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RISMEDIA, May 4, 2010—Even though I knew it would be frustrating, I just had to watch last week’s Senate testimony by Goldman Sachs’ executives and former executives.

The back walls of the committee chamber were packed deep with high-priced legal talent. As a matter of fact, I haven’t seen that many lawyers in one place since the child-custody hearing for the 416 children from the polygamist Yearning For Zion Ranch, each of whom had to have separate counsel.

These lawyers weren’t there to file motions or make objections; they were there to make sure nobody said anything they weren’t supposed to say.

But, they weren’t needed. Nobody got anywhere near the truth, and the witnesses were so well coached and rehearsed that they themselves looked a little embarrassed by the words coming out of their mouths.

Every response was evasive and misleading as they parsed words, changed the topic, and took every opportunity to say that they did nothing wrong and would do it again…we were just doing our jobs.

The Committee on the other hand seemed ill-prepared and focused only on the deceit of sophisticated institutional investors without touching on the real victims, those who were forced into loans destined to fail.

Goldman asserts that it was just another hapless victim of a housing market gone bad. The real estate market didn’t just crash; it was pushed off a cliff by companies like Goldman who also engaged in the same predatory lending. Predatory lending and inflated appraisals are evidence of market manipulation.

By its own admission, Goldman Sachs has no sympathy for their investors. Goldman CEO, Lloyd, “We do God’s work”, Blankfein, said that investors came to Goldman looking for risk and that is what they got. I thought investors turned to Goldman to help them earn money.

But, homeowners never went to Goldman seeking anything; Goldman came to them. Mortgage brokers sell the products they are given. They do not have the money to fund their own loans, except in the case of the very biggest, which are subsidiaries of financial intermediaries. Here again, they don’t loan their own money, but they do design the loan products and draft the loan documents.

And, every intention of those products and documents is to increase the odds that the loan will default because they plan to bet against it.

Daniel Sparks, the former head of the mortgage department, created the Abacus vehicle at the center of the recent SEC charges.

Abacus is a synthetic collateralized debt obligation. Unlike actual mortgaged-backed bonds, there are no mortgages. What is there instead? Instruments that reference the performance of a particular set of mortgage-backed bonds.

Having access to all of the information about the borrowers, you would think that if they were offering a triple-A rated investment, they would select the triple A loans to reference. But, they did the opposite and selected pools that contained large numbers of designed-to-fail loans.

And, despite Sparks’ testimony, “At the time we did those deals, we expected those deals to perform.” his emails indicate just the opposite.

But the key to the missing piece, predatory lending, was apparent in an email from Fabrice Tourre, “the Fabulous Fab” as he likes to call himself, wrote on March 7, 2007, “According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long.”

That’s cold. But, beyond not earning him many votes for humanitarian of the year it is also the smoking gun. Nobody paid any attention, it seemed to be just a throw away line, but it confirms that everybody in the business knew that the real fraud was against the borrower. They already had investors and a pile of cash; what they did not have was a way to launder the funds they were embezzling from the pension and hedge funds.

The growth of the sub prime market wasn’t driven by borrowers; it was driven by a need for loans that would put pools at risk. They couldn’t entirely rely on the borrowers to default, historically they hadn’t. What they do control are the loan terms, the servicing and information about the borrower.

That’s why in synthesizing a CDO, they choose the loans they knew to be at risk. Think about it, if you were going to make something and you could choose anything to make it from, but you chose components that you had designed to fail, it’s pretty apparent that failure of the product was the goal. And, if a huge payoff is available from betting on the product’s failure, what in their behavior suggests that they wouldn’t do whatever is necessary for the plan to work?

They keep saying they are “market makers” and in this context it makes sense. They do whatever they need to do to make the market do what they bet on it to do.

Their excuse is that they didn’t see the housing crash coming. But, the evidence shows that they planned it and caused it, and profited from its demise. They weren’t just covering their long position they had what they called “the big short.”

While the hearing focused on losses to investors, it never probed the other side of the transaction—rigging the pools to fail. Without the loans failing, the financial intermediary, like Goldman, would be unable to collect on the swaps, and they would not be able to explain the shortfall in principal when the loan paid out.

The only evidence a jury would ever need to see is the breakdown on where the money goes in a 2-28 loan from the time it leaves the investor until its inevitable default.

This is far from over. There are many more funds and many more financial intermediaries to be investigated. We can only hope that at some point the investigators realize that they already have the smoking gun, in the loan terms themselves.

George W. Mantor is known as “The Real Estate Professor” for his consumer education efforts including a long-running radio program, monthly workshop series, public appearances, and frequent articles.

During a career dating back to 1978, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property.

Prior to starting his own real estate and mortgage brokerage in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS.

George is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.

The Real Estate Professional includes him in “a directory of the Nation’s outstanding authors, columnists, and speakers. His articles have also recently appeared in Real Estate Finance, The Real Estate Professional, National Real Estate Investor, Broker Agent News, and Realty Times. His blog is