Goldman Sachs Messages Show It Thrived as Economy Fell
In late 2007 as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they were making “some serious money” betting against the housing markets.
The e-mails, released Saturday morning by the Senate Permanent Subcommittee on Investigations, appear to contradict previous statements by Goldman that left the impression that the firm lost money on mortgage-related investments.
In a 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.
Goldman on Saturday released documents it said showed the firm lost money on mortgage-related products in 2007 and 2008.
The release of the e-mails and Goldman’s response sets up a showdown between the Senate committee and Goldman, which has taken a more defensive posture since the Securities and Exchange Commission filed a security fraud complaint against it nine days ago. On Tuesday, seven current and former Goldman employees, including Mr. Blankfein, are expected to testify at a Congressional hearing.
The Goldman messages appear to connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged losses from plummeting mortgage holdings, Goldman prospered. At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.
But by the end of that year, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts at the end of 2007 that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets and leaving out the amount it made on its negative bets.
Documents released by the Senate committee appear to indicate that in July 2007, Goldman’s accounting showed losses of $322 million on positive mortgage positions, but its negative bet — what Mr. Viniar called “the big short” — brought in $373 million. As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007.
It is not known how much money in total Goldman made on its negative housing bets.
http://www.nytimes.com/2010/04/25/business/25goldman.html?pagewanted=1&emc=na
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