How Goldman Sachs Made Money Mid-Crisis - Businessweek

How Goldman Sachs Made Money Mid-Crisis - Businessweek
"Of Lloyd Blankfein’s 3 hours and 28 minutes before the U.S. Senate’s permanent subcommittee on investigations on the afternoon of April 27, 2010, the most memorable moment came when Democratic Senator Carl Levin of Michigan, for the umpteenth time, held up an e-mail that had been written nearly three years earlier by two of Goldman Sachs’s (GS) most senior traders. The e-mail described a Goldman-underwritten collateralized-debt obligation, or CDO, as “one sh-‍-‍-y deal.” It was the end of a long day, and as Levin bore down on Blankfein, he wanted to know if it was ethical for Goldman to sell a security that its traders thought was bad while Goldman, as a principal, bet against those very same securities in order to make a profit.
It was not the chief executive officer’s finest response. He winced. He perseverated. He parsed. He looked uncomfortable. Finally, he lamely defended Goldman’s behavior. “In the context of market-making, that is not a conflict. What the clients are buying, or customers are buying, is—they are buying an exposure. The thing that we are selling to them is supposed to give them the risk they want.”
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"..Goldman driving down the price for many illiquid and hard-to-value mortgage securities at a time when the firm had implemented its “big short”—thereby sticking it to those who were exposed. A range of Goldman’s counterparties, from Bear Stearns to American International Group (AIG), have argued subsequently that in 2007 Goldman began manipulating the price of these illiquid securities, knowing full well that it alone was in a position to benefit because of its short position. Competitors contend that Goldman’s marked-down prices exacerbated their financial problems by forcing them to lower the value of these securities on their books, vastly reducing their equity and calling into question their financial viability."