Digest

Goldman defends actions, says it did not 'bet against' against clients

Thursday, April 8, 2010

WALL STREET

Goldman says it did not 'bet against' clients

Goldman Sachs said Wednesday in its annual letter to shareholders that it did not unfairly bet against clients in the mortgage securities market and defended its relationship with American International Group.

The firm was "grateful" for the government assistance during the market turmoil, Goldman's chief executive, Lloyd C. Blankfein, and chief operating officer, Gary D. Cohn, wrote in the letter, which comes after more than a year of withering attacks on its business practices from lawmakers in Washington.

In its letter, Goldman reiterated many of the arguments it has made to deflect that negative publicity. But reaction from Goldman critics indicated the letter did little to improve its public image.

Goldman executives "are distracting people from their own duties and responsibilities," said Janet Tavakoli of Tavakoli Structured Finance. "When they created a lot of these packages of loans, it was their responsibility . . . to investigate the character of the underlying loans."

Goldman was among the first firms on Wall Street to reduce its exposure to the housing market before the crash, and it did so by taking short positions on subprime mortgage securities that would benefit the firm if the securities declined in value. "Our short positions were not a 'bet against' our clients," the executives said in the letter.

Regarding the federal government's $182 billion rescue of AIG, the executives said that Goldman Sachs and "every other financial institution and company" benefited from the insurance giant's continued viability. The executives repeated their claim, opposed by many critics, that Goldman had limited its risk against AIG through hedges and by demanding collateral, and "thus, if AIG had failed, we . . . would not have incurred any material economic loss."

-- Tomoeh Murakami Tse


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