It’s a shame Occupy Wall Street is no longer the force it used to be, because the movement could have had a field day with the story of Donald Mullen.
Mullen, a former Goldman Sachs mortgage executive who helped design the trades that allowed Goldman to profit from the collapse of the housing bubble, is raising money for a hedge fund that will buy up foreclosed homes and rent them out, Reuters reports.
Let’s go over this a little more slowly, because it is actually sort of crazy:
In the years leading up to the financial crisis, a team of mortgage executives and traders at Goldman Sachs predicted that the housing market was in trouble. So they designed a massive bet against it, using a bunch of esoteric financial instruments known as collateralized debt obligations that would pay off in the event that housing prices fell and homeowners defaulted on their mortgages.
That bet, now known colloquially as "the big short," allowed Goldman and its clients (including hedge-fund managers like John Paulson) to avoid losses and make billions of dollars when the housing market collapsed, at the same time that people around the country lost their homes to foreclosure.
Now, the guy who led that team — the exact same guy! — is starting a hedge fund that will make money by buying up foreclosed-upon houses and renting them out for profit.
To make matters worse, Mullen, whose more recent activities have involved battling Alec Baldwin at Hamptons art auctions, was one of the Goldmanites whose e-mails were used by a congressional subcommittee to show the extent of Goldman’s celebration at the housing market’s collapse. From a 2010 Washington Post article:
In an e-mail sent in the fall of 2007, for example, Goldman executive Donald Mullen predicted a windfall because credit-rating companies had downgraded mortgage-related investments, which caused losses for investors.
“Sounds like we will make some serious money,” Mullen wrote.
Goldman has characterized its housing bets as hedges that were designed to mitigate risk, and Mullen was never accused of wrongdoing.
The good news about Mullen’s new hedge fund — which will buy and rent out "homes that are selling for between $70,000 and $190,000 and mainly in the southeastern and southwestern regions of the United States," according to Reuters — is that, if the guy who saw the mortgage bust coming in 2007 wants to buy up cheap houses now, it probably means that the housing market is, in fact, recovering.
The bad news, of course, is that a guy whose most famous trade was a successful bet on the full-scale implosion of the housing market is now swooping in to pick up the pieces on the other end.
Alas, such is the Wall Street circle of life.