Goldman Disputes Assertions About E-Mails

Portuguese soccer legend Eusebio watches the Euro 2012 soccer championship Group B match between Denmark and Portugal in Lviv, Ukraine, Wednesday, June 13, 2012. (AP Photo/Armando Franca) / Armando Franca

Goldman Sachs is disputing the assertion by a Senate subcommittee that it profited by going "short" on housing - by betting that mortgage-backed securities would fall.

A spokesman for the firm also accused the Senate Permanent Subcommittee on Investigations of cherry-picking four e-mail threads out of 20 million pages provided by Goldman, and reaching conclusions before it even holds a hearing.

In response to a selective e-mail release and statement from the subcommittee chairman, Sen. Carl Levin, D-Mich., Goldman Sachs spokesman Lucas Van Praag said the firm actually lost more than a billion dollars in residential mortgage-backed securities during the period in question.

"Today we have made available our residential mortgage profit & loss information for each quarter of 2007 and 2008. This demonstrates conclusively that we did not make a significant amount of money in the mortgage market," van Praag said. "What it does show is that we had net losses of over $1.2 billion in residential mortgage-related products in the period."

In addition, Goldman has released a 12-page summary document it had prepared in advance of Tuesday's hearing, during which CEO Lloyd Blankfein is scheduled to testify.

In that statement, Goldman asserts it never created mortgage-related products that were designed to fail, nor did it engage in "some type of massive bet against our clients."

Goldman Sachs: Risk Management and the Residential Mortgage Market

The e-mails released Saturday morning show top executives at Goldman Sachs Group Inc. boasting about the money the firm was making as the national housing market collapsed in 2007.

The e-mails suggest Goldman benefited from its bets that securities backed by subprime mortgages would lose value. The messages seem to contradict previous statements by the investment bank that it lost money on the securities.

"Of course we didn't dodge the mortgage mess," Blankfein wrote in an e-mail dated Nov. 18, 2007, according to an e-mail released Saturday. "We lost money, then made more than we lost because of shorts."

Goldman restated its position Saturday that it did not reap huge profit from bets against the market.

Short positions are bets that the market will go down. As the housing bubble burst, Goldman and a few powerful hedge funds took short positions on the market. Many of those bets required other investors to bet the market would rise. When the market went bust, people with short positions cleaned up.

"We were just smaller in the toxic products," Goldman's president, Gary Cohn, writes back to Blankfein that same Sunday evening.

Critics say their bets added fuel to the financial crisis.

More on Goldman Sachs:
Goldman's CEO, Board Named in Lawsuits
SEC Inspector General Will Investigate Timing of Goldman Case
Spitzer: SEC Will Likely Win Case Against Goldman Sachs
Analysts Bullish on Goldman, Despite Charges
SEC vs. Goldman: A Matter of "Material"

One of those bets is at the heart of civil fraud charges the Securities and Exchange Commission filed against Goldman this month. The SEC says Goldman let hedge fund Paulson & Co. help select investments for a portfolio that was designed to lose value, then marketed the deal to investors who were betting the portfolio's value would rise.

The SEC says Goldman did not tell the investors - mostly European banks - that the deal was created in part by the hedge fund and therefore was designed to fail.

Separately Saturday, Goldman released a series of e-mails from Fabrice Tourre, the trader at the heart of the SEC charges. In them, Tourre jokes about selling investments to "widows and orphans" when he already expects the market to go bust.

He writes in an e-mail dated March 7, 2007, that Dan Sparks, leader of Goldman's U.S. subprime business, said the business "is totally dead, and the poor little subprime borrowers will not last so long!!!"

That April, he joked about the bonds the SEC charges he misled clients about.

"I've managed to sell a few abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians adore" the complex investments, Tourre wrote.

The e-mails are in a mixture of French and English, and are to a woman with whom Tourre appeared to be romantically involved. Goldman provided translations.

The same e-mails were excerpted in the SEC's complaint against Goldman, but the full context was not reported previously.

The subcommittee, whose probe is not connected with the SEC's, has been investigating the causes of the financial crisis for 18 months. Its fourth and final hearing Tuesday will include testimony from Blankfein and Fabrice Tourre, a trader named in the SEC case.

Goldman has denied wrongdoing and says it will fight the charges.

In a statement Saturday, spokesman Lucas Van Praag said the bank lost $1.2 billion in the residential mortgage market during 2007 and 2008.

Blankfein's comment about Goldman making more than it lost was a response to an e-mail from Van Praag in which Van Praag discussed a forthcoming New York Times article about the firm. It would show "how we dodged the mortgage mess," Van Praag explained.

In one, Goldman Chief Financial Officer David Viniar says that in one day the firm made more than $50 million on bets that the housing market would collapse, according to a statement from Levin's office.

Viniar, also scheduled to testify Tuesday, summed up the position of investors who had not bet against the market:

"Tells you what might be happening to people who don't have the big short," Viniar writes in the message dated July 25, 2007.

In a statement today, Levin called banks like Goldman "self-interested promoters of risky and complicated financial schemes that helped trigger the crisis."

Goldman said in its 2009 annual report that its short positions sought to offset its long positions in the mortgage market and did not generate large profits. Through 2006, Goldman "generally was long in exposure" in the mortgage-backed securities market, according to the report, and after taking losses on those securities in 2006 it reduced its exposure.

"Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not 'a bet against our clients,'" according to the report.

[pragmatist1]

Why is just Goldman Sachs being singled out by the SEC? All of the banks were doing the same thing. On this basis alone, the civil fraud suit against GS hasn't any grip.

[quapawsix]

Nothing is going to come of this Goldmans friends at the Rothschild controlled Bank of England who also owns 53% of the Federal Reserve will get them off.

[TJphoto]

Adolf Hitler taught us that if you tell a lie often enough and long enough people will start to believe it as fact. Somebody needs to go to jail and it should be Lloyd Blankfein, MAN UP!!!

[grimewatson]

i had read that On April 16, 2010, the Securities and Exchange Commission (SEC) announced that it was suing Goldman Sachs and one of its employees, Fabrice Tourre. The SEC alleged that Goldman materially misstated and omitted facts in disclosure documents for a synthetic CDO product it originated called Abacus 2007-AC1.Goldman was paid a fee of approximately US$15 million for its work in the deal. The allegation is that Goldman misrepresented to investors that an objective third party, ACA, had reviewed the mortgage package underlying the credit default obligations, and that Goldman failed to disclose to ACA that a hedge fund, Paulson & Co., that sought to short the package, had helped select underlying mortgages for the package against which it planned to bet.[103] The SEC further alleged that "Tourre also misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-ACI (a long position) and, accordingly, that Paulson's interests in the collateral section [sic] process were aligned with ACA's when in reality Paulson's interests were sharply conflicting."

http://www.rsoftsolution.com/hosting.php

[honest_pols]

MANY UNAWARE OF LICENSES 'TO SELL WHAT IS NOT OWNED' GRANTED BY U.S GOVT
FOR MAJOR PRINCIPALS, DEALERS, TRADERS IN BOTH COMMODITY AND STOCK MARKETS

In the name of providing more liquidity, increased efficiency of our markets, and other logically and beneficially-sounding reasons for justification of such U.S. FEDERAL GOVT LICENSED practices, our financial exchanges have been granted such licenses for MANY DECADES - perhaps for one hundred years or more.

Prices of the underlying security or commodity are regularly and frequently manipulated, specifically for 'accommodation' of the specie - either to increase or to reduce its price - which is held by the dealers, traders and/or principals, according to their positions (long or short, or both).

The following has been copied from an item written against 'short selling' and against selling what is not owned, or what does not even exist:

[ The CFTC is the Commodity Futures Trading Commission, and their job is to regulate futures contracts, to prevent fraud. But they protect and encourage fraud! How? They place position limits on the longs (and there should never be limits on what you can buy in a free market), but they refuse to place and enforce position limits on the shorts (who fraudulently sell what they do not have). If anything, to prevent fraud, they should limit the shorts, and not limit the longs.

Also, it is well known that JP Morgan is a major precious metals short, but the CFTC does nothing.
http://www.caseyresearch.com/displayGsd.php?id=106 ] END

FINAL, BOTTOM LINE QUESTION:
What happens when the holders/owners of the contracts, options, derivatives, and/or other complex paper 'representational certificates', demand delivery of what they purportedly own?
They will find out that only perhaps one percent of the underlying specie or commodity actually exists, and that the vast majority have been sold fraudulent peices of paper!

[askagain]

There are many ways to make money in the stock market. Buying short simply means that you are betting that stocks will go down instead of up. If the you buy short and the stock goes down you make money. If you buy short and the stock goes up, uou lose money. If I were buying short and made money, I, too, would be very happy. During the recession, I kept buying mutual funds as the market went down. In fact, I kept hoping that the market would go down further so that I could buy low and sell later at mich higher prices. Sounds terrible but remember the risks involved if the market did not go up. Hedge funds buy short as a means to "hedge" their bets. That way, hedge funds can make money whether stocks go up or down or at leat minimize losses. If I were buying short and made money, I, too, would be jubilant like the brokers at Goldman Sachs. As long as their brokers did not violate any laws, they shoild not be penalized for being successful.

[josephp5]

It remains to be seen whether or not Goldman Sachs violated the law. But no matter how you look at it, what they were doing is extremely unethical because they were selling investments to the public and at same time they were betting against those investments.

[honest_pols]

ADDITIONAL INVESTIGATIONS AND PURGES OF 'FINANCIERS', INVESTMENT BANKERS,
AND OTHER FINANCIAL PARASITES EXPECTED - BOTH 'ON AND OFF' OF WALL ST

We must relentlessly pursue these greedy, corrupt, selfish, financial sociopaths who unconscionably take, and contribute very little or nothing, back to society, to their community or to their country, with the exception of sapping our financial security and ruining hundreds of millions of others' lives.

It will not be enough to watch our so-called justice system simply mete out symbolic or even suspended prison terms for these economy-and-nation wreckers. We must demand that these criminal parasites be made to serve lengthy prison terms with hard labor, pay heavy fines to government, and compensation to their victims, as well as their money, assets, etc, confiscated.

We have permitted such past behavior to corrupt our young people 'by example'. It will take a hell of a lot to reverse the same.

[dsnj1-2009]

These CEO and top execs should all do the right thing and give 3/4 of their bonuses to people whose homes were foreclosed on during this mess. It would be a good start and a good gesture, instead of looking like greedy fools. What about it GS, AIG, all others? That should have been one of the conditions of the bailouts.

[SUEZQueen]

I'm sure they will all get what they are worth no matter what is sold and what is not..i will be praying for US ALL to be HOUSED with a MAN SION and not PRI SON..WO AMN

[SueZeeeQue]

This is and the entire recession is a direct result of the anything goes deregulation of Wall Street that Republicans have been pushing for many years.