Market Overview

Goldman Sachs (GS) Said To Have Been In Other Mortgage Deals


Goldman Sachs’ (NYSE: GS) legal problems continued unabated on Tuesday as it prepares itself for a Senate hearing. In this hearing, Goldman is expected to defend its actions during the housing crisis. According to the New York Times, Monday saw Senate investigators claim that Goldman Sachs’ complex deal to profit from the collapse of the home mortgage market was not just a single case; they had devised a series of such deals. This gives an indication for the first time that now the case against Goldman Sachs was going much beyond the one mortgage deal brought out by the Securities and Exchange Commission.

It may be recalled here that Goldman Sachs has already been accused by SEC of cheating investors in the case of the Abacus 2007-AC1 deal. Lloyd C. Blankfein, Goldman’s chairman and chief executive, released a statement on Monday that has been prepared for the hearing. In it, he says that the news 10 days ago that the S.E.C. had filed a civil fraud suit against Goldman had shaken the bank’s employees. Blankfein said “It was one of the worst days of my professional life, as I know it was for every person at our firm. We have been a client-centered firm for 140 years, and if our clients believe that we don’t deserve their trust we cannot survive.”

It is expected that Blankfein’s contention will also be that Goldman did not have a consistent short position in the mortgage market. However, Carl Levin, who heads the Senate committee, has said in a press briefing that Goldman had bet against its clients repeatedly. He said he had copies of e-mail messages and other documents that showed Goldman had put its own interests first. Levin said “The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients.”

Among other deals, the Senate subcommittee has also studied two deals from early 2007 called Anderson Mezzanine 2007-1 and Timberwolf I. It has been said that these two deals alone were worth $1.3 billion. Goldman held about $380 million of the negative bets associated with these two deals. These deals have been pointed out by the subcommittee as examples of how Goldman put its own interests ahead of clients.

To emphasize this point, on Monday, Levin read out from several Goldman documents, including one in October 2007 that said, “Real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant.”

Posted-In: Carl Levin Lloyd BlankfeinNews Politics Markets General


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