Goldman Sachs to Lawmakers: Trust Us -- We're Stupid, Not Evil
Bankers at Goldman Sachs (GS), Wall Street's proverbial "smartest guys in the room," are eager to show Congress how dumb they really are. Or at least as dim as everyone else who took a bath during the housing bubble.
At issue is a Senate panel report issued in April that accuses the investment bank of profiting on the collapse of the subprime mortgage market at the expense of the firm's clients. Goldman is now going on the offensive to discredit that claim, according to the WSJ:
The securities firm is considering releasing documents about its mortgage bets that are aimed at showing what Goldman officials claim is sloppy math and incomplete analysis by the Senate Permanent Subcommittee on Investigations as the panel sifted through tens of millions of documents turned over by Goldman.The Senate panel cited internal Goldman emails, presentations and other records in claiming that by mid-2007 the bank had "shorted," or bet against, the housing sector to the tune of nearly $14 billion. In recommending that federal prosecutors investigate the bank's housing investments, subcommittee chairman Sen. Carl Levin, D.-Mich., tartly noted that the phrase "net short" appeared more than 3,400 times in related documents the firm had handed over to the panel.
Computer says "no"
Goldman seems to think such figures are inaccurate. The firm will claim that the subcommittee ignored billions of dollars in bullish bets it made on mortgage-backed securities. The bank says those investments lost pots of money, offsetting whatever it made speculating that housing would collapse. In short, the company asserts, the Senate investigators can't add.
How does Goldman know? It ran the numbers:
[D]uring the past few months, Goldman churned through its computers all the mortgage trades made by the company in 2007, ranging from high-quality bonds backed by mortgage loans to mortgage bonds created with derivatives and packaged into synthetic collateralized debt obligations, said people familiar with the matter. That process helped convince Goldman executives to become more aggressive in trying to fend off some of the Senate subcommittee's findings.That's settled, then. Years after first being accused of conspiring against its own customers, Goldman finally decided to boot up those computers and run some spreadsheets on its mortgage positions. And voilà , no "big short." Maybe it was all a bad dream. Unless you're John Paulson, of course, the hedge fund manager who Goldman helped bet against housing by concocting CDOs that were guaranteed to blow up in the faces of other bank customers on the losing side of the trade.
"I'm with stupid -->"
I hereby dub this the "I'm with stupid" defense. And at least Goldman is consistent. The company's alibi has always been that it ran off the side of the cliff during the housing boom like all the other lemmings. Legally that makes perfect sense (although a tad hard to reconcile with CEO Lloyd Blankfein getting a fat raise this year).
Hey, it's better than the alternative scenario of a bank playing one client's financial interests off another, of a firm that inflates bubbles so it can prick them at an opportune time. That wouldn't look good, would it?
Thumbnail from Flickr user Artnow314
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