Playing To Lose

E-mails released yesterday by Congress shows Goldman Sachs was betting big time that their subprime investment schemes would fail...and that they were designed to fail from the beginning.  When they did so, Goldman made a mint.

The messages, released Saturday by the Senate Permanent Subcommittee on Investigations, appear to contradict statements by Goldman that left the impression that the firm lost money on mortgage-related investments.

In the messages, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

He added, “It’s not over, so who knows how it will turn out ultimately.”

In another 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 housing securities would drop in value. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

Actions taken by Wall Street firms during the housing collapse have become a major factor in the contentious debate over financial reform. In his weekly radio address on Saturday, President Obama said Wall Street had “hurt just about every sector of our economy” and again pressed the case for tighter regulation. On Monday, Senate Democrats will try to prevent a Republican filibuster in the first major test of the administration’s effort to push through legislation.

Goldman on Saturday denied it made a significant profit on mortgage-related products in 2007 and 2008. It said the subcommittee had “cherry-picked” e-mail messages from the nearly 20 million pages of documents it provided. This sets up a showdown between the Senate subcommittee and Goldman, which has aggressively defended itself 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.

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrasted with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Senator Levin said in a statement Saturday. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

The 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 money from plummeting mortgage holdings, Goldman prospered. 

They bet on a meltdown, and the best way to ensure a meltdown was going to happen was to use Goldman's leadership position in the market to push these questionable subprime securities products to the consumer, while secretly betting those products would fail massively.  They did.  Everyone else lost money.  Goldman Sachs came out better than before.  They knew the bubble was going to explode.

When it did, they made a fortune.  The rest of the country?  Well, we lost 8 million or so jobs, had to pay trillions to bail out the banks, and basically wrecked our economy for the next decade or so.  But Goldman Sachs made money.  Illegal?  That's what the investigation is for.  Immoral?  Without a doubt.  They knew exactly what they were doing, and always had known.

They conned America and walked away laughing at how stupid we were.  And the GOP wants to back Goldman and prevent legislation from stopping cons like this happening again?

You do that, Republicans.