NYT Revisits Goldman's Mortgage Underwriting, Sensibly

If I was an editor at the New York Times, the first thing I'd do after Chris Dodd started waving a Ben Stein column around would be to wonder if there was anything in it at all which could be substantiated. Most of Stein's column is muddled beyond repair, of course. But there is a germ of truth buried within the craziness, as Justin Fox notes. Goldman Sachs was underwriting crappy mortgage-backed bonds, and in hindsight it can't be very proud of the issues that it underwrote – especially considering that Goldman itself was short mortgages for nearly all of 2007. And there is a sober-minded and unassailable article to be written simply laying out those facts, without launching into ill-informed calls for the Treasury secretary to be investigated.

Today, Jenny Anderson and Vikas Bajaj provide exactly that article.

They show that Goldman's mortgage business was not particularly egregious, by Wall Street standards – but they also show that Wall Street standards, in this particular case, are pretty dreadful. Goldman underwrote about $29 billion of mortgage bonds in 2006, which placed it somewhere between Credit Suisse and Merrill Lynch in the league tables, and of those bonds about 20% of the loans underlying those bonds are now in default, which seems to be roughly average – the range goes from 16% to 24%.

Anderson and Bajaj do more than that: they go on, in the words of Dean Baker, to "lay out some of the nuts and bolts of the subprime splurge that led to the subprime bust". They explain what the bankers were doing, and how much they got paid for doing it:

The average total compensation for managing directors in the mortgage divisions of investment banks was $2.52 million in 2006, compared with $1.75 million for managing directors in other areas, according to Johnson Associates, a compensation consulting firm. This year, mortgage officials will probably earn $1.01 million, while other managing directors are expected to earn $1.75 million.

This is good reporting. There are more than enough facts here to digust the anti-Goldman types, and, more importantly, there's none of the risible conspiracy theories of which Stein seems so fond. If there's anything in this article which warrants Paulson's investigation, then have at him. But really, of course, there isn't.