Goldman Sachs refutes short selling claims

26 April 2010

Goldman Sachs has defended itself in response to claims that it made large profits on betting against the subprime mortgage market.

A Senate report released over the weekend revealed email exchanges between Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs, and other executives at the bank.

In November 2007, Mr Blankfein emailed his colleagues to say: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts."

The Senate investigation also revealed that the bank made a profit of $50 million in one day of trading thanks to taking short positions as the mortgage market began to collapse, reports the Financial Times.

Carl Levin, the Democratic chairman of the Senate panel, said that Goldman Sachs' behaviour had played a part in the financial crisis taking place.

"They were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis," he stated.

Mr Levin accused the bank of bundling toxic mortgages into complex financial instruments, before getting them labeled as AAA securities by credit rating agencies and selling them on to investors.

He added this meant "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".

Earlier this year, Goldman Sachs stated that it did not make "enormous net revenues" by betting against mortgage-based products.

Goldman Sachs has hit back against the claims, stating that any negative positions were taken to balance out long-term exposure to the housing market.

It added that it did not "consistently or significantly short" the market.

The bank went on to state it had no special knowledge that meant it knew the US housing market was set to collapse and pointed out that Goldman Sachs actually lost $1.7 billion on its mortgage-related products in 2008.

By Gary Cooper
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