Goldman Sachs Denies It ‘Bet Against Its Clients’

Created: April 07, 2010 09:22 | Last updated: July 31, 2020 00:00

This morning, Goldman Sachs, among the most lucrative of the Wall Street firms, released an eight-page shareholder note, a preface to its 2009 annual report, which will be out later this month.

Underscoring the extent to which taxpayers saved bankers during the crash, the words “Washington” and “government” and “conservative” crop up constantly in the way the word “profits” used to. The letter opens by praising the government’s extraordinary measures during the financial crisis.

“[W]e have embraced new realities pertaining to regulation and ensuring that our financial strength remains in line with our commitment to the long-term stability of our franchise and the overall markets,” it says. “We became a financial holding company, now regulated primarily by the Federal Reserve and subject to new capital and leverage tests.”

But it’s no mash note to Washington. Goldman spends nearly a third* *of the letter on defense – clarifying its positions on its relationship with bailed-out insurer AIG, its employees’ compensation and the notion that it stoked the market for mortgage-backed securities while betting against the housing market.

It says that Goldman Sachs never “bet against [its] clients” by shorting “residential mortgage-related products in 2007.” The note argues, “[the shorts] served to offset our long positions. Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits.”

“The firm did not generate enormous net revenues or profits by betting against residential mortgage-related products, as some have speculated,” chief executive officer Lloyd Blankfein and president Gary Cohn argue. “Rather, our relatively early risk reduction resulted in our losing less money than we otherwise would have when the residential housing.”

Yves Smith writes a good debunking of some of Goldman’s claims. My question: Why so defensive now? The note — addressed to shareholders — defends the firm’s actions from years ago against criticism it has incurred for more than 18 months.