According to a rumor over at Dealbreaker, one of the big losers in the subprime mess is none other than Goldman Sachs:
“Not sure if this is on your radar, but a Goldman trader took a $1B (yes, that is $1 Billion) position in a sub-prime mortgage index last week. He was fired today after the position suffered a roughly 35% decline. I can’t verify if it was closed out yet, but the loss thus far stands at about $350M. Talk about a bad week.”
This is bad for GS, of course. But it’s also really good news for anybody worried about the systemic risks associated with all these newfangled synthetic debt products. In the old days, banks wrote mortgages and took the associated risks. Then they started securitizing those mortgages, spreading the risk more thinly across bond investors. And then investment banks started creating products based on mortgage indices, which meant that the bond investors could offload a lot of their risk even further onto CDOs and hedge funds and prop desks at Goldman Sachs. Basically, the more money that Goldman loses, the less money that people who can’t afford it are losing. So, thank you, unnamed Goldman trader!