Goldman Sachs 'profited at clients' expense'

Posted on Monday, April 26, 2010

Goldman chief Lloyd Blankfein will speak about the importance of trust

Goldman Sachs made billions of dollars at the expense of its clients during the collapse of the housing market, a US Senate investigation has found.

The investigation - which obtained Goldman e-mails - said bank executives had misled investors over mortgage-related investments that turned sour.

The Senate panel released its findings ahead of its hearing on Tuesday into the Goldman affair.

Goldman vigorously denies any wrong-doing.

The Permanent Subcommittee on Investigations has been sifting through e-mails and other Goldman documents obtained in an 18-month investigation.

Excerpts from the documents were published Monday, a day before Goldman chief executive Lloyd Blankfein and other top Goldman executives appear before the committee.

'Conflict of interest'

On 16 April, the Securities and Exchange Commission (SEC) filed civil fraud charges against Goldman and one of its executives alleging they failed to disclose a conflict of interest.

If our clients believe [the charges] we don't deserve their trust Lloyd Blankfein

The SEC claims that Goldman arranged mortgage investments without telling clients that the portfolio was put together with help from a hedge fund that was betting on them to fail.

Goldman chief executive Lloyd Blankfein released his own statement ahead of the hearing, saying that the firm did not mislead clients and could not survive without their trust.

Mr Blankfein also said that the day he learned that regulators were filing fraud charges against Goldman was the worst of his professional life.

Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, said on Monday: "I think [Goldman is] misleading the country. There's no doubt they made huge money betting against the [mortgage] market."

The committee provided excerpts of e-mails showing a progression from late 2006 through to the full-blown mortgage crisis a year later.

Mr Levin said the emails show Goldman shifted in early 2007 from neutral to a short position, betting that the mortgage market was likely to collapse.

"That directional change is mighty clear," Mr Levin said. "They decided to go gangbusters selling those securities while knowing they were toxic."

'Widows and orphans'

Goldman, arguably the world's most prestigious investment bank, rejects the SEC charges as wrong in "fact and law".

At the hearing, Mr Blankfein will repeat the firm's argument that it lost $1.2bn (£776,000) in the housing mortgage market during 2007 and 2008.

"If our clients believe [the charges] we don't deserve their trust, we cannot survive," Mr Blankfein says in the prepared remarks.

He also acknowledges that "we have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky."

The Senate panel will also hear on Tuesday from Fabrice Tourre, the London-based bond trader who is named in the SEC charges.

On Saturday, Goldman released a series of e-mails from Mr Tourre, in one of which he jokes that he has sold doomed investments to widows and orphans