Here's the Serious Situation that Could Blow Goldman Sachs Out of the Water

[link to www.economicpolicyjournal.com]

Saturday, April 24, 2010
Here's the Serious Situation that Could Blow Goldman Sachs Out of the Water
While the SEC continues to pursue a highly questionable fraud charge against Goldman Sachs, new information suggests that a serious violation may have occurred that could cost the chairman and chief executive of Goldman Sachs, Lloyd Blankfein, his job and that of the President and COO, Gary Cohn, and severely damage the firm.

In Goldman's 2009 annual report to investors, Blankfein and Cohn said that Goldman “did not generate enormous net revenues or profits by betting against residental related products."

However, in an email just released by the Senate Subcommittee Investigating the Financial Crisis, Blankfein, , wrote in November 2007: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

In other emails released, Goldman's CFO David Viniar responded to an email that Goldman had made $50 million in one day by taking short positions : “Tells you what might be happening to people who don’t have the big short..."

In another released email, a Goldman employee wrote in response to news of a decline in some mortgage backed securities that Goldman was short, “Sounds like we will make some serious money.”

“Yes we are well positioned,” another responded.

Thus, it's clear, Goldman did make money shorting mortgage backed securities.The size of net profits is not clear, but the size of net profits becomes critical.

It is a situation where size matters, thanks to Blankfein's and Levin's claim in the annual report that net-profits were not enormous.

The "big swinging dicks" of Wall Street better hope that the size of the net profit they made from short selling mortgage backed securities was tiny. If the net profit is anywhere close to as big as they think their dicks are, they are in serious trouble for reporting false information in their annual report.

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Here are the emails released by the Senate Subcommittee . They are fascinating reading.
Posted by Robert Wenzel at 12:11 PM
Labels: GoldmanSachs, LloydBlankfein, Securities and Exchange Commission