WHAT HEELS: Eat My Shorts: Goldman Sachs E-Mails
Goldman Sachs executives broke out the bubbly as the real estate bubble burst, according to internal E-mails obtained by the Senate Permanent Subcommittee on Investigations that contradict assertions that the investment bank did not aggressively bet against the housing market, reports the Los Angeles Times:
The e-mails go to the heart of recent government fraud allegations that Goldman sold mortgage-backed securities to investors that the company knew would fail. Goldman has denied the allegations and reiterated Saturday that that it did not make money by betting that the mortgage market would collapse.
[Carl Levin (D-MI), chairman of the Senate panel] said the … 18-month investigation into the causes of the financial crisis has found that Goldman and other investment banks helped trigger the mortgage meltdown and then profited from it.
"Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," Levin said. "They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients."
The Associated Press notes that the investment bank “has been in the glare of a particularly unforgiving spotlight since the SEC filed civil fraud charges this month … alleg[ing] Goldman misled two investors - IKB Deutsche Industriebank AG, a German bank, and ACA Management LLC, a U.S. bond insurance company - who bought complex mortgage-related products crafted in part by Paulson & Co., a New York hedge fund led by billionaire John Paulson”:
Paulson was betting the market would collapse. The SEC says Goldman didn't tell the investors that Paulson was involved in choosing the investments or that he was betting they would fail. …
Goldman's relative strength during the financial crisis and the prominence of many former Goldman executives have made the firm a lightning-rod for public anger over Wall Street's greed and recklessness. Even before the SEC charges were filed, the long-secretive bank was fighting accusations that its bets helped trigger and fuel the financial crisis.
Goldman also has become a useful symbol for Democrats in the escalating debate over the financial overhaul. In fact, Republicans charge that Democrats in the Senate and on the SEC are using the public's anger toward Goldman to build support for their plan.
As both Levin’s panel and the SEC are in possession of many of the same E-mails, Goldman’s defense seems to be “we’re not venal, we’re stupid”:
In a statement Saturday, Goldman spokesman Lucas Van Praag said the bank lost $1.2 billion in the residential mortgage market during 2007 and 2008.
"As a firm, we obviously could not have been significantly net short since we lost money in a declining housing market," Van Praag said in a statement.
So stupid, in fact, they could win from losing, as CEO Lloyd Blankfein acknowledged in this Nov. 18, 2007 E-mail: “Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."
Comments