E-mails recently released by a Senate subcommittee implicate Wall Street giant Goldman Sachs in making “serious money” off of the real estate bubble burst. The e-mail chains contradict claims by Goldman officials that the investment bank also lost a substantial amount of money from mortgage-related investments, and will be addressed during the bank’s Senate hearing on Tuesday.
According to a case brought forth by the Securities and Exchange Commission, Goldman Sachs sold mortgage-backed securities to investors while aware that these securities would fail. Allegedly, Goldman then bet against these securities, enabling earnings to increase by 90 percent since the same period last year – $3.5 billion during the first quarter of 2010. Essentially, the SEC claims that the actions of Goldman and other investment banks helped set off the mortgage crisis, which ultimately brought them great profit.
How exactly is Goldman said to have perpetrated this fraud? According to the SEC, Fabrice Tourre, Goldman Vice President, was fully aware that the subprime mortgages Goldman used to create securities were very likely to default. Paulson & Co., a private hedge fund, secretly selected these investments for Goldman, while betting that they would fail. Paulson & Co. paid $15 million in exchange.
Goldman officials vehemently deny the claim, citing $2.5 million in losses from bad investments. According to Goldman, the suit is “completely unfounded,” and that the firm “did not generate enormous net revenues by betting against residential related products.” Still, investigations apparently indicate otherwise; the most noteworthy evidence against Goldman is the e-mails sent among executives, which indicate their awareness of the company’s actions.
The suit against Goldman has strong political implications. Many wonder about the timing of the SEC’s actions, as the accusations of such fraudulent behavior conveniently coincide with the current Democratic push for regulatory overhaul legislation. Democrats have taken full advantage of the situation in their movement to tighten Wall Street regulations.
Regardless the outcome of these allegations, the once golden reputation of one of the most prestigious firms in the world has been tarnished. Goldman was once one of the top qualifications for leading government jobs. Both Secretaries of the Treasury Robert Rubin of the Clinton administration, and Henry Paulson of the George W. Bush administration, were once Goldman chairmen. Goldman officials are also prevalent throughout the current Obama administration. After recent revelations, however, Goldman experience is a “toxic asset,” according to BusinessWeek. It seems unlikely that a Goldman alum is selected for a top government financial position in the near future.
Other candidates and elected officials have made visible attempts to distance themselves from any association with Goldman political donations. Goldman donated $290,500 to congressional candidates last month alone; the firm also dropped almost $1 million on the Obama campaign. Now, Republicans and Democrats alike have scrambled to disassociate themselves from the firm. Mark Kirk, the Republican Senate candidate in Illinois has offered to refund any donations funded by Goldman. Meanwhile, both California gubernatorial opponents are currently attacking each other for their ties to the firm.
The Goldman Sachs fraud suit is not likely to be quickly resolved. As one of the top Wall Street firms and a widely respected establishment, Goldman will fight back to maintain its reputation. Only time will tell whether or not the SEC’s allegations will be validated. Still in the aftermath of one of the largest financial crisis in history, it comes as no surprise that corporations and regulators alike seek to avoid blame and prevent future catastrophes.
Related Articles:
- Penn State Allegations In recent years, different events seem to...
