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Goldman made billions on housing collapse, Senate committee claims

Wall Street bank denies claims, and says it lost $1.2bn on mortgage market in 2007 and 2008.  

 

Goldman Sachs made billions of dollars betting against the collapse of the US housing market, a congressional committee has claimed.

The Wall Street investment bank made and held ‘significant’ bets against the mortgage market in the months leading up to the crash in mid-2007, according to the Senate Permanent Subcommittee on Investigations, which is conducting a major investigation into the financial crisis.

And these ‘short positions' were not just against the mortgage market in general but also against securities that Goldman Sachs had assembled and marketed to its customers, it is claimed.

‘Goldman Sachs, like all the major Wall Street firms, got a multibillion-dollar lifeline from the taxpayers in 2008,’ said Carl Levin, the Democratic Senator for Michigan who chairs the committee.

‘Goldman Sachs was slicing, dicing, and selling toxic mortgage-related securities on Wall Street like many other investment banks, but its executives continue to downplay the firm’s role in the financial engineering that blew up the financial markets and cost millions of Americans their jobs, homes, and livelihoods.

‘Goldman Sachs made billions of dollars from betting against the housing market, and it placed those bets in some cases at the same time it was selling mortgage related securities to its clients. They have a lot to answer for.’

The latest accusations come just hours before Goldman Sachs chief executive Lloyd Blankfein is due to give evidence to the same committee. The bank strongly denies any wrongdoing, and insists that overall it lost money on the housing market collapse.

The bank is also currently the subject of a civil fraud suit by the Securities and Exchange Commission, which alleges Goldman Sachs misled its clients over a synthetic collateralised debt obligation (CDO) constructed and sold in early 2007.

The Wall Street bank failed to tell investors in the CDO that hedge fund manager John Paulson was also shorting the deal and so was betting on the housing market's collpase, the SEC claims.

A London-based employee, Fabrice Tourre, has been personally named in the SEC suit, and over recent days both the Senate Permanent Committee and Goldman Sachs have released internal emails from Tourre and others supporting their own case.

In prepared testimony to the committee released today Blankfein vehemently denied the latest accusations, and described the day of the SEC charge as ‘one of the worst days in my professional life’.

‘Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market,’ Blankfein said.

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2 comments so far. Why not have your say?

Pauline

Apr 27, 2010 at 10:20

M Reillys at it again

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j kerrane

Apr 27, 2010 at 10:25

I would expect that any institution that had significant exposure to one market (in this case US housing market) -that they would try to lay off some of that risk. Naturally the way to do this is to bet on the market going down. This doesn't mean that they thought or knew that the market would go down and it doesn't mean they wanted it to go down either. I'm not defending Goldman - but I have yet to see anything come out that is surprising or indicates a conspiracy. I would be more significantly more concerned if they hadn't laid off any of the risk and continued with bling faith in the housing market.

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