Study Case of Goldman Sachs and the Real Estate Bubble

Of Goldman Sachs and the Real Estate Bubble - Case Study Example e an evaluation of what really happened, prescribe alternatives that ought to have been taken, give recommendations about how such a situation can be avoided and finally give a conclusion. Goldman Sachs is one of the biggest, and leading financial institutions in the world. Founded in the year 1869, it is an investment bank that is regarded the leading world investment bank. It is also involved in the management of investments and securities and also provides a variety of consultancy and other services across the world. The net revenue that Goldman Sachs raked in from its wide portfolio of services in the year 2011 was over 28 billion dollars (Konecny, 2012). It is also known for employing the top cream of the best universities who help propel it to such great heights, with top officials sitting at the treasury, such as the former secretary to the treasury, Henry Paulson, and other government financial institutions being past employees of Goldman Sachs. So what was the involvement of this giant company in the real estate bubble hit? Its involvement, both direct and indirect, can be simplified into three. Firstly, it sold securities which were mortgage- related and ove rpriced to investors without actually telling them the obvious risks that lay ahead. Secondly, Goldman Sachs, through its mortgage division’s Alternative Mortgage Products, made bets that the values of the securities would dip following a drop in the prices of houses in the United States. The third involvement of the investment bank in the housing bubble issue was its indirect connections with powerful government executives, who were actually former executives at Goldman. This made way for its receipt of bailout money from payments advanced to entities it had acquired such as AIG after the collapse of the bubble (Cohan, 2012). A number of reasons have been put forth in an attempt to explain the causes of the housing bubble. Such explanations include deregulation of financial institutions, misguided