Getting a jump on Tuesday's showdown with the top boss at Goldman Sachs, Senator Carl Levin (D-MI) released seven pages of internal emails that shines light on the company's reaction to early signs of the sub-prime mortgage meltdown.
In an email chain from November 18, 2007, Goldman Sachs CEO Lloyd Blankfein said "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." This message acknowledges the company's decision to short-sell the sub-prime market. Critics, including the SEC with its recent fraud lawsuit against Goldman Sachs, argue the company was double-dealing. They claim that while Goldman was itself short-selling sub-primes it was advising its clients to buy.
"These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market," Levin said in a press release that joined the release of the messages.
But the rest of that 2007 Blankfein message casts some doubt on the how much control he felt he had over the situation. "Also, it's not over, so who knows how it will turn out ultimately."
Blankfein is set to testify in front of Levin's committee Tuesday. The hearing is supposed to broadly examine Wall Street's role in the financial crisis but the SEC investigation of Goldman Sachs is certain to draw a lot of attention. Republicans have been critical of the timing of the SEC charges while Democrats try to pass a regulatory reform law. A key vote on that measure is set for Monday afternoon.
Another Goldman Sachs email that was released Saturday shows David Viniar's thoughts on the state of the sub-prime market in July, 2007. "Tells you what might be happening to people who don't have the big short," Viniar wrote to a fellow executive.
Levin's outrage over this message jumps off his press release "There it is, in their own words: Goldman Sachs taking 'the big short' against the mortgage market."
The Washington Post on Saturday reported on a recently-drafted internal Goldman Sachs memo explaining the firm's investment strategy. The newspaper reports the memo is an outline of Blankfein's forthcoming testimony. It attempts to deflect attention by claiming Goldman Sachs was not a significant player in the mortgage securities market and that any short-selling was done to balance the overall portfolio.