Ahead of Goldman Sachs CEO Lloyd Blankfein's visit to the Congress next week, the Senate Permanent Subcommittee on Investigations released emails (PDF) that suggest the firm was making money while the mortgage markets collapsed, which would then contradict the firm's claims it lost money during that period. From the NY Times:
In the e-mails, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November of 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, enabling it to profit as housing prices plummeted. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”
In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, reacted to figures that said the company had made a $51 million profit from bets that the value of mortgage -related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote in an email to Gary D. Cohn, now Goldman’s president.
The Washington Post described another email: "In an October 2007 e-mail, Goldman Sachs mortgage trader Michael Swenson was gleeful at news that credit-rating companies downgraded mortgage-related investments, which caused losses for investors. 'Sounds like we will make some serious money,' the executive wrote."
Senator Carl Levin (D-Michigan), heads of the committee, said, "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. 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."
However, Goldman Sachs said today that the Senate committee "cherry-picked" e-mails to make its point and offered its own defense of how it handled the residential mortgage market (PDF). The SEC sued Goldman last week on fraud charges, claiming it misled investors to buy mortgage products designed to fail.
