Senator Levin Claims Goldman Execs Perjured Themselves Before Congress on Mortgage Testimony « naked capitalism: [T]he Senate Permanent Subcommittee on Investigations just issued another report, "Wall Street and the Financial Crisis."... The committee took the approach of drilling into certain practices and players they regarded as key to see where that took them.... I suspect that some of its supporting evidence, which the subcommission also released, will point to issues that the report did not stress. The report looks at WaMu (considered heretofore to be one of the better subprime lenders), the Office of Thrift Supervision (among other things, the hapless supervisor of AIG’s holding company) rating agencies, and Goldman’s and Deutsche Bank’s behavior in the RMBS and CDO markets.... Senator Carl Levin, in releasing the report, took aim at Goldman’s truthiness in its testimony before Congress and called on Federal prosecutors to examine whether Goldman committed perjury. Two issues are at stake. First it the Goldman claim that it lost money on its housing bets and was not net short housing (or at least not for long). Second is the notion that the firm was acting merely as a market marker, which basically means caveat emptor, if clients made bad bets, Goldman was merely acting as a neutral middleman. While Goldman made the usual pious denials, the evidence in the report supports the Levin charges. It notes:
Overall in 2007, its net short position produced record profits totaling $3.7 billion for Goldman’s Structured Products Group, which when combined with other mortgage losses, produced record net revenues of $1.2 billion for the Mortgage Department as a whole.
2007 was the critical year when the market turned decisively south and all dealers were dumping mortgage-related inventory. Goldman had been further ahead in the process and appears to be the only firm to put on very sizeable short positions. The magnitude of the profits on the short side lend credence to the charge that Goldman was substantially and successfully net short. The second major charge, that Goldman was merely a market maker, never passed the common sense test. The report delineates the aggressive measures the firm took to unload CDOs, with e-mails showing an aggressive, full bore sales push, including salesmen relying on their credibility with clients to get them to buy doggy deals and demanding extra sales credits in return. This is contrary to the role of a market maker, which intermediates client orders.... Since the three year statue of limitations for civil litigation under the securities law has passed, we are unlikely to see any new litigation, but Goldman’s statements about its role look to be gross misrepresentations...