Streetwise — Chapter 21: The Storm Before the Storm

1. 1. In August 2007, Goldman Sachs' Global Equity Opportunities quant fund dropped 6% in a single day despite a flat market, signaling the onset of the financial crisis.
2. 2. Goldman Sachs invested $2 billion of its own capital and raised $1 billion from outside investors to deleverage its quant funds and prevent a wipeout.
3. 3. Goldman Sachs' superior risk management, including daily mark-to-market accounting and independent risk controllers, helped it avoid the massive losses that hit other firms.
4. 4. In December 2006, CFO David Viniar ordered all mortgage traders to get 'close to home' on risk, making Goldman effectively neutral on mortgage markets by January 2007.
5. 5. Goldman Sachs bought credit protection on AIG, the AAA-rated insurer, because it doubted AIG's marks on subprime securities and wanted collateral agreements.
6. 6. Bear Stearns collapsed in March 2008 due to excessive leverage (33-to-1), heavy reliance on short-term repo funding, and illiquid mortgage securities.
7. 7. Goldman Sachs recorded its strongest year ever in 2007 with $11.6 billion in earnings, while competitors like Merrill Lynch and Citigroup suffered massive write-downs.
8. 8. The financial crisis created a world of intense polarization, distrust of institutions, rising inequality, and populist movements that persists nearly two decades later.