By Louise Story and Sewell Chan
In late 2007, as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they would make “some serious money” betting against the housing markets.
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 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 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 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 Saturday, President Barack 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.
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Article courtesy New York Times via cleveland.com
