Sunday, April 25, 2010

Goldman Sachs Group Inc. (GS) executives loving the subprime collapsed.. “gods work” $GS

 New documents from a Senate investigation show top Goldman Sachs Group Inc. (GS) executives cheering the gains they were reaping as subprime-mortgage securities collapsed in value in 2007. Goldman emerged stronger than competitors after the mortgage-market collapse and the ensuing financial crisis. But it now finds itself at the center of controversy over the methods it used to make money during the meltdown. (This story and related background material will be available on The Wall Street Journal Web site,
On April 16, the Securities and Exchange Commission charged the firm and one of its executives with misleading investors. Goldman failed to disclose that a hedge-fund client helped design a security to drop quickly in value, the SEC alleged. Goldman said it did nothing wrong. It said the investors were sophisticated institutions that knew what they were getting into. Several of the firm's top executives, including Chief Executive Lloyd Blankfein, are slated to testify Tuesday before the Senate Permanent Subcommittee on Investigations. The subcommittee gathered the latest batch of documents in the course of an 18-month-long investigation into the financial crisis.
In one email exchange, Mr. Blankfein appears to bluntly acknowledge the firm's strategy in broad terms.
"Of course we didn't dodge the mortgage mess," Blankfein said in an email on Nov. 18, 2007. "We lost money, then made more than we lost because of shorts. Also, it's not over, so who knows how it will turn out ultimately." Mr. Blankfein sent the email after he was told about an upcoming New York Times article on Goldman. The article, headlined "Wall St. Firm Rakes in Profit in Credit Crisis," appeared on Nov. 19, 2007. The emails also show other Goldman officials cheering the news that some mortgage-related securities were being downgraded by rating agencies in late 2007. Top trader Michael Swenson said that as a result of the downgrades, certain payments Goldman owed to investors would "go to zero."
"Sounds like we will make some serious money," responded another executive, Donald Mullen. At another point in July 2007, Goldman executives appear to discuss how their mortgage investment numbers were up, despite big losses on securities known as collateralized debt obligations and residential mortgages. "Tells you what might be happening to people who don't have the big short," wrote Chief Financial Officer David Viniar in an email. In a statement Saturday, Sen. Carl Levin, chairman of the subcommittee that will hear the Goldman testimony, said investment banks such as Goldman Sachs "were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis." Goldman Sachs spokesman Lucas van Praag said: "As a firm, we obviously could not have been significantly net short since we lost money in a declining housing market." Mr. van Praag said the subcommittee "cherry-picked" four emails from almost 20 million pages of documents. "It is concerning that the subcommittee seems to have reached its conclusion even before holding a hearing," he said.

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