CEO Lloyd Blankfein and six current and former Goldman Sachs employees are scheduled to appear before the Senate’s Permanent Subcommittee on Investigations at 9:00am CDT. The senate believes that Goldman had “a clear strategy of shorting the collapsing mortgage market and made 3.7 billion through the tactic.” Senator Carl Levin stated that Goldman bet so heavily on the decline of the mortgage market that the business made up more than half its value at risk.
Allegedly, emails from employees have been found containing phrases including “not only get flat, but get VERY short.”. There is also a AAA rated package of securities known as Timberwolf that was downgraded to junk status in just under a year which Goldman employees knew was a terrible deal.
The problem lies in Goldman Sachs selling products that it did not believe in to clients. The senate accuses them of passing off securities to people knowing that they would fail, and would often take a position opposite of the sold security.
This case has yet to really bloom in the public eye, but it will be interesting to see how deep the rabbit hole goes. The Obama administration is really looking for a pig to sacrifice, and boy did they catch the mother of all hogs.
Whether the charges will go through remains to be seen, but I can tell you that we are about to see a angle on one of the biggest names in the financial service sector. We will also see how deep regulator’s pockets and determination goes in pursuit of GS. All the heavy hitters will be swinging away in the next few months.