Goldman Sachs Plays the Delay Game
Goldman Sachs testified to the Senate Permanent Subcommittee on Investigations. Their strategy was to deny any wrongdoing and run the clock out on each of the senators time of questioning.
Sen. Carl Levin nailed Goldman Sachs for knowingly selling investors Timber Wolf Securities. An internal e-mail described Timber Wolf as a "shitty deal." Short answer: Goldman Sachs knowing bilked investors.
The most sickening moment was Goldman Sach's Vice-President Fabrice Tourre doing the Jesus Christ pose.
Fabrice Tourre, the 31-year-old, Stanford-trained, French whiz kid working for Goldman out of London, was indignant. "I have been the target of unfounded attacks on my character and motives," Tourre told the Senate Permanent Committee on Investigations.
Those attacks include Goldman Sachs betting against the housing market and making a fortune. The result of Goldman Sachs actions was helping the housing market crash. So Mr. Tourre can spare us the martyr act.
Goldman Sachs intentionally sold high-risk bonds to home-owners. Goldman Sachs wanted to rid themselves of risky bonds and make money by leveraging the housing market. The e-mails tell the story.
The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk.
“A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?”
Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday.
At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said.
Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring.
“We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.”
In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.”
“Makes sense to me,” responded Kevin Gasvoda, a Goldman Sachs colleague.
Now you may understand why I don't feel sorry for Mr. Tourre.