Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, April 27, 2010

Beating up on Goldman

I'm missing the theater that's going on at the Senate, as Senators take delight at expressing umbrage at Goldman Sachs banker for "shorting the residential housing market," which has become the current dirty phrase.  Far be it for me to defend Goldman -- they pay too many lawyers, lobbyists, and consultants to need my help in that regard -- but I'm tired about the phony outrage from Congressional leaders who actively participated in the deregulation of the financial markets.  The Committee's website has all the information you need about the hearings -- a live feed and plenty of documents, including 900 pages of exhibits (those stupid emails we've seen quoted in the press) and written testimony. 

Fabrice Tourre (who, you will recall, is the only individual defendant in the SEC's enforcement action) testified earlier today.  In his written statement ( Download STMTTOURREFabrice[1]), he emphasized that the two investors in the ABACUS 07 AC-1 deal were two of the most sophisticated investors in the world and he never lied to them.  In fact, he recalls informing one of the investors that Paulson's fund was expected to buy credit protection on some of the tranches of the transaction.  If they were confused, they could have asked questions.  ACA selected the portfolio  of securities, and not Paulson.  Finally, the transaction was not designed to fail.

The star of the show, of course, will be Goldman's CEO, Lloyd Blankfein, who is the last scheduled speaker today.  In his succinct written statement(Download STMTBLANKFEINLloyd[1]), which is long on generalities and short on specifics, he expresses gratitude for the government's investment (fully paid off with 23% annualized return for taxpayers, he notes), and states that "while we strongly disagree with the SEC's complaint, I also recognize how such a complicated transaction may look to many people."  He emphasized that Goldman did not have a "massive" short against the housing market and "we certainly didn't bet against our clients.  Rather, we believe that we managed our risk as our shareholders and our regulators would expect."

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