Pension Fund Bangs Goldman for $26.6 Million

Editor’s Note: The allegation was that the Pension Fund was misled into buying securities backed by risky mortgages from the now defunct New Century Financial.

The importance of this is that it corroborates what we have been saying all along. The pension funds were required by law to invest in “stable” funds which means in Wall Street parlance — investments that have very little risk. Goldman came to them with what appeared to be Triple A rated inured investments with a higher return than what the pension fund could get elsewhere from similar investments. The proposal was an outright lie and Goldman knew it. The only thing that the Pension Fund missed was an opportunity to get punitive damages. It is possible that the pension fund managers had a relationship with Goldman that might have raised questions about whether the fraud could be proved.

But there is no doubt who funded those loans — the Pension Fund. So there is no doubt that whoever was named on the promissory note and mortgage was a naked nominee at best and probably just a regular bad country lie. And there is also no doubt that the terms and quality of the loan were DIFFERENT from the terms and quality proposed to the borrower. Thus we have a mismatch: the terms and names of the principals in the transaction were changed to allow Goldman to trade the loans and resell them as “temporary” owner of the loans while the Pension Fund was left high and dry on the actual lender.

No mortgage broker originator has been punished or sued for giving those bad loans to to Goldman, because Goldman knew the loans were bad and in fact counted on it: they were betting the loans would fail. But just for good measure they included language in the tranche terms that made it certain that they, as Master Servicer, could pull the rug out from the Pension Fund by simply declaring that the level of defaults resulted in a write-down or wipe-out of the investment. Then Goldman made a claim on AIG et al, for proceeds of insurance and credit default swaps payable to Goldman instead of the Pension Fund.

So there was no meeting of the minds, in lawyer speak, between the borrower (homeowner) and the lender (Pension Fund). The note was void because the party identified as the lender was not the lender at all. And it was void because it recited different terms than what the lender thought would be in the loans. Therefore, the mortgage lien was never perfected because it was securing the faithful performance of a note, under which no performance was required — the borrower did not intend to pay a party from whom he had received no loan.

The borrower had intended to pay the real lender, not the party named on the note and mortgage who had neither funded nor purchased the loan. The lender had intended to own a piece of high quality loans that together constituted a stable fund. They were both fooled.

Now here is the kicker: since there was no meeting of the minds, common law takes over. The terms of the loan have yet to be resolved. One thing is fairly sure at this point, which is that the obligation to the lender has not been secured.

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Tags: AIG, Goldman Sachs, meeting of the minds, mortgage liens, New Century Financial, pension funds, stable funds
Posted in bubble, Corruption, Eviction, securities fraud |