Goldman executives cheered housing market's decline, newly released e-mails show
By Zachary A. Goldfarb
Washington Post Staff Writer
Sunday, April 25, 2010
As the U.S. housing market started to slide, executives at the most legendary investment bank on Wall Street, Goldman Sachs, were trading e-mails in which they cheered the declines, even when those declines meant some of their clients were taking major losses, according to newly released documents.
The documents show that the firm's executives were celebrating earlier decisions in which they bet against the housing market, a Senate investigative committee found. In a fall 2007 e-mail, for example, top mortgage trader Michael Swenson was gleeful that credit-rating companies downgraded mortgage-related investments, which caused losses for investors.
"Sounds like we will make some serious money," Swenson wrote.
Lawmakers said the internal e-mails, released Saturday by the Senate Permanent Subcommittee on Investigations, contradict Goldman's assertions that the bank was not trying to make big profits off the decline of the housing market in 2007 and was merely seeking to protect itself if prices collapsed.
With Goldman chief executive Lloyd C. Blankfein and fellow executives coming to Washington on Tuesday to testify before the Senate panel, this weekend's sparring over whether the firm sought to exploit the historic decline in housing prices underscored the intensifying clash between Washington and Wall Street.
President Obama and congressional Democrats are pushing hard to finalize legislation in Congress that would much more strictly regulate the activities of Goldman and other Wall Street firms. The full Senate could begin to debate financial reform legislation -- already passed by the House -- as early as Monday.
Obama sharply rebuked Wall Street in his radio address Saturday. "In the absence of common-sense rules, Wall Street firms took enormous, irresponsible risks that imperiled our financial system -- and hurt just about every sector of our economy," he said.
The findings of the Senate committee come as Goldman is also facing a fraud suit, filed earlier this month by the Securities and Exchange Commission, alleging that the bank misled its clients by selling them a mortgage investment that was secretly designed to fail. Senate investigators this weekend were interviewing Goldman Vice President Fabrice Tourre, who is implicated in the fraud suit and will testify Tuesday.
The Senate committee's findings do not touch directly on the fraud suit but suggest that Goldman's behavior in that case was indicative of a larger pattern of duplicitous conduct on the eve of the economy's collapse.
"Investment banks such as Goldman Sachs . . . were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," said Carl M. Levin (D-Mich.), chairman of the Senate committee. "They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities and sold them to investors, magnifying and spreading risk throughout the financial system and all too often betting against the instruments they sold and profiting at the expense of their clients."
Until recently, Goldman largely escaped the fallout from the financial crisis, quickly repaid federal aid and did not receive the kind of scrutiny and blame that Washington had showered on such firms as Countrywide Financial, Lehman Brothers, and Fannie Mae and Freddie Mac. Countrywide and Lehman are out of business, and Fannie and Freddie are under federal control.
By Zachary A. Goldfarb
Washington Post Staff Writer
Sunday, April 25, 2010
As the U.S. housing market started to slide, executives at the most legendary investment bank on Wall Street, Goldman Sachs, were trading e-mails in which they cheered the declines, even when those declines meant some of their clients were taking major losses, according to newly released documents.
The documents show that the firm's executives were celebrating earlier decisions in which they bet against the housing market, a Senate investigative committee found. In a fall 2007 e-mail, for example, top mortgage trader Michael Swenson was gleeful that credit-rating companies downgraded mortgage-related investments, which caused losses for investors.
"Sounds like we will make some serious money," Swenson wrote.
Lawmakers said the internal e-mails, released Saturday by the Senate Permanent Subcommittee on Investigations, contradict Goldman's assertions that the bank was not trying to make big profits off the decline of the housing market in 2007 and was merely seeking to protect itself if prices collapsed.
With Goldman chief executive Lloyd C. Blankfein and fellow executives coming to Washington on Tuesday to testify before the Senate panel, this weekend's sparring over whether the firm sought to exploit the historic decline in housing prices underscored the intensifying clash between Washington and Wall Street.
President Obama and congressional Democrats are pushing hard to finalize legislation in Congress that would much more strictly regulate the activities of Goldman and other Wall Street firms. The full Senate could begin to debate financial reform legislation -- already passed by the House -- as early as Monday.
Obama sharply rebuked Wall Street in his radio address Saturday. "In the absence of common-sense rules, Wall Street firms took enormous, irresponsible risks that imperiled our financial system -- and hurt just about every sector of our economy," he said.
The findings of the Senate committee come as Goldman is also facing a fraud suit, filed earlier this month by the Securities and Exchange Commission, alleging that the bank misled its clients by selling them a mortgage investment that was secretly designed to fail. Senate investigators this weekend were interviewing Goldman Vice President Fabrice Tourre, who is implicated in the fraud suit and will testify Tuesday.
The Senate committee's findings do not touch directly on the fraud suit but suggest that Goldman's behavior in that case was indicative of a larger pattern of duplicitous conduct on the eve of the economy's collapse.
"Investment banks such as Goldman Sachs . . . were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," said Carl M. Levin (D-Mich.), chairman of the Senate committee. "They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities and sold them to investors, magnifying and spreading risk throughout the financial system and all too often betting against the instruments they sold and profiting at the expense of their clients."
Until recently, Goldman largely escaped the fallout from the financial crisis, quickly repaid federal aid and did not receive the kind of scrutiny and blame that Washington had showered on such firms as Countrywide Financial, Lehman Brothers, and Fannie Mae and Freddie Mac. Countrywide and Lehman are out of business, and Fannie and Freddie are under federal control.
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