When the SEC brought charges against Goldman Sachs last spring for allegedly misleading investors, the general public became familiar with its smart strategy to short the subprime mortgage market back in 2007. The move yielded billions of dollars in profit for the bank, and helped to ensure its survival while some competitors fell away. But how did it manage to execute this strategy, and what was its effect on clients? Tracy Alloway at the Financial Times Alphaville provides some great analysis that includes Goldman in its own words. Here's Alloway's conclusion after a revealing Goldman e-mail:
The implication being that Goldman was pursuing a short squeeze strategy to push out its short competitors -- allowing the bank to buy CDS more cheaply and perhaps even shift its toxic assets into new CDOs which would fetch better prices.
Read the full story at FT/Alphaville.