WASHINGTON — Goldman Sachs developed a strategy to profit from the housing meltdown and reaped billions at the expense of clients, Senate investigators said Monday.
Top Goldman executives misled investors in complex mortgage securities that became toxic, the investigators allege. They point to e-mails and other Goldman documents obtained in an 18-month investigation. Excerpts from the documents were released Monday, a day before a hearing that will bring CEO Lloyd Blankfein and other top Goldman executives before Congress.
Blankfein says in his own prepared remarks that Goldman didn't bet against its clients and can't survive without their trust.
The Securities and Exchange Commission this month filed a civil fraud case against the bank, saying it misled investors about securities tied to home loans. The SEC says Goldman concocted mortgage investments without telling buyers they had been put together with help from a hedge fund client, Paulson & Co., that was betting on the investments to fail.
Goldman disputes the charges and says it will contest them in court.
At the hearing, Blankfein will repeat the company's argument that it lost $1.2 billion in the residential mortgage meltdown in 2007 and 2008 that touched off the financial crisis and a severe recession. He also will argue that Goldman wasn't making an aggressive negative bet — or short — on the mortgage market's meltdown.
"We didn't have a massive short against the housing market, and we certainly did not bet against our clients," Blankfein says in the prepared remarks released by Goldman. "Rather, we believe that we managed our risk as our shareholders and our regulators would expect."
But Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, said Monday: "I think they're misleading the country. … There's no doubt they made huge money betting against the (mortgage) market."
By the Senate subcommittee's reckoning, Goldman made about $3.7 billion from its short positions in several complex mortgage securities called collateralized debt obligations in 2006-2007.