and New Hampshire. Their primary fights are ugly,
bloodletting battles with candidates moving to the right and out of the
mainstream every day.

·         Republicans' plan to reverse course - by going back to the
same failed policies that drove our economy into a ditch- will NOT be a
winning argument with voters.  Remember, failed Republican policies
contributed to the near collapse of our entire economic system,
skyrocketing health care costs and a damaged reputation around the
globe.

·         Even RNC Chairman Michael Steele isn't feeling optimistic.
Yesterday he said Republicans would fail to take back the House, and
admitted that he didn't know if Republicans were actually ready to lead
the country anyway.

Caroline Ciccone
Director of Regional Press
Democratic National Committee
202-488-5026 (o)
202-255-9759 (c)
cicconec@dnc.org

Cutting Taxes for Big Business while Cutting the Jobs of Working Americans Is Republicans’ Only Game Plan

State Governments have spent a great deal of money in wooing corporations to locate in their communities and offered them tax advantages which are unavailable to the average citizen. As a result, in Wisconsin, corporate income tax as a share of general fund revenue had declined from a high of around 11% in 1979, to a low of around 5.0% in 2002, with the decreases primarily occurring between 1987 and 2002, when Republican Governors, Tommy Thompson and Scott McCallum were running the state - into the ground.  And as a result, the state has had less available in its budget to subsidize schools and hospitals, which in turn force the schools and hospitals to bill more to the paying customers.

Tommy Thompson's last gift to the rich, was to give them tax rebates, which eliminated the $500 million plus that the State of Wisconsin held after paying outstanding debts.  That also eliminated the "Rainy Day" fund, which was supposed to cover unexpected expenses in times when the economy wasn't able to raise the funds necessary to run the government.  Because those funds were eliminated when the economy was doing well, (under President Clinton), when the economy tanked, (under Dubya), there was nothing available to pay for expenses that started to pile up because the Federal Government wasn't providing funding to the States, after Dubya's tax cuts to the billionaires.

You will recall that when Scott McCallum was Governor, the expenses were so high, that McCallum sold off the Tobacco Settlement (for pennies on the dollar) which was supposed to pay out over 25 or 30 years  (which then Attorney General Jim Doyle, won for the State of Wisconsin in 1998), so that the state could pay for other expenses.  So a long term problem, of paying for health expenses that the State of Wisconsin was going to be saddled with, was left ignored so that McCallum could attempt to balance the budget, which was facing a $3.7 billion deficit.

The problem was the McCallum DIDN'T balance the budget, and gave the Tobacco Settlement away for nothing!  As a result, when Governor Doyle took office, he inherited a $3.5 to $3.6 Billion DEFICIT.

"When Bear Stearns & Co. landed a no-bid contract to underwrite a $147 million stadium bond issue for Miller Park - collecting more than $1.8 million in fees - it prompted criticism of ties between the securities firm and the Thompson administration. Among the firm's executives were Nicholas Hurtgen, a top aide and fund raising advisor to Gov. Tommy Thompson who was hired in 1995 to work for Bear Stearns public finance department in Chicago. Peter Fox, a Bear Stearns executive, was also a key Thompson fund-raiser in Chicago. In 1997, concerns about potential tampering on no-bid state bond issues prompted an audit by the Legislative Audit Bureau. State Rep. Spencer Black, D-Madison, requested the audit after reports linked former Thompson Secretary of Administration James Klauser and campaign contributions from Wall Street bond firms doing business with the state. The audit found Merrill Lynch and Bear Stearns sold more than half of the $440 million in state bonds issued through negotiated agreements."When Bear Stearns & Co. landed a no-bid contract to underwrite a $147 million stadium bond issue for Miller Park - collecting more than $1.8 million in fees - it prompted criticism of ties between the securities firm and the Thompson administration. Among the firm's executives were Nicholas Hurtgen, a top aide and fund raising advisor to Gov. Tommy Thompson who was hired in 1995 to work for Bear Stearns public finance department in Chicago. Peter Fox, a Bear Stearns executive, was also a key Thompson fund-raiser in Chicago. In 1997, concerns about potential tampering on no-bid state bond issues prompted an audit by the Legislative Audit Bureau. State Rep. Spencer Black, D-Madison, requested the audit after reports linked former Thompson Secretary of Administration James Klauser and campaign contributions from Wall Street bond firms doing business with the state.

"To date, 15 governments have converted all or portions of their tobacco settlements. New York City was the first to do so, securitizing $709 million to pay for capital school projects. South Carolina has done the largest deal to date, $934 million, which would be passed by Wisconsin's $1.3 billion plan. Not all the states are expected to convert their settlements, however. In Colorado, for example, the Legislature rejected a proposal to move forward with a securitization." (Tobacco deal's next winner. Hand-picked broker to get $12M fee. By Mike Ivey, The Capital Times (Madison WI), 2001 June 7.) Hurtgen, who faces federal charges in Illinois over hospital kickbacks, is the brother-in-law of Philip Morris lobbyist Phil Prange, whose wife, Alison, is Wisconsin government relations director for the American Cancer Society.

You may also recall that Milwaukee County Executive Scott Walker, who is again candidate for Wisconsin Governor, also has his ties to Bear Stearns.

Walker claims that creating jobs is his top priority for the State of Wisconsin should he win election as Governor.  And how exactly would he do that?  During the past 7 years as the Milwaukee County Executive, he has CUT JOBS across the board in order to keep taxes down.  But by cutting jobs, there are fewer people who can, and are, PAYING THOSE TAXES, and so, he creates a cycle of cutting more jobs because there are fewer taxes collected even while there is a greater tax burden on the few remaining people who still have jobs.

And the cycle continues.  We see this every day, with companies cutting hundreds, even thousands of jobs, while continuing to give multi-million-dollar salaries and bonuses to the very people who created this economic mess in the first place.

And the jobs that are being cut are vital to many companies survival.  As they are being cut, few, if anyone left, remain who even understand what the cut workers did, and the remaining workers have to do, not only their jobs, but the jobs of the people whose jobs were cut!

Cutting jobs is a recipe for disaster.  It’s a race to the bottom.  It is a demonstration that those doing the job cutting have no positive outlook, or plans for the future.

All they are doing is throwing people overboard, to “conserve” the limited resources of the life raft we are all sitting in, only to find out that there aren’t enough people left to row the boat.

Fighting Bob reported in July of 2004:

July 15, 2004
Dog ate my homework

Milwaukee County executive and would-be governor Scott Walker had to refer to the 3rd grader's excuse about the dog when asked to provide paperwork to justify selecting Republican Party-favorite Bear Stearns & Co. for county bonding work. The Milwaukee Journal Sentinel asked for the records under Wisconsin's open records law.

The $100 million bond refinancing exceeded the maximum fee approved. When MJS reporter Dave Umhoefer asked members of the Walker administration about the details, no one could remember. Yah, sure Ole.

Who is behind the deal? Ah, Tommy Thompson's chief corporate fundraiser Nick Hurtgen, who also raised $25,000 for Walker in Chicago. Hurtgen was the subject of a recent Chicago Sun Times story about shake-downs in Chicago, and the focus of a 1997 MJS four-part series on the influence of money in the Thompson administration.

Hurtgen resigned Friday from Bear Stearns. Oops! Forgot to mention. Linda Seemeyer, the person in charge for Walker, is a long-time friend of Hurtgen's and a co-worker with him in Tommy's Department of Administration. "Seemeyer and Walker had the final say on which firm was recommended."

The state’s total tax share from corporate income tax has risen since 2002 to about 7.1%, but is still far below what it was almost three decades ago.

In Wisconsin from 1996 to 2006, total personal income tax rose 47%, sales taxes rose 52% and homeowner property tax grew 62%. In contrast, corporate income taxes grew only 23%. Keep in mind that the first three taxes are borne primarily by individuals. In addition, between 1978 and 2007 corporate income taxes, based in 2007 dollars dropped, even though national corporate profits more than doubled during that same time period. Personal income on the other hand, during that same time period, in 2007 dollars, has actually stayed about the same or dropped.

In a recent article in State Tax Notes titled “”State Corporate Tax Leakage: $14.5 Billion in 2006” by Martin A. Sullivan in the November 26, 2007 edition, he estimates “state corporate income tax losses due to loop holes and other legal tax avoidance mechanisms on a state-by-state basis…in Wisconsin...in 2006 was $643 million. For the period 1999-2006, it is estimated that Wisconsin’s total corporate tax leakage was $1.828 billion.”

(In other words, in one year, 2007, the Corporate Tax Leakage, exceeded the previous seven years combined, by more than SEVEN TIMES.  Recall also that the Wisconsin State Legislature had been controlled by Republicans until 2008, when Democrats finally won control of both houses.)

And in a recent study based on information available and gathered up to the end of 2007, “Wisconsin’s Revenue Gap – An Analysis of Corporate Tax Avoidance” put out by the Institute for Wisconsin’s Future at www.wisconsinsfuture.org  , they noted that two thirds of Wisconsin Corporations pay ZERO in Corporate Income Taxes. (Their source was the Wisconsin Department of Revenue.)

And listed on Table 3, page 12, they show that Serigraph paid NOTHING in Wisconsin Corporate Income Taxes for 2003 and 2004.

The CEO of Serigraph, John Torinus, regularly writes columns supporting Republican policies and candidates.  No surprise there.

So Scott Walker wants to get elected Governor of Wisconsin, and his only strategy, and his only demonstrated experience, is to cut taxes and eliminate jobs, at the very time that we need to create jobs.

That was Dubya’s game plan, and we all are living through the mess that he created.

There is no difference between what Dubya gave us, and what Scott Walker is offering us.

The “Dubya” in George W. Bush’s name, by the way, is the “W”, which stands for WALKER, his grandmother's maiden name, who was the daughter of George Walker, who owned Union Bank - the largest private bank in the United States at the time, and who also founded the New York Mets.     

How Goldman Secretly Bet on the U.S. Housing Crash

By Greg Gordon
November 1, 2009, Washington, DC

Take Action: Tell Congress "Help Main Street NOT Wall Street"

Published by McClatchy Newspapers.

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.   

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time.

"It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."

Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."

For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.

Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.

To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.

McClatchy's inquiry found that Goldman Sachs:

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
• Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board's blessing, AIG later used $12.9 billion in taxpayers' dollars to pay off every penny it owed Goldman.

These decisions preserved billions of dollars in value for Goldman's executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.

With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, limiting its subprime losses to $1.5 billion. 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 bonuses to executives of firms that received bailout money.

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

The Bluest of the Blue Chips

For decades, Goldman, a bastion of Ivy League graduates that was founded in 1869, has cultivated an elite reputation as home to the best and brightest and a tradition of urging its executives to take turns at public service.

As a result, Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.

On Oct. 16, a Goldman vice president, Adam Storch, was named managing executive of the SEC's enforcement division.

Goldman's financial panache made its sales pitches irresistible to policymakers and investors alike, and may help explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.

Since the collapse of the economy, however, some of those investors have changed their opinions of Goldman.

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

Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's 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.

Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."

California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007.

While that represented a tiny percentage of the fund's holdings, 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 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.

Attorney General Martha Coakley, now a candidate to succeed Edward Kennedy in the U.S. Senate, cited the blight from foreclosed homes in Boston and other Massachusetts cities. She said her office focused on investment banks because they provided a market for loans that mortgage lenders "knew or should have known were destined for failure."

New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union also are suing Goldman and other Wall Street firms over their losses.

The full extent of the losses from Goldman's mortgage securities isn't known, but data obtained by McClatchy show that insurance companies, whose annuities provide income for many retirees, collectively paid $2 billion for Goldman's risky high-yield bonds.

Among the bigger buyers: Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate, $40.5 million, according to the data from the National Association of Insurance Commissioners.

In 2007, as early signs of trouble rippled through the housing market, Goldman paid a discounted price of $8.8 million to repurchase subprime mortgage bonds that Prudential had bought for $12 million.

Nearly all the insurers' purchases were made in 2006 and 2007, after mortgage lenders had lifted most traditional lending criteria in favor of loans that required little or no documentation of borrowers' incomes or assets.

While Goldman was far from the biggest player in the risky mortgage securitization business, neither was it small.

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

In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.

It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.

In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime," although in the U.S. they were marketed with lower grades.

Goldman spokesman DuVally said that Moody's, the bond rating firm, gave them higher grades because the borrowers had high credit scores.

Goldman's securities came in two varieties: those tied to subprime mortgages and those backed by a slightly higher grade of loans known as Alt-A's.

Over time, both types of mortgages required homeowners to pay rapidly rising interest rates. Defaults on subprime loans were responsible for last year's housing meltdown. Interest rates on Alt-A loans, which began to rocket upward this year, are causing a new round of defaults.

Goldman has taken multiple steps to put its subprime dealings behind it, including publicly saying that Wall Street firms regret their mistakes. Last winter, the company cancelled a Las Vegas conference, avoiding any images of employees flashing wads of bonus cash at casinos.

More recently, the firm has launched a public relations campaign to answer the criticism of its huge bonuses, Washington connections and federal bailout. In late October, Blankfein argued that Goldman's activities serve "an important social purpose" by channeling pools of money held by pension funds and others to companies and governments around the world.

Knowing When to Fold Them

For investment banks such as Goldman, the trick was knowing when to exit the high-stakes subprime game before getting burned.

New York hedge fund manager John Paulson was one of the first to anticipate disaster. He told Congress that his researchers discovered by early 2006 that many subprime loans covered the homes' entire value, with no down payments, and so he figured that the bonds "would become worthless."

He soon began placing exotic bets—credit-default swaps—against the housing market. His firm, Paulson & Co., booked a $3.7 billion profit when home prices tanked and subprime defaults soared in 2007 and 2008. (He isn't related to Henry Paulson.)

At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.

The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.

In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.

Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.

DuVally said that at the time, Goldman executives "had no way of knowing how difficult housing or financial market conditions would become."

In early 2007, the firm's mortgage traders also bet heavily against the housing market on a year-old subprime index on a private London swap exchange, said several Wall Street figures familiar with those dealings, who declined to be identified because the transactions were confidential.

The swaps contracts would pay off big, especially those with AIG. When Goldman's securities lost value in 2007 and early 2008, the firm demanded $10 billion, of which AIG reluctantly posted $7.5 billion, Viniar disclosed last spring.

As Goldman's and others' collateral demands grew, AIG suffered an enormous cash squeeze in September 2008, leading to the taxpayer bailout to prevent worldwide losses. Goldman's payout from AIG included more than $8 billion to settle swaps contracts.

DuVally said Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market for its clients. Until the end of 2006, he said, Goldman was still betting on a strong housing market.

However, Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006, including $10 billion on Oct. 6, 2006. The firm unloaded another $11 billion in February 2007, after it had intensified its contrary bets. Goldman also stopped buying risky home mortgages after the December meeting, though DuVally declined to say when.

I've Got a Secret

Despite updating its numerous disclosures to investors in 2007, Goldman never revealed its secret wagers.

Asked whether Goldman's bond sellers knew about the contrary bets, spokesman DuVally said the company's mortgage business "has extensive barriers designed to keep information within its proper confines."

However, Viniar, the Goldman finance chief, approved the securities sales and the simultaneous bets on a housing downturn. Dan Sparks, a Texan who oversaw the firm's mortgage-related swaps trading, also served as the head of Goldman Sachs Mortgage from late 2006 to April 2008, when he abruptly resigned for personal reasons.

The Securities Act of 1933 imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007.

The firm maintains that the requirement doesn't apply in this case.

DuVally said the firm sold virtually all its subprime-related securities to Qualified Institutional Buyers, a class of sophisticated investors that are afforded fewer protections than small investors are under federal securities laws. He said Goldman made all the required disclosures about risks.

Whether companies are obliged to inform investors about such contrary trades, or "hedges," is "a very hot issue" in cases winding through the courts, said Frank Partnoy, a University of San Diego law professor who specializes in securities. One issue is how specific companies must be in disclosing potential risks to investors, he said.

Coffee, the Columbia University law professor, said that any potential violations of securities laws would depend on what Goldman executives knew about the risks ahead.

"The critical moment when Goldman would have the highest liability and disclosure obligations is when they are serving as an underwriter on a registered public offering," he said. "If they are at the same time desperately seeking to get out of the field, that kind of bailout does look far more dubious than just trading activities."

Another question is whether, by keeping the trades secret, the company withheld material information that would enable investors to assess Goldman's motives for selling the bonds, said James Cox, a Duke University law professor who also has served on the NYSE advisory panel.

If Goldman had disclosed the contrary bets, he said, "One would have to believe that a rational investor would not only consider Goldman's conduct material, but likely compelling a decision to take a pass on the recommendation to purchase."

Cox said that existing laws, however, don't require sufficient disclosures about trading, and that the government would do well to plug that hole.

In marketing disclosures filed with the SEC regarding each pool of subprime bonds from 2001 to 2007, Goldman listed an array of risk factors that grew over time. Among them was the possibility of a pullback in overheated real estate markets, especially in California and Florida, where the most subprime loans had been made.

Suits filed by the pension funds, however, allege that Goldman made materially false or misleading statements in its public offerings, failing to disclose that many loans were based on inflated appraisals and were bought from firms with poor lending practices.

DuVally said that investors were fully informed of all known risks.

"What's going to happen in the next few years," said San Diego's Partnoy, "is there's going to be a lot of lawsuits and judges will have to decide, should Goldman have disclosed more or not?"

Tish Wells contributed to this article.

McClatchy Newspapers 2009