Tags: US | Meltdown | Investigation

Finance Chief: Goldman Lost Money on Risky Deals

Thursday, 01 Jul 2010 09:41 AM


The finance chief of Goldman Sachs plans to tell a special panel investigation the financial crisis that his firm made mistakes ahead of the meltdown and was burned by losses on high-risk loans and mortgages.

"We made our fair share of mistakes," David Viniar, CFO of the Wall Street giant, says in his prepared testimony for Thursday's hearing before the Financial Crisis Inquiry Commission. "We lost a considerable amount of money."

Goldman Sachs profited from its bets against the housing market before the crisis. Its derivatives dealings have brought it harsh scrutiny.

The crisis inquiry commission's hearings continue Thursday, with the panel examining further the role of derivatives in the crisis, getting reckonings of events from former executives of AIG and Goldman Sachs Group Inc., as well as state and federal regulators.

On the hot seat for Thursday's session: former AIG executives Stephen Bensinger, Andrew Forster and Elias Habayeb; and from Goldman Sachs, managing director David Lehman and Viniar. Also testifying are Gary Gensler, chairman of the Commodity Futures Trading Commission; Eric Dinallo, the former top insurance regulator in New York state; and Clarence Lee, a former official of the federal Office of Thrift Supervision.

A previously disclosed 2007 e-mail has Viniar indicating that the firm made more than $50 million in one day on bets that the housing market would founder.

Goldman Sachs continued to reap huge profits after accepting federal bailout money and other government subsidies.

Viniar and other executives also are discussing a prickly dispute between Goldman and AIG in 2007-2008 over the amount of collateral that AIG needed to put up because of the plummeting value of the mortgage securities it insured. AIG sold billions of dollars of credit default swaps, guarantees on mortgage securities that ended up forcing AIG to pay out billions after the subprime mortgage bubble burst in 2007. The result was the $182 billion taxpayer bailout — the biggest of the federal rescues — after AIG nearly collapsed and helped spark the financial crisis.

Goldman demanded in July 2007 that AIG put up about $1.8 billion in collateral.

"At various times during the dispute, Goldman was willing to, and did, receive less than it was entitled to from AIG as a partial payment of its collateral demand," David Lehman, a Goldman managing director, says in his testimony. Goldman did not, however, reduce its demands to the amounts that AIG offered, but kept its demands at levels determined by market prices, Lehman says.

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