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Goldman Sachs E-Mails May Fuel Senate Hearing

April 26, 2010 at 8:33 AM EST
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Newly released e-mails from Goldman Sachs executives reveal new information about what the company may have known as the housing market fell. Ray Suarez talks to a New York Times reporter about the e-mails and Tuesday's Senate hearings.
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JUDY WOODRUFF: But first: the release of the e-mails from Goldman Sachs executives.

Ray Suarez has our story.

RAY SUAREZ: For a closer look at the content of these e-mails and what the company and its critics are saying about them, we are joined by Louise Story. She covers Wall Street and finance for The New York Times.

Louise, what do these internal Goldman Sachs communications tell us about what the company knew about the mortgage-derived securities it was selling and backing?

LOUISE STORY, The New York Times: These e-mails, which have been trickling out since Saturday, really connect the dots in a very important period of Goldman’s history.

Back in 2006 and 2007, as the housing market was starting to fall apart, Goldman figured it out early. And, because Goldman figured it out early, its executives were able to turn the ship and sell a lot of their positive bets on housing and also, according to some of these e-mails, get pretty negative on housing. And these bets allowed Goldman to protect itself from losses, and even profit in ’07.

RAY SUAREZ: The U.S. government has released e-mails. Goldman has released e-mails. There was another document released today. Was there anything new and interesting to you in there?

LOUISE STORY: So, the Senate committee which will be hauling these Goldman executives in front of it tomorrow to talk with them about their mortgage operations, the Senate committee today released a document that outlined these e-mails.

And there was a press briefing with Carl Levin, who leads that committee. And what he said is that it’s clear to him that Goldman amassed this short position, this negative bet, and that the negative bet allowed Goldman to profit. Now, Goldman disputes this. Goldman says that they lost money on mortgages in ’08 and that they were just trying to be neutral on the market.

And I imagine we will hear a lot more about that tomorrow.

RAY SUAREZ: One document released today at 5:00 Eastern time was from a Goldman trader involved in mortgages and involved in the European exposure, who said the company had really damaged its brand over there.

LOUISE STORY: You’re right. There was an e-mail from October ’07 written to Dan Sparks, who was the head of mortgage trading at Goldman. And that — that e-mail said, you know, a lot of European investors are very upset with us, with Goldman, about these deals. And we have really damaged our brand there.

And that’s a big question for Goldman and all of Wall Street, is, how much have they damaged the reputation with clients, with the public? You know, Goldman released — Lloyd Blankfein, their CEO, they released his planned testimony also this afternoon.

And he is really the most conciliatory in there that I have seen him. He says he knows Americans are angry at Wall Street, and he knows that the deal that is at the center of an SEC against complaint, he knows that deal has made many people angry and perhaps looks bad.

But he reiterates that Goldman does think it has its clients’ interests at heart. He called the day that the SEC put this case out, he said that day was the worst — one of the worst days of his life. So, he’s trying to make amends in this testimony.

RAY SUAREZ: Among the released e-mails are those from Lloyd Blankfein himself.

One says: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

He’s putting that one out. What’s significant about that communication?

LOUISE STORY: That was from November ’07, that e-mail. And when he said, “We made money because of shorts,” what he’s referring to are negative bets against the housing market.

And these bets allowed Goldman to make money when the housing market went down. And this is at the heart of the dispute with the Senate committee, whether Goldman was out there profiting on the demise of this market that they had participated in, because they had helped build a lot of mortgage securities, or whether they were just trying to be neutral.

RAY SUAREZ: Another one, from David Viniar: “Tells you what might be happening to people who didn’t have the big short.”

And that, as a phrase, has entered the coverage of this story, hasn’t it, the big short? What is that?

LOUISE STORY: It has. And, in fact, there’s a new book out. The title is “The Big Short,” referring to some hedge fund managers who got really negative on the housing market.

But, yes, David Viniar, the CFO, wrote this in July ’07. And he’s referring to, again, these negative bets against housing. They made these bets in a variety of ways. One of the ways they made them was by owning insurance on mortgage bonds that paid out to them if the mortgage bonds went bad.

And some of that insurance was put inside deals called Abacus. And it’s one Abacus deal that is in the SEC complaint. So, it’s connected together with the SEC complaint, the Senate committee. We’re connecting the dots on what did Goldman do and why did they do it and when.

RAY SUAREZ: In his testimony prepared for tomorrow, doesn’t Lloyd Blankfein deny the existence of a big short?

LOUISE STORY: He does say that he vigorously disputes the idea that Goldman was consistently and significantly short.

He refers to a loss they took in their mortgage book in 2008, where they did lose some money when losses on mortgages moved up into less risky sorts of loans, the ones called prime loans. Then Goldman lost money. You know, so people dispute it.

I mean, some people who I have spoken with have said you really have to look at ’07 on its own as well, because bonuses at Goldman to the executives and the traders are paid each year. And, in ’07, they were paid out of those profits from what Viniar called the big short.

So, you can argue it both ways. And, certainly, Goldman will argue for its good intentions tomorrow.

RAY SUAREZ: Louise Story, thanks for joining us.

LOUISE STORY: Thank you.