As the U.S. housing market began its fall nearly three years ago, top executives at Wall Street powerhouse Goldman Sachs cheered the large financial gains the firm stood to make on certain bets it had placed, according to newly released documents.
The documents show that the firm’s executives were celebrating earlier investments calculated to benefit if housing prices fell, a Senate investigative committee found. In an e-mail sent in fall 2007, for example, Goldman executive Donald Mullen predicted a windfall because credit-rating companies had downgraded mortgage-related investments, which caused losses for investors.
“Sounds like we will make some serious money,” Mullen wrote.
Lawmakers said the internal e-mails, released Saturday by the Senate Permanent Subcommittee on Investigations, contradict what they said are Goldman’s assertions that the bank was not trying to profit from the decline of the housing market in 2007 and was seeking to protect itself if prices collapsed.
Goldman admits it had reduced its exposure to the overheated U.S. property market and had sought to limit possible losses through a strategy that would make money if home prices fell. It says such “hedging” is a routine part of its business and is intended to moderate risk.
The clash between Washington and Wall Street is intensifying ahead of the scheduled testimony this week of Goldman chief executive Lloyd Blankfein and fellow executives, which itself comes as Congress weighs legislation that would overhaul U.S. financial regulation. President Barack Obama and congressional Democrats are pushing hard to finalize legislation that would much more strictly regulate the activities of Goldman and other Wall Street firms. The full Senate could begin to debate financial reform legislation as early as Monday.
Obama rebuked Wall Street in his radio address Saturday. “In the absence of common-sense rules, Wall Street … hurt just about every sector of our economy,” he said.
The findings of the Senate panel come as Goldman is facing a fraud suit, filed by the Securities and Exchange Commission, alleging that the bank misled its clients by selling them a mortgage investment that was secretly designed to fail.