S. Hrg. 111–674 

WALL STREET AND THE FINANCIAL CRISIS: 

THE ROLE OF INVESTMENT BANKS 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

VOLUME 4 OF 5 

APRIL 27, 2010 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 


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WALL STREET AND THE FINANCIAL CRISIS: THE ROLE OF INVESTMENT BANKS 

VOLUME 4 OF 5 


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U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office,

http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,

U.S. Government Printing Office. Phone 202–512–1800, or 866–512–1800 (toll-free). E-mail, gpo@custhelp.com.

57–322 PDF 2011

S. Hrg. 111–674 

WALL STREET AND THE FINANCIAL CRISIS: 

THE ROLE OF INVESTMENT BANKS 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

VOLUME 4 OF 5 

APRIL 27, 2010 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 


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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

EDWARD E. KAUFMAN, Delaware 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PATRICIA R. HOGAN, Publications Clerk and GPO Detailee 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

CARL LEVIN, Michigan, Chairman 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

EDWARD E. KAUFMAN, Delaware 

TOM COBURN, Oklahoma 

SUSAN M. COLLINS, Maine 

JOHN MCCAIN, Arizona 

JOHN ENSIGN, Nevada 

ELISE J. BEAN, Staff Director and Chief Counsel 

ROBERT L. ROACH, Counsel and Chief Investigator 

ROSS K. KIRSCHNER, Counsel 

DANIEL J. GOSHORN, Counsel 

GARY M. BROWN, Consultant 

PAULINE E. CALANDE, SEC Detailee 

CHRISTOPHER J. BARKLEY, Minority Staff Director 

ANTHONY G. COTTO, Counsel to the Minority 

KEITH B. ASHDOWN, Chief Investigator to the Minority 

JUSTIN J. RODD, Senior Investigator to the Minority 

MARY D. ROBERTSON, Chief Clerk 


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(III) 

C O N T E N T S 

Opening statements: Page 

Senator Levin .................................................................................................... 1 

Senator Collins ................................................................................................. 8 

Senator Kaufman ............................................................................................. 10 

Senator McCain ................................................................................................ 10 

Senator McCaskill ............................................................................................ 10 

Senator Pryor .................................................................................................... 11 

Senator Coburn ................................................................................................. 38 

Prepared statements: 

Senator Levin .................................................................................................... 193 

Senator Coburn ................................................................................................. 199 

Senator Pryor .................................................................................................... 201 

WITNESSES 

TUESDAY, APRIL 27, 2010 

Daniel L. Sparks, Former Partner, Head of Mortgage Department, The Goldman Sachs Group, Inc., New Canaan, Connecticut ........................................... 12 

Joshua S. Birnbaum, Former Managing Director, Structured Products Group 

Trading, The Goldman Sachs Group, Inc., New York, New York .................... 14 

Michael J. Swenson, Managing Director, Structured Products Group Trading, 

The Goldman Sachs Group, Inc., New York, New York ................................... 15 

Fabrice P. Tourre, Executive Director, Structured Products Group Trading, 

The Goldman Sachs Group, Inc., London, England .......................................... 17 

David A. Viniar, Executive Vice President and Chief Financial Officer, The 

Goldman Sachs Group, Inc., New York, New York ........................................... 95 

Craig W. Broderick, Chief Risk Officer, The Goldman Sachs Group, Inc., 

New York, New York ........................................................................................... 96 

Lloyd C. Blankfein, Chairman and Chief Executive Officer, The Goldman 

Sachs Group, Inc., New York, New York ........................................................... 130 

ALPHABETICAL LIST OF WITNESSES

Birnbaum, Joshua S.: 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 205 

Blankfein, Lloyd C.: 

Testimony .......................................................................................................... 130 

Prepared statement .......................................................................................... 225 

Broderick, Craig W.: 

Testimony .......................................................................................................... 96 

Prepared statement .......................................................................................... 221 

Sparks, Daniel L.: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 202 

Swenson, Michael J.: 

Testimony .......................................................................................................... 15 

Prepared statement .......................................................................................... 208 

Tourre, Fabrice P.: 

Testimony .......................................................................................................... 17 

Prepared statement .......................................................................................... 211 

Viniar, David A.: 

Testimony .......................................................................................................... 95 

Prepared statement .......................................................................................... 216 


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EXHIBIT LIST 

APRIL 27, 2010 

* Retained in the files of the Subcommittee 

1.a. Memorandum from Permanent Subcommittee on Investigations Chairman Carl Levin and Ranking Minority Member Tom Coburn to the 

Members of the Subcommittee ....................................................................... 227 

b. Excerpts from Documents Related to Goldman Sachs: Short Positions 

and Profits, chart prepared by the Permanent Subcommittee on Investigations ........................................................................................................... 240 

c. Excerpts from Documents Related to Goldman Sachs: Profiting at the 

Expense of Clients, chart prepared by the Permanent Subcommittee on 

Investigations ................................................................................................... 242 

d. Excerpts from Documents Related to Goldman Sachs: Abacus and Other 

Deals, chart prepared by the Permanent Subcommittee on Investigations .................................................................................................................. 244 

e. The Goldman Sachs Conveyor Belt, chart prepared by the Permanent 

Subcommittee on Investigations .................................................................... 246 

f. Long Beach Mortgage Loan Trust 2006-A, chart prepared by the Permanent Subcommittee on Investigations ........................................................... 247 

Documents Related to Short Positions and Profits: 

2. Goldman Sachs internal email, dated December 2006, re: Subprime Mortgage Risk (. . . analysis of the major risks in the Mortgage business.) .......... 248 

3. Goldman Sachs internal email, dated December 2006, re: Subprime risk 

meeting with Viniar/McMahon Summary (. . . let’s be aggressive distributing things . . .) ................................................................................................ 250 

4. Goldman Sachs internal email, dated December 2006, re: Single-A ABS 

CDOs (We have a big short on . . .) .................................................................. 251 

5. Goldman Sachs internal email, dated December 2006, re: Are you around? 

(On baa3, I’d say we definitely keep for ourselves. On baa2, I’m open 

to some sharing to the extent that it keeps these customers engaged with 

us.) ........................................................................................................................ 253 

6. Goldman Sachs internal email, dated January 2007, re: . . . post (. . . 

pair the single-A ABS CDO risk we take back with the big short position 

we have built in that space.) .............................................................................. 254 

7. Goldman Sachs internal email, dated February 2007, re: Post (Subprime 

environment - bad and getting worse. . . . plan to play from short side. 

. . . Credit issues are worsening on deals and pain is broad . . .) ................ 255 

8. Goldman Sachs internal email, dated February 2007, re: Post (. . . our 

risk reduction program consisted of: (1) selling index outright (2) buying 

single name protection (3) buying protection on super-senior portions of 

the BBB/BBB- index . . . *** That is good for us position-wise, bad for 

accounts who wrote that protection . . . but could hurt our CDO pipeline 

position as CDOs will be harder to do.) ............................................................ 256 

9. Goldman Sachs internal email, dated February 2007, re: Block size tranche 

protection offers for . . . (We need to buy back $1 billion single names 

and $2 billion of the stuff below - today. I know that sounds huge, but 

you can do it - spend bid/offer, pay through the market, whatever to 

get it done. *** This is a time to just do it, show respect for risk, and 

show the ability to listen and execute firm directives. You called the trade 

right, now monetize a lot of it.) .......................................................................... 257 


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10. Goldman Sachs internal email, dated February 2007, re: Mortgages today 

(We are net short, but mostly in single name CDS and some tranched 

index vs the some index longs.) ........................................................................ 258 

11. Goldman Sachs internal email, dated February 2007, re: Goals (Reduce 

risk. . . . get super-seniors done on CDOs . . . cover more single name 

shorts . . .) ........................................................................................................ 260 

12. Goldman Sachs document, Mortgage VaR Change (Q1’07 vs. Q4’06) (. . . 

desk increasing their net short risk in RMBS subprime sector.) ................... 261 

13. Goldman Sachs internal memorandum, dated February 2006 [sic - accurate year is 2007], re: February 28th FWR [Firm Wide Risk] Minutes 

(Business working to reduce exposures; a lot of shorts already covered.) ..... 263 

14. Goldman Sachs internal email, dated March 2007, re: call (Trade everything from short to flat - Get out of everything.) ............................................ 265 

15. Goldman Sachs internal email, dated March 2007, re: +0.79% NK225 

+1.62% HANG-SENG (A big plus would hurt the Mortgage business but 

Justin thinks he has a big trade lined up for the morning to get us 

out of a bunch of our short risk) ...................................................................... 266 

16. Goldman Sachs internal email, dated March 2007, re: Mortgage Talking 

Points for Earnings Call (The Mortgage business’ revenues were primarily 

driven by synthetic short positions concentrated in BBB/BBB- sub prime 

exposure and single A CDO exposure which benefited from spread widening.) ................................................................................................................ 268 

17. Goldman Sachs internal email, dated March 2007, re: Mortgage presentation to the board (. . . ‘‘in the synthetics space, the desk started the 

quarter with long $6.0bn notional ABX BBB- risk and shifted the position 

to net short $10bn notional by reducing the longs in ABX BBB- and 

increasing shorts in single name CDS’’) .......................................................... 269 

18. Goldman Sachs internal email, dated March 2007, re: Risk changes over 

the quarter (In synthetic space, the desk started the quarter with long 

$6.0bn not’l ABX ‘‘BBB-’’ risk and shifted the position to net short $10bn 

not’l by reducing the longs in ABX ‘‘BBB-’’ and increasing shorts in 

single name CDS.) ............................................................................................ 271 

19. Goldman Sachs internal memorandum, dated March 2006 [sic - accurate 

year is 2007], re: March 7th FWR [Firm Wide Risk] Minutes (‘‘Game 

Over’’—accelerating meltdown for subprime lenders such as Fremont and 

New Century.) (excerpt) .................................................................................... 272 

20. Goldman Sachs internal email, dated March 2007, re: Cactus Delivers 

(Covered another 1.2 billion in shorts in mortgages—almost flat—now 

need to reduce risk) ........................................................................................... 273 

21. Goldman Sachs internal email, dated March 2007, re: (Overall as a business, we are selling our longs and covering our shorts . . .) ......................... 274 

22. Goldman Sachs, Presentation to GS Board of Directors, Subprime Mortgage Business, March 26, 2007 ........................................................................ 276 

23. Goldman Sachs internal email, dated April 2007, re: RMBS Subprime 

Risk Report (. . . notionally we’re net short. The reason is that we are 

long the good stuff and short the bad stuff . . .) ............................................ 302 

24. Goldman Sachs internal email, dated July 2007, re: FICC Financial Package 07/20/07 (There is a net short) ................................................................ 303 

25. Goldman Sachs internal email, dated July 2007, re: Daily Estimate 07- 

24-08 - Net Revenues $74M (. . . especially short mortgages saved the 

day.) ................................................................................................................... 305 

26. Goldman Sachs internal email, dated July 2007, re: FICC Financial Package 07/25/07 (Tells you what might be happening to people who don’t 

have the big short.) ........................................................................................... 306 

27. Goldman Sachs internal email, dated July 2007, re: Correlation information you asked for (Correlation P&L on the week was $234mm, with 

CMBS, CDOs, and RMBS/ABX shorts all contributing - Rest of department is net short RMBS and CDOs, net long cmbs.) ..................................... 308 

28. Goldman Sachs internal email, dated August 2007, re: great week (Mortgage Department short approx $4bb of AAA ABX) ......................................... 309 


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29. Goldman Sachs internal email, dated August 2007, re: MarketRisk: Market Risk Report (cob 08/08/2007) (we have waved in [tilde] 120mm in 

bbb and bbb- protection the last 2 days. almost all 2006 stuff (tier 1, 

2, and 3).) .......................................................................................................... 311 

30. Goldman Sachs internal email, dated August 2007, re: Post (We’ve been 

covering, but we will likely come to you soon and say we’d like to get 

long billions - and we’d stay short BBBish part.) .......................................... 313 

31. Goldman Sachs internal email, dated August 2007, re: MarketRisk: End 

of Day Summary - cob 8/10/2007 (the most obvious risks are the short 

in mortgages . . .) ............................................................................................. 314 

32. Goldman Sachs internal email, dated August 2007, re: Post (We’re continuing to cover some shorts, and we may cover some BBB with AAA, 

but I got the message clearly that we shouldn’t get long without Gary/ 

Tom/Don all saying OK.) ................................................................................. 316 

33. Goldman Sachs internal email, dated August 2007, re: Projected Corr 

Customers winners/losers from singled-name mark changes (The aggregate P&L in the book is $405mm (ie net markdown to customers), much 

of this is scattered across a bunch of cashflow CDOs.) .................................. 318 

34. Goldman Sachs internal email, dated August 2007, re: Potential large 

subprime trade and impact on Firmwide VAR (We would like to be opportunistic buyers of up to $10Bln subprime AAAs . . .) .................................... 319 

35. Market Risk Report, 8/14/07, Mortgage Portfolio Summary (Percentage 

Contribution to Firmwide VaR - Mortgage Structured Products—53.8%) ... 320 

36. Goldman Sachs internal email, dated August 2007, re: Trading VaR 

$144mm (we are covering a number of shorts in mortgages today and 

tomorrow—probably 1.5 billion worth—will reduce mortgages hopefully 

to below 80) ....................................................................................................... 321 

37. Goldman Sachs internal email, dated August 2007, re: (covered about 

700 million in shorts in mtgs last night—500 in single names - lots 

more to go—but they fortunately had bought back 9 billion on AAA abx 

index over last two weeks) ................................................................................ 322 

38. Goldman Sachs internal email, dated August 2007, re: trades (Here are 

the trades we have suggested since February. These are all trades that 

we have shown to them and our desk has had on in some form and 

profited from . . .) ............................................................................................ 323 

39. Goldman Sachs internal email, dated September 2007, re: ABS Update 

(We are oprtunsitically [sic] covering risk - we are not that short at 

this time) ............................................................................................................ 325 

40. Goldman Sachs internal email, dated September 2007, re: Mortgage VaR 

Analysis (The major drivers of Mortgage VaR are the net short mortgage 

exposure and the long cash vs. short derivative basis risk.) .......................... 326 

41. Goldman Sachs, Presentation to GS Board of Directors, Residential Mortgage Business, September 17, 2007. ................................................................ 327 

42. Goldman Sachs, Board of Directors Meeting, Financial Summary, September 17-18, 2007, Quarter Ended August 31, 2007 (. . . we were overall 

net short the mortgage market and thus had very strong results.) (excerpt) 342 

43. Goldman Sachs internal email, dated September 2007, re: Mortgage P&L 

for the Week Ended 9/21 (This benefited multiple trading desks that 

maintain a short synthetic positions including SPG Trading (+$40M), 

CDO (+$22M) and Residential Credit (+$12M).) ............................................ 346 

44. Goldman Sachs internal email, dated September 2007, re: Mortgage commentary on Q3 earnings call (. . . you’ve heard me express our generally 

negative views on the outlook for mortgages since the beginning of the 

year . . .) ........................................................................................................... 347 

45. Goldman Sachs, 3rd Quarter 2007 Script (Let me also address Mortgages 

specifically. The mortgage sector continues to be challenged and there 

was a broad decline in the value of mortgage inventory during the third 

quarter. As a result, we took significant markdowns on our long inventory 

positions during the quarter, as we had in the previous two quarters. 

However, our risk bias in that market was to be short and that net 

short position was profitable.) .......................................................................... 349 


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46. Goldman Sachs correspondence to the United States Securities and Exchange Commission, dated October 4, 2007 (. . . during most of 2007, 

we maintained a net short sub-prime position and therefore stood to 

benefit from declining prices in the mortgage market.) (excerpt) .................. 361 

47. Goldman Sachs, Global Mortgages, Business Unit Townhall, Q3 2007 

(The desk benefited from a proprietary short position in CDO and RMBS 

single names) ..................................................................................................... 365 

48. Goldman Sachs, Tax Department Presentation, Oct 29, 2007 (. . . starting 

early in ’07 our mortgage trading desk started putting on big short positions . . .) .......................................................................................................... 376 

49. Goldman Sachs, CDO/CLO details ................................................................ 384 

50. Goldman Sachs correspondence to the Securities and Exchange Commission, dated November 7, 2007, re: The Goldman Sachs Group, Inc., Form 

10-K for the Fiscal Year Ended November 24, 2006 (During most of 

2007, we maintained a net short subprime position with the use of derivatives, including ABX index contracts and single name CDS which hedged 

this long cash exposure.) ................................................................................... 390 

51. Goldman Sachs, How Did GS Avoid the Mortgage Crisis? (excerpt) ........... 400 

52. Goldman Sachs internal email, dated November 2007, re: NYT (Of course 

we didn’t dodge the mortgage mess. We lost money, then made more 

than we lost because of shorts.) ........................................................................ 403 

53. Goldman Sachs internal email, dated December 2007, re: Weekly Market 

Risk Summary as of 12/06/07 (Mortgage Trading loss impact decreased 

from <$212mm> to <$132mm> largely due to an increase in net short 

position in the residential sector.) .................................................................... 404 

54.a. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, September 2006. (excerpt) ............................................... 405 

b. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, December 2006. (excerpt) ................................................. 410 

c. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, March 2006 [sic - accurate year is 2007]. (excerpt) ....... 415 

d. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, June 2007. (excerpt) ........................................................ 420 

e. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, September 2007. (excerpt) ................................................ 425 

f. Goldman Sachs, Quarterly Market Risk Review, Market Risk Management & Analysis, December 2007. (excerpt) .................................................. 430 

55.a. Goldman Sachs 2007 Performance Review for Daniel L. Sparks. (excerpt) ............................................................................................................... 435 

b. Goldman Sachs 2007 Performance Review for Michael J. Swenson. (excerpt) ............................................................................................................... 441 

c. Goldman Sachs 2007 Performance Review for Joshua S. Birnbaum. (excerpt) ............................................................................................................... 447 

d. Goldman Sachs 2007 Performance Review for Fabrice P. Tourre. (excerpt) ............................................................................................................... 453 

56.a. Goldman Sachs internal document, RMBS Subprime Notional History 

(Mtg Dept - ‘‘Mtg NYC SPG Portfolio’’) ........................................................ 455 

b. Goldman Sachs internal email, dated August 2007, re: In addition 

to ABS book, I need you to run that series on the whole dept and 

correlation desk) ............................................................................................. 456 

57. Goldman Sachs 2009 Letter to Shareholders ................................................. 458 

Documents Related to Investment Priorities: 

58. Goldman Sachs, Mortgages Compliance Training 2007 Trading Desks, 

February 8 and 12, 2007 (Our first business principle states that: Our 

Clients’ Interest Always Comes First. However, this is not always straight 

forward as we are a market maker to multiple clients) (excerpt) ................. 466 

59. Goldman Sachs internal email, dated October 2006, (. . . upset that we 

are delaying their deal. They know that Hudson Mezz (GS prop deal) 

is pushing their deal back.) .............................................................................. 469 


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60. Goldman Sachs internal email, dated December 2006, re: Update (. . . 

we’ve had good traction moving risk through our franchise on a variety 

of fronts: ABX, single names, super-senior, Hudson 2.) ................................. 470 

61. Goldman Sachs internal email, dated December 2006, re: Last call— 

any other comments on the proposed top 20 correlation customer list? 

(. . . this list might be a little skewed towards sophisticated hedge funds 

with which we should not expect to make too much money since (a) 

most of the time they will be on the same side of the trade as we will, 

and (b) they know exactly how things work and will not let us work 

for too much $$$, vs. buy-and-hold rating-based buyers who we should 

be focused on a lot more to make incremental $$$ next year . . .) ............... 471 

62. Goldman Sachs internal email, dated January 2007, re: ft—friday (. . . 

not feeling too guilty about this, the real purpose of my job is to make 

capital markets more efficient and ultimately provide the US consumer 

with more efficient ways to leverage and finance himself, so there is 

a humble, noble and ethical reason for my job ;) amazing how good 

I am in convincing myself !!!) .......................................................................... 475 

63. Goldman Sachs internal email, dated March 2007, re: Audit Committee 

Package—Feb 21—Draft—Mortgage—Page.ppt (. . . my understanding is 

that desk is no longer buying subprime. (We are low balling on bids.)) ....... 477 

64. Goldman Sachs internal email, dated March 2007, re: Abacus AC1 (Given 

risk priorities, subprime news and market conditions, we need to discuss 

side-lining this deal in favor of prioritizing Anderson in the short term.) ... 478 

65. Goldman Sachs internal email, dated May 2007, re: LBML 06A (bad 

news . . . wipes out the m6s and makes a wipeout on the m5 imminent 

. . . costs us about 2.5mm . . . good news . . . we own 10mm protection 

on the m6 marked at $50 . . . we make $5mm) ............................................. 479 

66. Goldman Sachs internal email, dated May 2007, re: Priority Axes (Not 

experts in this space at all but made them a lot of money in correlation 

dislocation and will do as I suggest.) .............................................................. 481 

67. Goldman Sachs internal email, dated July 2007, re: 7/23 CDO/RMBS 

requests from Taiwan (. . . bank just bought the altius deal from gs 

5 weeks ago and the mtm dropped over 50%. *** Unless the principal 

is at risk now, the mtm is not supposed to drop so quickly during such 

short period of time.) ......................................................................................... 483 

68. Goldman Sachs internal email, dated October 2007, re: P and L (Dept 

+90mm today *** 65mm from yesterday’s downgrades which lead to the 

selloff in aa through bbbs today. *** Great day!) ........................................... 485 

69. Goldman Sachs internal email, dated October 2007, re: Early post on 

P and L (Sounds like we will make some serious money *** Yes we 

are well positioned) ........................................................................................... 486 

70. Goldman Sachs internal email, dated October 2007, re: US ABS SS 

Intermediation Trades (Real bad feeling across European sales about some 

of the trades we did with clients. The damage this has done to our 

franchise is very significant. Aggregate loss of our clients on just these 

5 trades alone is 1bln+.) ................................................................................... 487 

71. Goldman Sachs internal email, dated February 2007, re: Questions you 

had asked (. . . deals to worry about.) ........................................................... 489 

Documents Related to CDO Offerings: 

72. Goldman Sachs internal email, dated December 2006, re: Retained bonds 

(. . . pls refocus on retained new issue bond positions and move them 

out.) .................................................................................................................... 491 

73. Goldman Sachs internal email, dated February 2007, re: GS Syndicate 

RMBS Axes (INTERNAL) (. . . we need to continue to push credit positions across subprime and second liens.) ........................................................ 492 

74. Goldman Sachs internal email, dated February 2007, re: Mortgage Risk 

- Credit residential (Goal is to have good turnover in the loan book 

(securitize quickly) and manufacture attractive equity (primarily in Option 

Arms, not hybrids, since option arm structures are similar to Alt-A/ 

subprime structures).) ....................................................................................... 495 


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75. Goldman Sachs internal email, dated March 2007, re: Mortgage risk 

(Therefore, we are trying to close everything down, but stay on the short 

side.) ................................................................................................................... 499 

76. Goldman Sachs internal email, dated March 2007, re: help (The key 

to success in the correlation melt-down 2 years ago was getting new 

clients/capital into the opportunity quickly.) .................................................. 501 

77. Goldman Sachs internal email, dated March 2007, re: New Century EPDs 

(I recommend putting back 26% of the pool . . . if possible.) ........................ 504 

78. Goldman Sachs internal email, dated March 2007, re: Non-traditional 

Buyer Base for CDO AXES (We have pushed credit sales to identify 

accounts in the credit space that would follow yield into the ABS CDO 

market, and tried to uncover some non-traditional buyers.) .......................... 506 

79. Goldman Sachs internal Memorandum, dated March 23, 2007, re: Agenda 

for Monday, March 26, 2007 (The following is a list of transactions 

scheduled for review . . . GSAMP 2007-HE2 . . . New Century (71.91%) 

. . .) ................................................................................................................... 507 

80. Goldman Sachs internal email, dated March 2007, re: ABACUS 07-AC1 

status (Plan would still be to ask sales people to focus on Anderson 

mezz, Point Pleasant and Timberwolfe, but if accounts pass on these 

trades, steer them towards available tranches in ABACUS 07-AC1 since 

we make $$$ proportionately with the notional amount of these tranches 

sold.) ................................................................................................................... 508 

81. Goldman Sachs email, dated April 2007, re: Brad - please take a look 

at this (These are all dirty ’06 originations that we are going to trade 

as a block.) ......................................................................................................... 509 

82. Goldman Sachs internal email, dated April 2007, re: ABACUS 07-AC1 

(. . . seems we might have to book these pigs.) .............................................. 511 

83. Goldman Sachs internal email, dated April 2007, re: GS Syndicate RMBS 

Axes (Great job . . . moving us out of 6mm of our BBB-, Fremont, 

subprime risk.) .................................................................................................. 512 

84. Goldman Sachs internal email, dated May 2007, re: CDO’s - Mortgages 

(Sparks and the Mtg group are in the process of considering making 

significant downward adjustments to the marks on their mortgage portfolio esp CDOs and CDO squared.) ................................................................. 514 

85. Goldman Sachs, ABACUS 2006-11, LTD, Offering Circular dated September 19, 2006. (excerpt) ................................................................................ 515 

86. Goldman Sachs internal email, dated September 2006, re: Hudson Mezz 

- new (. . . asked to do a CDO of $2bln for the ABS desk.) .......................... 550 

87. Hudson Mezzanine Funding 2006-1, LTD., A $2.0 Billion Static Mezzanine Structured Product CDO, Goldman, Sachs & Co. - Liquidation, 

Structuring, and Placement Agent, October 2006. ......................................... 551 

88. Goldman Sachs internal email, dated October 2006, re: Risk Issue (. . . 

was wondering if the whole of the $2b assets in Hudson Mezz should 

be accounted as part of our risk calc since many of the assets (1.2B) 

were sources from another desk . . .) .............................................................. 585 

89. Goldman Sachs internal email, dated October 2006, re: MarketRisk: Mortgage Risk Report (cob 10/25/2006) (. . . we sold $1bn of ABX BBBand bought $1bn protection on single name BBB- CDS.) .............................. 586 

90. Goldman Sachs internal email, dated October 2006, re: Great Job on 

Hudson Mezz (Goldman was the sole buyer of protection on the entire 

$2.0 billion of assets.) ....................................................................................... 588 

91. Goldman Sachs internal email, dated January 2007, re: MTModel (They 

structured like mad and travelled the world, and worked their tails off 

to make some lemonade from some big old lemons.) ...................................... 589 

92. Goldman Sachs internal email, dated February 2007, re: Second lien 

deal performance and write-down (The put backs will be a battle.) ............. 591 

93. Goldman Sachs internal email, dated February 2007, re: Anderson (Dan 

asked me to send out to the group names we’re paired off with the ABS 

desk for the deal.) .............................................................................................. 592 

94. Goldman Sachs internal email and attachment, dated February 2007, 

re: Current Anderson Positions (. . . $140mm out of $305mm total are 

trades between the CDO warehouse and ABS trading.) ................................. 593 


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95. Goldman Sachs internal email, dated February 2007, re: Puts at 50 

(We should see what liabilities gsc can take into its other vehicles . . .) ..... 596 

96. Goldman Sachs internal email and attachment, dated March 2007, re: 

Anderson Mezzanine Portfolio - New Century (Attached please find the 

Anderson Mezz portfolio, with the bonds for which New Century is the 

largest originator . . .) ..................................................................................... 599 

97. Goldman Sachs internal email, dated March 2007, re: Other thought 

on Anderson . . . (All trades should be internal.) .......................................... 602 

98. Goldman Sachs internal Memorandum, dated November 10, 2006, re: 

Timbe[r]wolf CDO – Single-A structured produce CDO with Greywolf 

Capital (We expect approximately 25-40% of the portfolio upon closing 

will have been sourced through our various structured product trading 

desks in both cash and synthetic form.) .......................................................... 603 

99.a. Timberwolf I, Ltd., $1.0 Billion Single-A Structured Product CDO, February 2007 ...................................................................................................... 614 

b. Timberwolf I, Ltd. - Closing Porfolio. .......................................................... 663 

100. Goldman Sachs internal email, dated March 2007, re: GS Syndicate 

Structured Product CDO Axes (GREAT JOB . . . TRADING US OUT 

OF OUR ENTIRE TIMBERWOLF SINGLE-A POSITION . . . PLEASE 

STAY FOCUSED ON TRADING THESE AXES.) ....................................... 665 

101. Goldman Sachs internal email, dated April 2007, re: GS Syndicate 

Structured Product CDO Axes (Your focus on this ax would be very 

helpful - we are trying to clean up deals and this is our priority.) ............. 667 

102. Goldman Sachs internal email, dated April 2007, re: *UPDATE* GS 

Syndicate Structured Product CDO Axes (Why don’t we go one at a 

time with some ginormous credits - for example, let’s double the current 

offering of credits for timberwolf) .................................................................. 669 

103. Goldman Sachs internal email, dated May 2007, re: Lester Called (. . . 

harvey is concerned about the representations we may be making to 

clients . . .) ..................................................................................................... 671 

104. Goldman Sachs internal email, dated June 2007, re: TWOLF /Korea 

(internal only) (. . . push for . . . to increase their size . . .) ..................... 673 

105. Goldman Sachs internal email, dated June 2007, re: Few trade posts 

(boy that timberwo[l]f was one shi**y deal) .................................................. 674 

106. Goldman Sachs internal email, dated September 2007, re: Timberwolf 

(. . . a day that will live in infamy.) ............................................................. 675 

Documents Related to Abacus 2007-AC1: 

107. Goldman Sachs internal email, dated December 2006, re: Paulson (Let’s 

brainstorm so that we can identify a couple of managers that: . . . 

will be flexible w.r.t. portfolio selection (i.e. ideally we will send them 

a list of 200 Baa2-rated 2006-vintage RMBS bonds that fit certain criteria, and the portfolio selection agent will select 100 out of the 200 

bonds)) ............................................................................................................. 677 

108. Goldman Sachs/ACA email, dated January 2007, re: Transaction Summary (. . . we wanted to summarize ACA’s proposed role as ‘‘Portfolio 

Selection Agent’’ for the transaction that would be sponsored by Paulson 

. . .) ................................................................................................................. 680 

109. Goldman Sachs/ACA email, dated January 2007, re: Call with Fabrice 

on Friday (I can understand Paulson’s equity perspective but for us 

to put our name on something, we have to be sure it enhances our 

reputation.) ...................................................................................................... 682 

110. Goldman Sachs/ACA email, dated January 2007, re: proposed Paulson 

Portfolio (Of the 123 names that were originally submitted to us for 

review, we have included only 55.) ................................................................ 683 

111. Goldman Sachs internal email, dated January 2007, re: ABACUS - 

Initial Draft Engagement Letter for ACA (What time works on the 5th 

to have a paulson discussion . . .) ................................................................ 684 

112. Goldman Sachs internal email, dated January 2007, re: GSC post (. . . 

GSC had declined given their negative views on most of the credits 

that Paulson had selected.) ............................................................................ 687 


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113. Goldman Sachs internal email, dated January 2007, re: ABACUS Transaction - update (. . . Paulson has suggested we substitute GSAMP 06- 

HE4 M8 and GSAMP 06-HE5 M8.) .............................................................. 689 

114. Goldman Sachs internal email, dated February 2007, re: ACA/Paulson 

(. . . help Paulson short senior tranches . . . *** Still reputational risk, 

. . .) ................................................................................................................. 690 

115. Goldman Sachs internal email, dated February 2007, re: ACA/Paulson 

post (My idea to broker the short. Paulson’s idea to work with a manager. 

My idea to discuss this with ACA who could do supersenior at the 

same time . . .) ............................................................................................... 691 

116. Goldman Sachs internal email, dated February 2007, re: ABACUS 2007 

AC1—Marketing Points. ................................................................................. 694 

117. Draft 2/5/2007 Goldman Sachs Letter Agreement to Paulson Credit Opportunities Master Ltd. .................................................................................. 696 

118. Goldman Sachs internal Memorandum to Mortgage Capital Committee, 

dated March 12, 2007, re: ABACUS Transaction sponsored by ACA ......... 713 

119. Goldman Sachs internal email, dated March 2007, re: ABACUS ACA 

(Paulson will likely not agree to this unless we tell them that nobody 

will buy these bonds if we don’t make that change.) .................................... 721 

120. Goldman Sachs, ABACUS 2007-AC1, $2 Billion Synthetic CDO, Referencing a static RMBS Portfolio, Selected by ACA Management, LLC, 

March 23, 2007 ............................................................................................... 723 

121. Goldman Sachs, ABACUS 2007-AC1, LTD, Offering Circular dated April 

26, 2007. (excerpt) ........................................................................................... 789 

122. Goldman Sachs internal email, dated April 2007, re: Paulson (We need 

to be sensitive of the profitability of these trades vs. profitability of 

abacus - we should prioritize the higher profit margin businesses with 

Paulson.) .......................................................................................................... 842 

123. Goldman Sachs internal email, dated May 2007, re: Post on Paulson 

and ABACUS 07-AC1 (100% Baa2 RMBS selected by ACA/Paulson) ....... 843 

124. Goldman Sachs internal email, dated May 2007, re: ACA - We are 

done ! (Thank you for your tireless work and perseverance on this trade 

!! Great job.) .................................................................................................... 845 

125. Goldman Sachs internal email, dated May 2007, re: Paulson update 

(. . . $91mm of 45-50 tranche risk that we would work on over the 

next few weeks - we are showing this tranche to a few accounts @ 

80bps.) .............................................................................................................. 846 

126. Goldman Sachs internal email, dated June 2007, re: ABACUS 2007- 

AC1 Portfolio and OC for BSAM (We can offer approximately $91mm 

Class Junior SS Notes . . .) .......................................................................... 847 

127. Goldman Sachs internal email, dated November 2007, re: ACA (. . . 

some of these trades have been outright short trades for us, and some 

of them have been crosses for Paulson.) ........................................................ 848 

128. Goldman Sachs internal email, dated April 2008, re: (. . . our infamous 

ABAC 07-AC1), *** . . . he may think these hedges are worth a lot 

more than they actually are . . .) ................................................................. 849 

129. Goldman Sachs Press Release: Goldman Sachs Makes Further Comments on SEC Complaint, April 16, 2010 ..................................................... 851 

Other Documents: 

130. Goldman Sachs internal email, dated February 2007, re: Mortgage Risk 

- Credit residential (. . . you refer to losses stemming from residual 

positions in old deals. Could/should we have cleaned up these books 

before and are we are doing enough right now to sell off cats and 

dogs in other books throughout the division.) ............................................... 853 

131. Goldman Sachs internal email, dated March 2007, re: Daily Estimate 

03-20-07 - Net Revenues $111.0 M (Anything noteworthy about the losses 

in mortgages? *** No market rallied a bit still short) ................................. 857 

132. Goldman Sachs internal email, dated July 2007, re: Mortgage Estimate 

(Much of the shorts are hedges for loans and some senior AAA CDOs 

(basis risk), but there is also a large net short that we are chipping 

away to cover - it will take time as liquidity is tough.) ................................ 858 


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133. Goldman Sachs internal email, dated July 2007, re: (If the shorts went 

up today, shouldn’t the longs have dropped . . .) ........................................ 861 

134. Goldman Sachs internal email, dated July 2007, (Still have loads of 

index shorts vs cash or single name risk in mtg and credit which will 

bite us sometime.) ............................................................................................ 862 

135. Goldman Sachs internal email, dated September 2007, re: Fortune: How 

Goldman Sachs defies gravity (. . . the short position wasn’t a bet. 

It was a hedge.) ............................................................................................... 863 

136. Goldman Sachs internal email, dated October 2007, re: (How did the 

review of the mortgage and cdo books go?) ................................................... 866 

137. Goldman Sachs Press Release: To avoid crises, we need more transparency, Op-Ed, The Financial Times by Lloyd Blankfein, October 13, 

2009 .................................................................................................................. 867 

138.a. Goldman Sachs Business Principles (Our clients’ interests always come 

first.) ............................................................................................................. 869 

b. Goldman Sachs Code of Business Conduct and Ethics ............................ 870 

139. Goldman Sachs internal email, dated June 2006, re: . . . proposal (. . . 

we can over-issue that specific tranche if it is perceived to be a good 

short.) ............................................................................................................... 874 

140. Goldman Sachs internal email, dated September 2006, re: MCC Posting 

- ABACUS 2006-14 (Like ABACUS 06-11 we expect to hedge by crossing 

the tranched shorts . . . *** so we do not expect to retain any correlation 

risk.) ................................................................................................................. 876 

141. Goldman Sachs internal Memorandum to Mortgage Capital Committee, 

dated July 31, 2006, re: ABACUS 11 Structured Product Synthetic CDO 

(We expect to place $68.75 million of credit-linked notes from ABACUS 

11 with Aladdin for inclusion in their high-grade Altius III and mezzanine-grade Fortius II CDO transactions, both of which are currently 

being arranged by Goldman.) ........................................................................ 877 

142. Goldman Sachs internal email, dated December 2006, re: Opportunities/ 

Challenges (Opportunities: . . . ABACUS-rental strategies, according to 

which we ‘‘rent’’ our ABACUS platform to counterparties focused on 

putting on macro short in the sector) ............................................................ 886 

143. Goldman Sachs internal email, dated March 2007, re: dinner (In last 

2 years - derivatives market created that allowed a very physical unique 

CUSIP market became a market where people could get dramatically 

more exposure on the long side, and now people could play it from 

the short side. . . . Most of the synthetic flows were hedge funds getting 

short and CDO vehicles getting long.) ........................................................... 887 

144. Goldman Sachs internal email, dated March 2007, re: Here is the list 

of questions. For the most of the questions, each of you should be ready 

to have input. .................................................................................................. 889 

145. Goldman Sachs, CDO Platform Overview, June 2007 (excerpt) ................. 892 

146. Goldman Sachs internal email, dated July 2007, re: * ABX Markets 

07-1, 06-2, 06-1: 12:00pm (He’s definitely the man in this space, up 

2-3 bil on this trade. We were giving him a run for his money for 

a while but now are a definitive #2.) ............................................................. 895 

147. Goldman Sachs, Structured Credit Opportunity Fund, August 2007 (Almost 100% of mezzanine risk sold through CDOs) ....................................... 897 

148. Goldman Sachs correspondence to Financial Crisis Inquiry Commission, 

dated March 1, 2010, (. . . the firm did not generate enormous net 

revenues or profits by betting against residential mortgage-related products, . . .) ........................................................................................................ 911 

149.a. Goldman Sachs, Global Markets Institute, Effective Regulation: Part 

1, Avoiding Another Meltdown, March 2009 ............................................. 920 

b. Goldman Sachs, Global Markets Institute, Effective Regulation: Part 

3, Helping Restore Transparency, June 2009. .......................................... 943 


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150. Goldman Sachs Memorandum to the Mortgage Capital Committee, 

dated March 12, 2007, re: ABACUS Transaction to be Lightly-Managed 

by . . . Capital (The desk has an axe to short structured product CDOs 

in bulk. The ABACUS transactions are currently one of the unique formats available to source efficient spread and credit protection in large 

size on this type of structured product risk.) ................................................. 954 

151. Goldman Sachs internal email, dated December 2006, re: Mezz Risk 

(We have been thinking collectively as a group about how to help move 

some of the risk.) ............................................................................................. 961 

152. Goldman Sachs internal email, dated January 2007, re: Post on Paulson 

(. . . could get comfortable with a sufficient number of obligations that 

Paulson is looking to buy protection on in ABACUS format, . . .) ............. 963 

153. Goldman Sachs internal email, dated July 2007, re: Seeking Approval: 

Equities trading in SPG (. . . we are looking for approval to 

opportunistically buy puts on certain mortgage originators, insurers, 

mortgage REITs, broker-dealers, and other related names exposed to 

RMBS, CMBS.) ............................................................................................... 965 

154. Goldman Sachs, Form 8-K, dated September 20, 2007 (Significant losses 

on non-prime loans and securities were more than offset by gains on 

short mortgage positions.) (excerpt) ............................................................... 966 

155. Goldman Sachs, SP CDO Trades.xls, dated May 2007 ................................ 971 

156. Goldman Sachs internal email, dated March 2007, re: Full Risk for 

Mtg NYC ABS Equities Portfolio on 27Mar07 ............................................. 972 

157. Goldman Sachs internal email, dated July 2007, re: Full Risk for Mtg 

NYC ABS Equities Portfolio on 27Jul07. ...................................................... 975 

158. Thomson StreetEvents Final Transcript, dated December 2007, re: GS 

- Q4 2007 Goldman Sachs Earnings Conference Call (Our mortgage 

business was profitable over the year.) (excerpt) .......................................... 978 

159. Goldman Sachs, 4Q07 Fact Sheet (Mortgages: . . . FY07 P&L: loans/ 

securities –$4.8B; derivatives +$5.9B) ........................................................... 981 

160. Goldman Sachs, Securities Division Summary Highlights - Week Ending 

November 30th, 2007 (YTD Performance of SPG - $3,742.3 mm) (excerpt) ................................................................................................................ 983 

161. Goldman Sachs: Risk Management and the Residential Mortgage Market, April 2010 ................................................................................................. 985 

162. Goldman Sachs Mortgage Department Total Net Short Position, February - December 2007 in $ Billions (charts prepared by Permanent 

Subcommittee on Investigations) .................................................................. 997 

163. Goldman Sachs Long Cash Subprime Mortgage Exposure, Investments 

in Subprime Mortgage Loans, and Investments in Subprime Mortgage 

Backed Securities, November 24, 2006 vs. August 31, 2007 - in $ Billions 

(chart prepared by Permanent Subcommittee on Investigations) .............. 1009 

164. Goldman Sachs Mortgage Department Value at Risk (VaR), December 

2006 - December 2007 (in $ Millions) (chart prepared by Permanent 

Subcommittee on Investigations) .................................................................. 1010 

165. Goldman Sachs internal email, dated October 2006, re: BBB RMBS 

(do we have anything talking about how great the BBB sector of RMBS 

is at this point in time . . . a common response I am hearing on both 

Hudson and HGS1 is a concern about the housing market and BBB 

in particular?) ................................................................................................. 1011 

166. Goldman Sachs internal emails, dated June-August 2007, re: Timberwolf 

sales efforts. .................................................................................................... 1012 

167.a. Washington Mutual, Inc., Follow Up - Subprime Mortgage Market, 

January 2004 ............................................................................................... 1022 

b. Goldman Sachs internal email, dated March 2005, re: Presentation 

in St. Petersburg, FL (. . . ’98-’01 vintage originations have underperformed the market (they’ve had a number of deals downgraded, etc.).) .. 1025 

c. Goldman Sachs internal email, dated November 2006, re: Cohen 

(Cohen Recap . . . They have been getting negative feedback from 

CDO investors on 2nd liens in general and are looking to unwind 

some of their underlying exposure) ............................................................. 1027 


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d. Goldman Sachs internal email, dated February 2007, re: 2006 

Subprime 2nds Deals Continue to Underperform (Collateral from all 

Subprime originators, large and small, has exhibited a notable increase in delinquencies and defaults, however, deals backed by Fremont and Long Beach collateral have generally underperformed the 

most.) ............................................................................................................ 1029 

e. Moody’s Investors Service, Structure Finance, Special Report, August 

30, 2007, Moody’s Update on 2006 Closed-End Second Lien RMBS: 

Performance and Ratings Activity to Date (As clearly seen in the table 

above, a few originators stand out as the worst performers on a lossto-liquidation basis. Fremont, Long Beach, Countrywide, New Century, 

and First Franklin appear in 11 of the 12 worst deals by this metric.) .. 1033 

f. Standard and Poor’s, Credit Ratings: Long Beach Mortgage Loan Trust 

2006-A. .......................................................................................................... 1042 

168.a. Goldman Sachs, Presentation to: Washington Mutual Regarding: Management of Purchased Sub-Prime Portfolio, August 2005. ....................... 1045 

b. Goldman Sachs, Presentation to: Long Beach Mortgage Speciality 

Home Loans Regarding: Plan for 2006, January 2006 ............................ 1052 

169. Goldman Sachs internal email, dated January 2007, re: Sub-Prime— 

Presentation to Viniar. .................................................................................... 1061 

170.a. Hudson High Grade Funding 2006-1, LTD, Offering Circular dated 

October 30, 2006 .......................................................................................... 1081 

b. Hudson Mezz 1 Trade Portfolio 11/16/2006 ............................................ 1083 

c. Goldman Sachs internal email, dated October 2006, re: Hudson Mezz 

(. . . ‘‘AIB are too smart to buy this kind of junk’’ . . .) .......................... 1085 

d. Goldman Sachs internal email, dated October 2006, re: Structured 

Product New Issue Pipeline (. . . guessing sales people view the syndicate ‘‘axe’’ email we have used in the past as a way to distribute 

junk that nobody was dumb enough to take first time around.) ............. 1086 

171.a. Standard & Poor’s internal email, dated May 2006, re: Broadwick 

Funding (It was a known flaw not only in that particular ABACUS 

trade, but in pretty much all ABACUS trades . . .) ................................. 1089 

b. Standard & Poor’s internal email, dated April 2006, re: ABACUS 

2006-12 - Writedowns immediately prior to Stated Maturity (Don’t 

even get me started on the language he cites . . . which is one of 

the reasons I said the counterparty criteria is totally messed up.) .......... 1093 

c. Goldman Sachs internal email, dated March 2007, re: Structured Note 

Methodology (By the way, moodys should not know our price. Tell 

them its par and we will charge a higher fee if necessary.) ..................... 1097 

172. Goldman Sachs internal emails, dated March 2007, re: Sale of Anderson 

CDO ................................................................................................................. 1101 

173. Goldman Sachs internal emails, dated November 2006, re: ACA and 

Freemont [sic] deal (. . . fremont refused to make any forward looking 

statements so we really got nothing from them on the crap pools that 

are out there now.) .......................................................................................... 1109 

174. ACA Capital emails, dated January-April 2007, re: 2007 Abacus AC1 

transaction ....................................................................................................... 1110 

175. Goldman Sachs internal email, dated November 2007, re: FICC 2008 

business plan presentation to Firm ............................................................... 1119 

176. SEALED EXHIBIT: Deposition of Lloyd C. Blankfein, December 15, 

2009, before the Senate Permanent Subcommittee on Investigation ......... *

Note: Responses to Supplemental Questions for the April 27 hearing will 

be reprinted in Volume 5 of the Wall Street and the Financial Crisis 

hearing record. 


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(1) 

WALL STREET AND THE FINANCIAL CRISIS: 

THE ROLE OF INVESTMENT BANKS 

TUESDAY, APRIL 27, 2010 

U.S. SENATE, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:01 a.m., in 

room SD–106, Dirksen Senate Office Building, Hon. Carl Levin, 

Chairman of the Subcommittee, presiding. 

Present: Senators Levin, Carper, Pryor, McCaskill, Tester, Kaufman, Coburn, Collins, McCain, and Ensign. 

Staff Present: Elise J. Bean, Staff Director and Chief Counsel; 

Mary D. Robertson, Chief Clerk; Robert L. Roach, Counsel and 

Chief Investigator; Ross K. Kirschner, Counsel; Daniel J. Goshorn, 

Counsel; David H. Katz, Counsel; Laura E. Stuber, Counsel; 

Zachary I. Schram, Counsel; Allison F. Murphy, Counsel; Gary M. 

Brown, Consultant; Pauline E. Calande, Detailee (SEC); Adam 

Henderson, Professional Staff Member; Tom Caballero, Senate 

Legal Counsel; Jason E. Medica, Detailee (ICE); Nina E. Horowitz, 

Detailee (GAO); Jennifer Auchterlonie, Detailee (DOJ); Robert 

Kaplan, Intern; Jeff Kruszewski, Law Clerk; Ryan McCord, Law 

Clerk; Andrew Tyler, Law Clerk; Christopher Barkley, Staff Director to the Minority; Anthony G. Cotto, Counsel to the Minority; 

Keith B. Ashdown, Chief Investigator to the Minority; Justin J. 

Rood, Senior Investigator to the Minority; Tyler Gallasch (Senator 

Levin); Clark Porter (Senator McCaskill); Ted Schroeder and Nhan 

Nguyen (Senator Kaufman); Amy Overton and Emily Spain (Senator Carper); Donnie Williams and Stephen Lehrman (Senator 

Pryor); Brandon Milhorn, Mary Beth Carozza, and Ivy Johnson 

(HSGAC/Minority/Senator Collins); John Lawrence (Senator Ensign); Daniel Stein (Senator Tester); Alice Joe (Senator McCain); 

Neil Cutter (Senator Collins); and Jim Hughes (Senator Collins). 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Good morning, everybody. Today the Subcommittee holds the fourth in our series of hearings to explore 

some of the causes and consequences of the financial crisis. These 

hearings are the culmination of nearly a year and a half of investigation. 

The freezing of financial markets and collapse of financial institutions that sparked our investigation are not just a matter of 

numbers on a balance sheet. Millions of Americans have lost their 


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jobs, their homes, and their businesses in the recession that the 

crisis sparked, the worst economic decline since the Great Depression. Behind every number we cite are American families who are 

still suffering the effects of a man-made economic collapse. 

Our Subcommittee’s goal is to construct a record of the facts in 

order to deepen public understanding of what went wrong, to inform the ongoing legislative debate about the need for financial reform, and to provide a foundation for building better defenses to 

protect Main Street from the excesses of Wall Street. 

Our first hearing dealt with the impact of high-risk mortgage 

lending and focused on a case study of Washington Mutual Bank, 

known as WaMu, a thrift whose leaders embarked on a reckless 

strategy to pursue higher profits by emphasizing high-risk exotic 

loans. WaMu did not just make loans that were likely to fail, creating hardship for borrowers and risk for the bank. It also built a 

conveyor belt that fed those toxic loans and mortgages into the financial system like a polluter dumping poison into a river. The poison came packaged in mortgage-backed securities that WaMu sold 

to get the enormous risk of those loans and their growing default 

rates off of its own books, dumping that risk into the financial system. 

Our second hearing examined how Federal regulators saw what 

was going on but failed to rein in WaMu’s reckless behavior. Regulation by the Office of Thrift Supervision (OTS) that should have 

been conducted at arm’s length was instead done arm-in-arm with 

WaMu. OTS failed to act on major shortcomings it observed, and 

it thwarted other agencies from stepping in. 

Our third hearing dealt with credit rating agencies, specifically 

case studies of Standard & Poor’s and Moody’s, the Nation’s two 

largest credit raters. While WaMu and other lenders dumped their 

bad loans into the river of commerce and regulators failed to stop 

their behavior, the credit rating agencies assured everyone that the 

poisoned water was safe to drink, slapping AAA ratings on bottles 

of high-risk financial products. 

The credit rating agencies operate with an inherent conflict of interest. Their revenue comes from the same firms whose products 

they are supposed to critically and objectively analyze, and those 

firms, the firms whose products the credit rating agencies are analyzing, exert pressure on the rating agencies who too often put 

market share ahead of analytical rigor. 

Today we will explore the role of investment banks in the development of the crisis. We focus on the activities during 2007 of Goldman Sachs, one of the oldest and most successful firms on Wall 

Street. Those activities contributed to the economic collapse that 

came full-blown the following year. 

Goldman Sachs and other investment banks, when acting properly, play an important role in our economy. They help channel the 

Nation’s wealth into productive activities that create jobs and make 

economic growth possible, bringing together investors and businesses and helping Americans save for retirement or a child’s education. That is when investment banks act properly. 

But in looking at this crisis, it is not hard to echo the conclusion 

of another congressional committee which found, ‘‘The results of 

the unregulated activities of the investment bankers were disasVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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trous.’’ That conclusion came in 1934 as the Senate looked into the 

reasons for the Great Depression, and the parallels are unmistakable to today’s events. 

Goldman Sachs proclaims ‘‘a responsibility to our clients, our 

shareholders, our employees, and our communities to support and 

fund ideas and facilitate growth.’’ Yet the evidence shows that 

Goldman repeatedly put its own interests and profits ahead of the 

interests of its clients and our communities. Its misuse of exotic 

and complex financial structures helped spread toxic mortgages 

throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited 

from the collapse. 

The evidence also shows that repeated public statements by the 

firm and its executives provide an inaccurate portrayal of Goldman’s actions during 2007, the critical year when the housing bubble burst and the financial crisis took hold. The firm’s own documents show that while it was marketing risky mortgage-related securities, it was placing large bets against the U.S. mortgage market. The firm has repeatedly denied making those large bets despite overwhelming evidence that they did so. 

Now, why does that matter? Surely there is no law, ethical 

guideline, or moral injunction against profit. But Goldman Sachs 

did not just make money. It profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it 

did not want to succeed, and that there was no conflict of economic 

interest between the firm and the customers that it had pledged to 

serve. Those were reasonable expectations of its customers. 

But Goldman’s actions demonstrate that it often saw its clients, 

not as valuable customers, but as objects for its own profit. This 

matters because, instead of doing well when its clients did well, 

Goldman Sachs did well when its clients lost money. Its conduct 

brings into question the whole function of Wall Street, which traditionally has been seen as an engine of growth, betting on America’s 

successes and not its failures. 

To understand how the change in investment banks helped bring 

on the financial crisis, we need to understand first how Wall Street 

turned bad mortgage loans into economy-wrecking financial instruments. Our previous hearings have covered some of this ground. 

The story begins with mortgage lenders such as WaMu, Washington Mutual Bank, out there in the State of Washington, which 

loaned money to homebuyers and then sought to move those loans 

off of its own books. That activity spawned an ever more complex 

market in mortgage-backed securities, a market that for a while 

worked pretty well. 

But then things turned upside down. The fees that banks and 

Wall Street firms made from their securitization activities were so 

large that they ceased to be a means to keep capital flowing to 

housing markets and became ends in themselves. Mortgages and 

mortgage-backed securities began to be produced for Wall Street instead of Main Street. Wall Street bond traders sought more and 

more mortgages from lenders in order to create new securities that 

generated fees for their firms and large bonuses for themselves. 

Demand for securities prompted lenders to make more and more 

riskier mortgage loans. Making and packaging new loans became 


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so profitable that credit standards plummeted, and mortgage lenders began making risky, exotic loans to people with little chance of 

making the payments owing on those loans and mortgages. Wall 

Street designed increasingly complex financial products that produced AAA ratings for high-risk products that flooded the financial 

system. As long as home prices kept rising, the high-risk mortgages 

posed few problems. Those who could not pay off their loans could 

refinance or sell their homes, and the market for mortgage-related 

financial products flourished. 

But the party could not last, and we all know what happened. 

Housing prices stopped rising, and the bubble burst. Investors 

started having second thoughts about the mortgage-backed securities that Wall Street was churning out. In July 2007, two Bear 

Stearns offshore hedge funds specializing in mortgage-related securities suddenly collapsed. That same month, the credit rating agencies downgraded hundreds of subprime mortgage-backed securities, 

and the subprime market went cold. Banks, security firms, hedge 

funds, mutual funds, and other investors were left holding suddenly unmarketable mortgage-backed securities whose values were 

plummeting. America began feeling the consequences of the economic assault. 

Goldman Sachs was an active player in building this mortgage 

machinery. During the period leading up to 2008, Goldman made 

a lot of money packaging mortgages, getting AAA ratings, and selling securities backed by loans from notoriously poor-quality lenders 

such as WaMu, Fremont, and New Century. Of special concern was 

Goldman’s marketing of what are known as ‘‘synthetic’’ financial 

instruments. 

Ordinarily, the financial risk in a market—and, hence, the risk 

to the economy at large—is limited because the assets traded are 

finite. There are only so many houses, mortgages, shares of stock, 

bushels of corn, or barrels of oil in which to invest. But a synthetic 

instrument has no real assets. It is simply a bet on the performance of the assets that it references. That means the number of 

synthetic instruments is limitless, and so is the risk that they 

present to the economy. 

Synthetic structures referencing high-risk mortgages garnered 

hefty fees for Goldman Sachs and other investment banks. They assumed an ever larger share of the financial markets and contributed greatly to the severity of the crisis by magnifying the amount 

of risk in the system. 

Increasingly, synthetics became bets made by people who had no 

interest in the referenced assets. Synthetics became the chips in a 

giant casino, one that created no economic growth, even when it 

thrived, and then helped throttle the economy when the casino collapsed. 

But Goldman Sachs did more than earn fees from the synthetic 

instruments that it created. Goldman also bet against the mortgage 

market and earned billions when that market crashed. 

In December 2006, Goldman decided to move away from its long 

positions in the mortgage market in what began as a prudent hedging against the firm’s large exposure to that market—exposure that 

sparked concern on the part of the firm’s senior executives. The 

edict from top management after a December 14, 2006, meeting 


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1See Exhibit No. 162, which appears in the Appendix on page 997. 

was, ‘‘Get closer to home,’’ meaning get to a more neutral risk position. But by early 2007, the company blew right past a neutral position on the mortgage market and began betting heavily on its decline, often using complex financial instruments, including synthetic collateralized debt obligations (CDOs). Goldman took large 

net short positions throughout 2007. 

Now, a chart which we are going to put up there is based on data 

supplied to the Subcommittee by Goldman Sachs.1 It tracks the 

firm’s ongoing huge short positions throughout the year. Those 

short positions at one point represented approximately 53 percent 

of the firm’s risk as measured by the most relied upon risk measure called value at risk (VaR). The black line in the middle of that 

chart represents a neutral line, balance. The brown numbers and 

lines below that median black line represent the net short of Goldman during the entire year, and you can see it was net short during that entire year of 2007. 

Those short positions did more than just avoid big losses for 

Goldman. They generated a large profit for the firm in 2007. Goldman says these bets were just a reasonable hedge, but internal documents show that it was more than a reasonable hedge. It was 

what one top Goldman executive described as the ‘‘big short.’’ 

Listen to a top Goldman mortgage trader, Michael Swenson, who 

touted his success in 2007, what he called his ‘‘proudest year,’’ because of what he called ‘‘extraordinary profits’’—$3 billion as of 

September 2007 that came from bets that he recommended the 

firm take against the housing market. Mr. Swenson told his superiors, ‘‘I was able to identify key market dislocations that led to tremendous profits.’’ 

Another Goldman mortgage trader, Joshua Birnbaum—and both 

will be with us this morning—wrote in his performance evaluation 

about the billions of dollars in profits earned in 2007 betting 

against the mortgage market. ‘‘The prevailing opinion within the 

department was that we should just get close to home and pare 

down our long,’’ Mr. Birnbaum wrote. He then touted the fact that 

he urged Goldman Sachs ‘‘not only to get flat, but get VERY’’—emphasized by him—‘‘short.’’ 

He wrote that after convincing his superiors to do just that: ‘‘We 

implemented the plan by hitting on almost every single name CDO 

protection buying opportunity in a 2-month period.’’ He wrote, 

‘‘Much of the plan began working by February as the market 

dropped 25 points, and our very profitable year was underway.’’ 

When the mortgage market collapsed in July, he said, ‘‘We had a 

blow-out profit and loss month, making over $1 billion that month.’’ 

Those facts should end the pretense that Goldman’s actions were 

part of its efforts to operate as a mere ‘‘market maker,’’ bringing 

buyers and sellers together. Those short positions did not represent 

customer service or necessary hedges against risks that Goldman 

incurred as it made a market for customers. Those short positions 

represented major bets that the mortgage securities market, a market that Goldman helped create, was in for a major decline. 

Goldman continues to deny that it shorted the mortgage market 

for profit, despite the evidence. Why the denial? Why the denial? 


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My best estimate is that it is because the firm, Goldman Sachs, 

cannot successfully continue to portray itself as working on behalf 

of its clients if it was selling mortgage-related products to those clients while it was betting its own money against those same products that it was selling to its client or betting against the mortgage 

market as a whole. 

The scope of this conflict is reflected in a company email sent on 

May 17, 2007, discussing the collapse of two mortgage-related instruments tied to WaMu-issued mortgages that Goldman had 

helped assemble and sell. The ‘‘bad news,’’ a Goldman employee 

says, is that the firm lost $2.5 million on the collapse. But the 

‘‘good news,’’ he reports, is that the company had bet that the securities would collapse, and they made $5 million on that bet. So they 

lost money on the mortgage-related products that they still held, 

and, of course, the clients they sold those products to lost big time. 

But Goldman Sachs made out big time, because it bet against its 

own products and its own clients. 

Goldman’s Chief Executive Officer, Lloyd Blankfein, summed it 

up this way: ‘‘Of course we didn’t dodge the mortgage mess. We lost 

money then we made more than we lost because of shorts.’’ The 

conflict of interest that lies behind that statement is striking. 

The Securities and Exchange Commission (SEC) has filed a civil 

complaint alleging that in another transaction involving a product 

called Abacus 07 AC–1, Goldman violated security laws by misleading investors about a mortgage-related instrument. The SEC’s 

complaint alleges that Goldman Sachs, in effect, helped stack the 

deck against the buyers of the instrument that it sold. The hedge 

fund that bought the short position in the transaction—in other 

words, that bet that the product would not perform well—helped 

select the mortgages that were to be referenced in the product that 

Goldman sold to its investors. The SEC alleges that Goldman 

Sachs knew of the hedge fund’s selection role and failed to disclose 

it to the other Abacus investors, who thought the package had been 

designed to succeed, not fail. 

We learned in last week’s hearing that Goldman also failed to 

disclose the hedge fund’s role to the credit rating agency that rated 

the Abacus deal. Eric Kolchinsky, who oversaw the ratings process 

at Moody’s, testified before this Subcommittee, ‘‘It just changes the 

whole dynamic of the structure where the person who is putting it 

together, choosing it, wants it to blow up.’’ 

The SEC and the courts will resolve the legal question of whether Goldman’s actions broke the law. The question for us is one of 

ethics and policy. Were Goldman’s actions in 2007 appropriate? 

And if not, should we act to bar similar actions in the future? 

Abacus may be the best-known example of conflicts of interest revealed in the Goldman documents, but it is far from the only example. Anderson Mezzanine Funding 2007–1 was a synthetic product 

assembled by Goldman. According to company documents, a Goldman client had expressed interest in taking a short position in the 

transaction, but an executive noted that Dan Sparks, the head of 

Goldman’s Mortgage Department, might ‘‘want to preserve that 

ability for Goldman.’’ 

What that suggests is that not only was Goldman going to bet 

against the instrument that it was selling, but it wanted to make 


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that bet badly enough that it took the bet for itself instead of letting an interested client have it. It then sold Anderson securities 

to its clients without disclosing that it would profit if those securities suffered losses. 

Client loyalty fell so far that one Goldman employee cited his refusal to assist Goldman clients facing losses from a Goldman financial product as a performance that he felt should be rewarded. Mr. 

Swenson wrote to his superiors in his performance review, ‘‘I said 

‘no’ to clients who demanded that Goldman should support the 

GSAMP program,’’ Goldman Sachs’ Subprime Mortgage-Backed Security Program. Mr. Swenson wrote that saying ‘‘no’’ to clients who 

asked Goldman to support a security that it had sold them were 

‘‘unpopular positions, but they saved the firm hundreds of millions 

of dollars.’’ Most investors make the assumption that people selling 

them securities want those securities to succeed. That is how our 

markets ought to work, but they do not always work that way. 

The Senators who in the 1930s investigated the causes of the 

Great Depression stated the principle clearly: ‘‘Investors must believe that their investment banker would not offer them the bonds 

unless the banker believed them to be safe. This throws,’’ they said, 

‘‘a heavy responsibility on the banker. He may and does make mistakes. There is no way that he can avoid making mistakes because 

he is human and because in this world things are only relatively 

secure. There is no such thing,’’ they wrote, ‘‘as an absolute certainty. But,’’ those Senators said, looking at the Great Depression 

a few years afterwards, ‘‘while the banker may make mistakes, he 

must never make the mistake of offering investments to his clients 

which he does not believe to be good.’’ 

Goldman documents make clear that in 2007, it was betting 

heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk 

mortgage-backed securities and CDOs that it wanted to get off its 

books in transactions that created a conflict of interest between 

Goldman’s bottom line and its clients’ interests. 

These findings are deeply troubling. They show a Wall Street culture that, while it may once have focused on serving clients and 

promoting commerce, is now all too often simply self-serving. 

The ultimate harm here is not just to clients poorly served by 

their investment bank. It is to all of us. The toxic mortgages and 

related instruments that these firms injected into our financial system have done incalculable harm to people who had never heard 

of a mortgage-backed security or a CDO and who have no defenses 

against the harm such exotic Wall Street creations can cause. 

Running through our findings in these hearings is a thread that 

connects the reckless actions of mortgage brokers at Washington 

Mutual with market-driven credit rating agencies and with the 

Wall Street executives designing the next synthetic. That thread is 

unbridled greed and the absence of a cop on the beat to control it. 

As we speak, lobbyists fill the halls of Congress hoping to weaken or kill legislation aimed at reforming these abuses. Wall Street 

is on the wrong side of this fight. It insists that reining in those 

excesses would unduly restrict the free market that is the engine 

of American progress. But this market of ours is not free of selfVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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dealing nor conflicts of interest. It is not free of gambling debts 

that taxpayers end up paying. 

I hope the executives before us today, and their colleagues on 

Wall Street, will recognize the harm that their actions have caused 

to so many of their fellow citizens. But whether or not they take 

responsibility for their role, I hope that this Congress will follow 

the example of another Congress eight decades ago and enact the 

reforms that will put a cop back on the Wall Street beat. 

I want to thank again my Ranking Member, Senator Coburn, 

who this morning is carrying out a very important responsibility at 

the White House and who will join us later, for his support and 

that of his staff. And I recognize now the Acting Ranking Member, 

Senator Collins. We welcome her participation in this Committee 

always, and we welcome her remarks. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you. Mr. Chairman, thank you for leading this investigation into the root causes of the great recession of 

2008. You and the Ranking Member, Senator Coburn, have cast a 

bright light into the dark corners of financial institutions that 

helped to inflate the housing bubble and then reaped billions of dollars when it burst, leaving millions of Americans in debt and jobless, with destroyed dreams and financial insecurity. 

This investigation raises two overarching issues. First, we must 

recognize that the dynamic innovation of our capital markets can 

have a downside. It can produce pain rather than prosperity. Financial markets, therefore, require updated and effective regulation to help prevent excesses that can inflict great harm on wholly 

innocent Americans, be they workers, retirees, or small business 

owners. 

The lack of regulation of the trillions of dollars in credit default 

swaps is a prime example, and that is why it is so critical that financial regulatory reform legislation include a council of regulators 

whose job it will be to assess systemic risk and to identify regulatory gaps. 

I recognize that even measured regulation may limit the potential benefits that unfettered markets can produce. The question, 

however, is whether those benefits are outweighed by the terrible 

harm such unfettered markets can cause. Recent history certainly 

suggests that is the case, that the combination of lax or absent regulation plus unbridled greed can produce devastating results. 

The second issue is even legal practices may raise ethical concerns. Assuming Goldman’s role as a market maker and its desire 

to hedge its risk provided legal justification for some of its practices—a question that must ultimately be decided by the courts— 

there is something unseemly about Goldman betting against the 

housing market at the same time that it is selling to its clients 

mortgage-backed securities containing toxic loans. And it is unsettling to read emails of Goldman executives celebrating the collapse 

of the housing market when the reality for millions of Americans 

is lost homes and disappearing jobs. That is especially the case in 

light of Goldman’s decision to opt for status as a bank holding company to secure benefits effectively underwritten, at least in part, by 

those same Americans. 


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During its previous hearings on the financial crisis, this Subcommittee revealed the reckless and at times predatory lending behavior of some mortgage brokers and banks like Washington Mutual. These banks discarded decades of reliable and pragmatic lending practices. Instead they opted to offer high-risk loans to borrowers whom they knew could not afford to repay them. 

Traditionally, such behavior would have exposed the originating 

banks to high levels of unacceptable risk. In other words, the offending banks would have paid dearly for their own underwriting 

errors. But with the advent of securitization during the past decade, lenders have been able to insulate themselves by selling off 

toxic loans, pitching them as assets to investment banks. Those investment banks in turn bundled the toxic loans inside mortgagebacked securities which were then bought and sold by investors. 

The cash that flowed back to the banks from investors buying 

these securities only made matters worse. The cash was akin to 

throwing fuel on the hot fire of greed and recklessness. The inflow 

of dollars encouraged loan originators to put that money to work 

again and again and again, turning over loan applications as quickly as possible, applying little scrutiny, because ultimately they had 

no stake in the outcome of the loan. 

This cycle was based on a dangerous and false assumption that 

the housing market would always move upward. It was based on 

the fantasy, the myth, that what goes up stays up and never would 

come crashing down. When it all collapsed like a house of cards, 

we realized too late how incredibly fragile and tragically interconnected the system had become. The fallout was not limited. The 

debris field was not contained. The damage was widespread, profound, and nearly catastrophic. 

The architects of this scheme entangled neighborhood banks and 

large brokerage firms across America. Their toxic linkages ensnared borrowers and investors from Main Street to Wall Street. 

They deluded themselves into believing that the basic principles 

could be defied and ignored. And when that delusion met reality, 

the bubble burst. 

Today we will look at the top tier of the system, a major investment bank, and examine how its trading practices amplified the 

rise and fall of the housing market. Today’s witnesses are all from 

Goldman Sachs, which was one of the few Wall Street firms to actually profit from the financial crisis. This hearing is not to celebrate that ignoble feat; rather, it is to examine how the trading 

practices of Goldman during that time made such profits possible. 

It is to examine how Goldman sold financial products that were 

tied to the health of the housing market, even while Goldman itself 

was betting that the housing market would collapse. 

The Securities and Exchange Commission accuses Goldman 

Sachs of marketing a complex product to its clients while allegedly 

failing to disclose that the same company that hand-selected the 

components, the hedge fund Paulson & Company, also planned to 

bet on its failure. Goldman sold the product to long-time trusting 

clients allegedly without disclosing this fact. The bet that Paulson 

made earned him $1 billion while at least one of Goldman’s clients, 

a German bank, went bankrupt. 


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Although Goldman lost money on that particular deal, it reaped 

billions of dollars in the mortgage-backed securities market as a 

whole. While the market was on the verge of collapse, Goldman decided to go short and earned billions from that strategy. Some have 

alleged that Goldman did so while continuing to sell clients long investments in the mortgage markets. While such conflicts of interest 

may not be illegal, they certainly seemed ethically questionable, 

and these conflicts of interest appeared to be rooted in the fact that 

broker-dealers do not have a fiduciary obligation to their clients. 

That is an issue we will be considering. 

Clearly, this system must be reformed so that Wall Street banks 

are not seen and do not act as unscrupulous operators who seek 

to profit from the public’s misfortune, even as they are pitching 

toxic investments and even as hard-working, struggling taxpayers 

are left to pick up the tab. 

Thank you, Mr. Chairman, and, again, I congratulate you for this 

in-depth investigation. 

Senator LEVIN. Thank you so much, Senator Collins. Senator 

Kaufman was next in line. 

OPENING STATEMENT OF SENATOR KAUFMAN 

Senator KAUFMAN. Thank you, Mr. Chairman. 

Senator LEVIN. Senator Kaufman, I want to thank you for all 

your work on these hearings. You have been very significant and 

important to us. 

Senator KAUFMAN. Thank you, and I want to thank you and 

Ranking Member Coburn for having these hearings, 3 days of hearings. I think we looked at Washington Mutual, then we looked at 

the regulators, and then we looked at the rating agencies. It was 

a pretty ugly picture, repeated conflicts of interest and in some 

cases outright fraud. 

All of the figures from those 3 days of hearings points to Wall 

Street which created and sold these toxic investments to their clients. Today I am looking forward to talking about the behavior of 

Goldman Sachs during this period. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator Kaufman. Senator 

McCain. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Well, thank you, Mr. Chairman, and I thank 

the witnesses for being here today. 

Mr. Chairman, I do not know if Goldman Sachs has done anything illegal. Charges have been brought, and it is going to be the 

subject of a lot of our discussion today. But from the reading of 

these emails and the information that this Subcommittee has uncovered, there is no doubt their behavior was unethical, and the 

American people will render a judgment, as well as the courts. 

Senator LEVIN. Thank you very much, Senator McCain. Senator 

McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you, Mr. Chairman. In the good old 

days of investment banking, they were considered very honorable 


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and proud institutions, our investment bankers of Wall Street. 

They provided financial services, investment of capital in good businesses, helping government with assistance to issue bonds to build 

the great infrastructure of our Nation. 

Then you fast-forward through the public offering of all these 

companies where the date that the risk of these companies shifted 

from the named partners to nameless, faceless shareholders. And 

you fast-forward a little bit further, and you land right at the feet 

of synthetic CDOs. 

Now, I have got to be honest. I think that if we had to put the 

odds on this hearing today, you guys would probably have odds in 

your favor because the jargon is complicated, the transactions are 

complicated. You have relied on that complicated situation to avoid 

a lot of scrutiny. 

We have spent a lot of time going through all these documents, 

and let me just explain in very simple terms what synthetic CDOs 

are. They are instruments that are created so that people can bet 

on them. It is the La-La Land of ledger entries. It is not investment in a business that has a good idea. It is not assisting local 

governments in building infrastructure. It is gambling—pure and 

simple raw gambling. 

They are called synthetics because there is nothing there but the 

gamble, the bet. You are the bookie. You are the house. You have 

less oversight and less regulation, as you began this Wild, Wild 

West of tranches, waterfalls, equity tranches, and residual warehousing. As you began all that, you had less oversight than a pit 

boss in Las Vegas. 

And I got to tell you—and it is not just you. All of you were lemming-like. You were chasing each other. What you worried about 

most was a bad article in the Wall Street Journal, not a regulator. 

You were chasing compensation. You were chasing your colleagues 

and other investment banks. And you were trying to make a killing. 

But let me just tell you, you think it is so complicated and you 

think you are so smart? Any street gambler would never place a 

bet with a bookie or a house with the record that is revealed in the 

documents that this Subcommittee has gathered. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator McCaskill. Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Mr. Chairman, and I want to thank 

you for having this hearing this morning. And, Mr. Chairman, I 

know that you did not just open up the paper last week and say, 

‘‘Hey, let us have a hearing on Goldman Sachs.’’ I know that you 

have been working on this for a year and a half, and through your 

dogged determination, you have uncovered a lot of emails, a lot of 

documentation that raise a lot of very serious questions. And so, 

Mr. Chairman, I know the Nation appreciates your determination 

and your commitment to provide the oversight that Congress 

should be providing. 

So I want to thank you for that, and I may not understand everything about everything on Wall Street, but I do understand that 


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1The prepared statement of Mr. Sparks appears in the Appendix on page 202. 

people are not here to listen to me, they are here to listen to the 

witnesses. So I want to thank you very much for having this hearing today, and I look forward to this hearing. Thank you. 

Senator LEVIN. Thank you so much, Senator Pryor. 

Let me start out by saying we are going to have three panels 

today, and each of these panels are going to take some time because this is a subject which needs some real exploration and detail 

to cut through all of those technical words and concepts that Senator McCaskill just made reference to. 

So let me now welcome our first panel of witnesses for this morning’s hearing: Daniel Sparks, a former partner and head of the 

Mortgage Department at Goldman Sachs; Joshua Birnbaum, a 

former Managing Director of the Structured Products Group Trading Desk at Goldman Sachs; Michael Swenson, a Managing Director on the Structured Products Group Trading Desk at Goldman 

Sachs; and Fabrice Tourre, an Executive Director in Structured 

Products Group Trading at Goldman Sachs International. 

We appreciate all of you being with us this morning. We have a 

rule on this Subcommittee, Rule VI, that all witnesses who testify 

before the Subcommittee are required to be sworn, and so at this 

time I would ask all of you to please stand and raise your right 

hand. 

Do you swear that the testimony you are about to give will be 

the truth, the whole truth, and nothing but the truth, so help you, 

God? 

Mr. SPARKS. I do. 

Mr. BIRNBAUM. I do. 

Mr. SWENSON. I do. 

Mr. TOURRE. I do. 

Senator LEVIN. We will use a timing system today. We would ask 

that you try to limit your oral testimony to no more than 5 minutes. About a minute before that red light comes on, you will be 

given a yellow light so you can have that kind of assistance. 

Mr. Sparks, we are going to have you go first, followed by Mr. 

Birnbaum, then Mr. Swenson, then finishing up with Mr. Tourre, 

and then we will turn to our questions. So, Mr. Sparks, please proceed. 

TESTIMONY OF DANIEL L. SPARKS,1 FORMER PARTNER, HEAD 

OF MORTGAGE DEPARTMENT, THE GOLDMAN SACHS 

GROUP, INC., NEW CANAAN, CONNECTICUT 

Mr. SPARKS. Chairman Levin, Dr. Coburn, and Members of the 

Subcommittee, my name is Dan Sparks, and from late 2006 until 

mid-2008, I was the head of the Mortgage Department at Goldman 

Sachs. The three men who are with me today—Fabrice Tourre, 

Josh Birnbaum, and Mike Swenson—all reported up to me during 

that period. 

I joined Goldman Sachs in 1989 as an analyst after graduating 

from college. My intention was to stay for 2 years, and I ended up 

staying for 19. I would not have stayed if the people I worked with 

did not have high ethical standards. The culture at Goldman Sachs 

was one in which excellence and integrity were expected. 


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The business of Goldman’s Mortgage Department involved structuring, underwriting, distributing, and trading mortgage and assetbacked products, including loans, securities, and derivatives. All 

these activities involved clients, and all involved risk. The business 

was competitive, and Goldman participated without a significant 

residential mortgage origination platform. 

I know that the Subcommittee is focusing on the events of late 

2006 and 2007, so I will as well. Near the end of 2006, Goldman 

was generally long in its exposure to residential mortgages. I had 

concerns about our exposures, and senior management knew about 

these concerns. The markets showed signs of stress, and our department was experiencing losses. In mid-December, David Viniar, 

Goldman’s Chief Financial Officer (CFO), called a meeting and 

asked me to comprehensively review our positions and business 

risks. The ‘‘take-away’’ from the meeting was to reduce risk in the 

short term. I was not instructed to ‘‘go long’’ or to ‘‘go short.’’ The 

focus was on risk and not direction. 

Risk management during this period was very challenging. In a 

volatile and illiquid market, we had to change business approaches 

constantly. We were diligent in marking our positions daily, as 

painful as that was on many days. That discipline gave us realtime feedback and helped us make important risk decisions. These 

included reducing our loan purchases, buying jump-risk protection, 

shutting down our CDO warehouse activities at significant losses, 

and covering our shorts. 

Knowing whether we were long or short was often difficult, as 

our positions were complex and the market moved erratically. 

There were times when our analytical risk measures told us one 

thing, and my experience and knowledge of our positions told me 

something else. Some days, we took actions to reduce risk only to 

see the firm’s value at risk (VaR), increase. 

During this time, there were differing views within the Mortgage 

Department, and around the firm, as to the direction of the residential mortgage markets. But the constant theme from senior 

management was to reduce risk. Throughout 2007, the Mortgage 

Department reacted to market events, worked with our clients, and 

managed our risk. I left Goldman Sachs in mid-2008 to spend more 

time with my family and in my community and to pursue other interests. When I left, I was proud of what the people in the Mortgage Department had accomplished during a difficult period, and 

I remain so today. At the same time, I understand that events in 

the Nation’s mortgage market contributed to the financial crisis of 

2008 and to the recession. I also understand that Congress has a 

duty to explore the causes of that crisis and to adopt sound reforms. To that end, I look forward to being helpful to you this 

morning. 

Senator LEVIN. Thank you so much, Mr. Sparks. Mr. Birnbaum. 


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1The prepared statement of Mr. Birnbaum appears in the Appendix on page 205. 

TESTIMONY OF JOSHUA S. BIRNBAUM,1 FORMER MANAGING 

DIRECTOR, STRUCTURED PRODUCTS GROUP TRADING, THE 

GOLDMAN SACHS GROUP, INC., NEW YORK, NEW YORK 

Mr. BIRNBAUM. Good morning, Mr. Chairman, Members of the 

Subcommittee, my name is Josh Birnbaum. Thank you for offering 

me this opportunity to discuss my work in the Mortgage Department at Goldman Sachs in 2006 and 2007, when I was a Managing 

Director in the Structured Products Group. I began working at 

Goldman shortly after my graduation from the Wharton School at 

the University of Pennsylvania in 1993. I worked at Goldman until 

March 2008, when I left to start my own advisory firm, Tilden Park 

Capital Management. I take great pride from having worked for 

Goldman Sachs for almost 15 years and greatly admire the firm’s 

integrity, commitment to client service, and ethics. 

During 2006 and 2007, I worked on the Asset-Backed Securities 

(ABS), Desk in the Structured Products Group. My job was to make 

markets for Goldman clients who sought long or short exposure to 

the market for residential housing asset-backed securities and to 

assist in hedging investments made by other parts of the Mortgage 

Department. 

The primary products I traded and risk-managed were the then 

newly created Asset-Backed Securities Index (ABX), and credit default swaps (CDS) in individual securitizations, also known as single-name CDS. As a market maker, we were continuously asked to 

provide liquidity for customers, which frequently required the firm 

to participate on the other side of transactions on a ‘‘principal’’ 

basis. For example, when a client wanted to buy protection on a 

particular securitization, we would offer a price to sell that protection. If the client chose to execute the transaction at that price, we 

would take the other side of the trade. We would then have a decision to make whether to offset that risk through a transaction with 

another client who wanted to sell that protection to us or keep it 

on our book for some period of time as part of our inventory. 

From time to time, as a result of client-driven trades, our team’s 

book accumulated long and short positions. For example, from the 

inception of the ABX Index in January 2006 through November 

2006, customers interested in selling the ABX Index outnumbered 

buyers. The trades we made to meet client demands during that 

period naturally caused the book to develop a long position in the 

ABX Index and a smaller short position in the single-name CDS. 

As part of our management of our own inventory, we had the discretion to hedge positions through trades with other clients or keep 

them on our book in accordance with the limits set by the risk 

management department. Whenever our inventory got significantly 

long or short, risk management directed us to cut our risk and ‘‘get 

closer to home,’’ or to ‘‘flatten the book.’’ For example, when our net 

position became long in late 2006, we were told to offset our risks, 

which we did through a combination of selling off some of the long 

ABX position and buying more single-name CDS protection. And 

when our inventory expressed a short bias at times in 2007, we 

were directed to cover our short positions to reduce risk, and we 

did so. 


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1The prepared statement of Mr. Swenson appears in the Appendix on page 208. 

In late 2006 and into early 2007, I developed a negative view on 

the likely direction of the subprime market. Traders on desks like 

ours often develop a short or long bias based on their personal 

views of the market. Not everyone in the Mortgage Department— 

or the firm, for that matter—agreed with my view at the time. In 

fact, there was a vigorous debate as to the future direction of the 

market. 

In line with my view, our desk began to accumulate short positions, purchasing protection on individual securities through credit 

default swaps, largely from external CDO managers who asked us 

to bid for these positions. There was, of course, risk involved in accumulating short positions, as no one could be certain which direction the market would go. 

These positions became profitable as the market deteriorated. 

When those short positions bumped up against the risk parameters 

for our book during the spring and summer of 2007, my group was 

instructed to cover them. On both occasions, I expressed my belief 

that the market would continue to deteriorate and that the better, 

more profitable trade was to maintain the short position on our 

book, but the firm insisted that we reduce our position, and we did 

so. 

No one from senior management told me to make a directional 

bet against the subprime market. Rather, during 2006 to 2007, regardless of whether our books were long or short, the consistent 

theme from management was get smaller, reduce risks, and get 

closer to home. 

I am very proud of the accomplishments of the ABS Group during my tenure there. We provided significant liquidity to our clients 

in a difficult and challenging market while also managing to post 

a profit during this period. 

Thank you for inviting me to testify here. I am happy to answer 

any questions Subcommittee members may have. 

Senator LEVIN. Thank you very much, Mr. Birnbaum. Mr. 

Swenson. 

TESTIMONY OF MICHAEL J. SWENSON,1 MANAGING DIRECTOR, 

STRUCTURED PRODUCTS GROUP TRADING, THE GOLDMAN 

SACHS GROUP, INC., NEW YORK, NEW YORK 

Mr. SWENSON. Good morning, Mr. Chairman, Ranking Member 

Coburn, Members of the Subcommittee. My name is Michael 

Swenson. I am a Managing Director in the Mortgage Department 

at Goldman Sachs, where I have worked since 2000. 

Let me begin by discussing my role with the firm in 2006 and 

2007 and then give you a general timeline of the activities of the 

ABS Desk through this period. I was a Managing Director in Structured Products Group (SPG) Trading and co-managed the group. I 

was primarily responsible for the Asset-Backed Securities (ABS) 

desk, which was responsible for making markets in ABS securities 

and derivatives for our customer franchise. The ABS Desk traded 

consumer ABS, subprime cash, single-name ABS credit default 

swaps—which I will refer to as ‘‘single names’’—and the ABX indiVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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ces, which are a family of synthetic indices that reference a standard basket of 20 subprime deals. 

Throughout 2006, numerous clients wanted to sell the ABX in 

order to express a negative view on the U.S. residential housing 

market. As a result of these trades, we took on long positions as 

principal. In order to hedge those positions, we began to increase 

our short position in single names. By November 2006, the volatility in the ABX increased, pushing prices down. Because our positions in single names did not match identically the basket of securities that comprised the ABX, the positions moved at different 

rates and even different directions, resulting in losses for the ABS 

Desk. 

On December 14, 2006, David Viniar, the firm’s CFO, called a 

meeting to go over the firm’s Mortgage Department’s positions and 

risk. I attended a portion of that meeting, during which we discussed the ABS positions and the need to reduce the basis risk in 

the book. We were instructed to reduce risk and get the position 

‘‘closer to home’’; we were not told what direction to take—just to 

get there. 

In the first quarter of 2007, we sold ABX, where possible, and 

increased our single-name positions. However, the ABS Desk continued to lose money because the market value of our long ABX positions was declining faster than our offsetting hedges. 

The relatively rapid decline in the index brought in a wave of 

short-covering and some new long interest. As a result, the ABS 

Desk further reduced its long ABX position and purchased additional single names, or went long on $2.8 billion in single names, 

thus reducing our short position. 

In the second quarter of 2007, the ABS Desk covered several billion notional in single names and purchased hundreds of millions 

of ABX long positions as the ABX index recovered. These transactions reduced the desk’s short position, in effect bringing the 

desk to a more balanced position. 

Later in the quarter, the ABS Desk increased its short position 

after it took on the CDO warehouse inventory from the CDO origination group. The inventory added several billions in long residential mortgage-backed securities (RMBS) exposure to the ABS Desk 

at a time when the market was deteriorating. In order to manage 

this newly assumed risk, the ABS Desk increased our position in 

single names. 

At the end of the third quarter, the ABS Desk engaged in large 

block trades purchasing several billion notional of ABX risk while 

concurrently selling down a portion of our single-name positions— 

again, bringing the desk closer to home. 

Throughout the period from late 2006 through much of 2007, the 

ABS Desk executed its market-making functions as principal, and 

our trades also reflected the views we had of the market. The ABS 

Desk did not only take short positions and, indeed, took many positions that ultimately reduced profits that the Mortgage Department otherwise might have realized. By reducing short positions, 

we left money on the table. But that is the nature of reducing risk 

while continuing to perform our duties as a market maker. 

Thank you for your consideration. I am happy to answer any 

questions Members of the Subcommittee may have. 


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1The prepared statement of Mr. Tourre appears in the Appendix on page 211. 

Senator LEVIN. Thank you very much, Mr. Swenson. Mr. Tourre, 

am I pronouncing your name correctly? 

Mr. TOURRE. Yes, you are, Mr. Chairman. 

Senator LEVIN. Thank you. 

TESTIMONY OF FABRICE P. TOURRE,1 EXECUTIVE DIRECTOR, 

STRUCTURED PRODUCTS GROUP TRADING, THE GOLDMAN 

SACHS GROUP, INC., LONDON, ENGLAND 

Mr. TOURRE. Mr. Chairman, Members of the Subcommittee, good 

morning. My name is Fabrice Tourre, and I work at Goldman 

Sachs International in London. Thank you for the opportunity to 

appear today in front of the Subcommittee. 

I have worked at Goldman Sachs since 2001. Between 2004 and 

2007, my job was primarily to make markets for clients. I made 

markets by connecting clients who wished to take a long exposure 

to an asset—meaning they anticipated the value of the asset would 

rise—with clients who wished to take a short exposure to an 

asset—meaning they anticipated the value of the asset would fall. 

I was an intermediary between highly sophisticated professional investors—all of which were institutions. None of my clients were individual, retail investors. 

The structured products on which I worked fill an important 

need for these sophisticated financial institutions. To the average 

person, the utility of these products may not be obvious. But they 

permit sophisticated institutions to customize the exposures they 

wish to take in order to better manage the credit and market risks 

of their investment holdings. 

Mr. Chairman, as you know, the Securities and Exchange Commission recently filed a civil suit alleging that I failed to disclose 

to investors certain material information regarding a transaction 

that I helped to structure named Abacus 07 AC–1. I deny categorically the SEC’s allegations, and I will defend myself in court 

against this false claim. 

Since the suit was filed, there have been many questions raised 

about the AC–1 transaction and my role in it. I appreciate the opportunity to answer those questions, and I want to make a few 

points absolutely clear. 

First, the only two investors in the transaction, ACA and IKB, 

were institutions with significant resources and extensive experience in the CDO market. 

Second, I never told ACA, the portfolio selection agent, that 

Paulson & Company would be an equity investor in the AC–1 

transaction or would take any long position in the deal. Although 

I don’t recall the exact words that I used, I recall informing ACA 

that Paulson’s fund was expected to buy credit protection on some 

of the senior tranches in this deal. This necessarily meant that 

Paulson was expected to take some short position in the transaction. Moreover, from the early stages of the transaction in January 2007 to its completion several months later, none of the offering documents provided to ACA indicated that Paulson’s fund 

would be an equity investor. 


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1See Exhibit No. 172, which appears in the Appendix on page 1101. 

If ACA was confused about Paulson’s role in the transaction, it 

had every opportunity to clarify the issue. Representatives of 

Paulson’s fund participated directly in all of my meetings with ACA 

regarding the transaction. I do not ever recall ACA asking me or 

Paulson’s representatives if Paulson’s fund would be an equity investor. Indeed, ACA and Paulson had several discussions about the 

transaction and at least one meeting without Goldman Sachs representatives present. Quite frankly, I am surprised that ACA could 

have believed that the Paulson fund was an equity or long investor 

in this deal. 

Third, the AC–1 transaction was not designed to fail. ACA and 

IKB were two of the most important clients to my desk. Moreover, 

the securities referenced in the transaction did not underperform 

the other securities of that ratings class and vintage. In fact, all 

those securities performed poorly because the subprime mortgage 

market suffered a broad collapse. Goldman Sachs also had no economic motive to design the AC–1 transaction to fail. Quite the contrary, we held long exposure in the transaction just like ACA and 

just like IKB. When the securities referenced in AC–1 declined in 

value, we lost money, too, including around $83 million with respect to the retained long position. 

Finally, ACA selected the portfolio of securities referenced in the 

transaction—not Paulson. ACA had sole authority to decide what 

securities would be referenced in the transaction, and it does not 

dispute that fact. Neither the Paulson fund nor Goldman Sachs 

could dictate to ACA the securities referenced in the deal. Paulson’s 

fund made suggestions to ACA, as did IKB and as did Goldman 

Sachs. And the SEC complaint concedes that ACA rejected most of 

Paulson’s suggestions while accepting others. So, while Paulson, 

Goldman Sachs, and IKB all had inputs in the reference portfolio 

for AC–1, ACA ultimately analyzed and approved each security in 

the transaction. Thus, when Goldman Sachs represented to investors that ACA selected the referenced portfolio, that statement was 

absolutely correct. 

Mr. Chairman, the last week has been challenging for me and 

my family, as I have been the target of unfounded attacks on my 

character and motives. I appreciate the opportunity to appear before the Subcommittee to answer these false charges. I wish to repeat: I did not mislead IKB or ACA, two of the most sophisticated 

institutional investors in these products anywhere in the world. 

I will be pleased to answer any questions that the Subcommittee 

may have. 

Senator LEVIN. Thank you very much, Mr. Tourre. 

What we will do is what we have done in previous hearings. Our 

rounds—at least the first round—will be 20 minutes for each of us, 

and then there will be subsequent rounds with these panels as 

well. 

Mr. Sparks, would you turn to Exhibit 172,1 please? 

[Pause.] 

Senator LEVIN. All set? 

Mr. SPARKS. Yes, Mr. Chairman. 


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Senator LEVIN. Now, this is a series of emails that concerns a 

deal called Anderson that Goldman put together in March 2007. 

Anderson was a $300 million synthetic CDO, so what it did was 

reference certain other securities. This referenced subprime 

RMBSs, or residential mortgage-backed securities. 

Many of those securities were originated by New Century, which 

was a subprime lender notorious for poor-quality loans. Goldman 

participated as one of the short investors, as you can see from that 

exhibit. They bought loss protection or bought the short side for 

$100 million, about 50 percent of the short side and 50 percent of 

the referenced assets. 

So from the beginning of the deal, right from the beginning, 

Goldman is selling Anderson securities to clients, but it is betting 

against that CDO. It got, in the words there, protection that pays 

off if the CDO assets, the referenced assets, start losing money. 

So, first, if you will take a look at the following email. Goldman’s 

clients reject the deal, first of all, because it has so much poor-quality New Century mortgages. For example, look at page 3 of the exhibit. A client asks how Goldman got ‘‘comfortable’’ with all the 

New Century collateral, and particularly the New Century serviced 

deals. 

Now, take a look at the internal response at the top of the page. 

What it is is to get Goldman’s salespeople on the phone to allay the 

client’s concerns about New Century collateral, but that does not 

work. 

The next three emails tell the same story. Three more clients— 

Rabobank, Smith Breeden, and Terwin—reject the deal. Internally, 

the drive to sell Anderson continues—keep pushing the clients to 

buy. Look at the top of page 6. ‘‘Anything more from these guys - 

or are they officially dead now?’’ 

Now, Goldman is asked a question by a potential customer. What 

did you guys do to get comfortable with all the New Century collateral? How can you get comfortable with that collateral? That is a 

well-known company that has a very bad record. And what is your 

response? Is your response, ‘‘Hey, we are going short. We got half 

the short side?’’ We are betting against this deal? You are asked 

a specific question. How do you guys get comfortable with this? Instead of saying, ‘‘Hey, we are betting against it, we are taking half 

the short side,’’ what you do is you tell your salespeople try to sell 

this deal. You do not answer the question. You do not respond to 

a direct question. 

So you continue to push hard, and finally there is a sale that unloads $20 million in Anderson notes. Page 7 of that same exhibit, 

a Goldman supervisor responds with a single word after you unloaded $20 million in Anderson notes: ‘‘Profit!’’ Exclamation point. 

Eureka. ‘‘Eureka’’ is my word. He later congratulates the team: 

‘‘Excellent job pushing to closure these deals in a period of extreme 

difficulty.’’ 

Now, your clients did not want to buy Anderson CDOs with that 

exposure to the New Century mortgages, but you still pushed hard. 

Why didn’t you inform your clients that Goldman was short on 

nearly 50 percent of the Anderson CDO when selling Anderson securities to them? Why didn’t you tell them you were going short? 


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1See Exhibit No. 93, which appears in the Appendix on page 592. 

2See Exhibit No. 94, which appears in the Appendix on page 593 

Mr. SPARKS. Mr. Chairman, there are about eight emails in here. 

I did not see the email that suggested that we were short, and I 

was trying to find that. 

Senator LEVIN. All right. Take a look at Exhibit 93.1

Mr. SPARKS. Within this exhibit? 

Senator LEVIN. No. Exhibit 93. 

Mr. SPARKS. OK. 

Senator LEVIN. And Exhibit 94,2 together, showing the shorts. 

See where it shows the counterparty, the short side of the deal? 

Goldman Sachs, Goldman Sachs, Goldman Sachs, Goldman Sachs. 

See all that? 

Mr. SPARKS. Yes, Mr. Chairman. 

Senator LEVIN. OK. Now, answer my question. 

Mr. SPARKS. I believe this shows the counterparties, which—— 

Senator LEVIN. Yes, Goldman Sachs. 

Mr. SPARKS [continuing]. Oftentimes is Goldman Sachs. That 

does not mean that Goldman Sachs was not doing that trade with 

another client, so it is very difficult for me to say from looking at 

this whether we were short or not. We might have been facilitating 

trades for clients. 

Senator LEVIN. Assuming you were going short and staying 

short. Let me ask the question. Should you have told that client— 

when they asked how are you getting comfortable with this, should 

you have told them you were going short if you were? 

Mr. SPARKS. Mr. Chairman, so not particular to this, because, 

again, I do not recall if—— 

Senator LEVIN. No, in this case. I am asking in this case. You 

were asked a question. How do you guys get comfortable with these 

kind of mortgages, with this kind of a mortgage broker? 

Mr. SPARKS. Well, again, I do not know if we were short on that 

deal—— 

Senator LEVIN. I know you do not know. Assuming you went 

short and intended to stay short on that deal, should you have then 

told the customer asking you the direct question, how can you get 

comfortable with this, that it was your intention to go short on 50 

percent of the short side and stay that way, if that was the fact? 

Mr. SPARKS. Again—— 

Senator LEVIN. No. Answer my question. 

Mr. SPARKS. I am just trying to understand exactly what the 

question is. 

Senator LEVIN. The question is very clear. You said, well, you 

were not sure whether or not you were buying that 50 percent for 

somebody else. That is what your answer was. If you were buying, 

as we know you were, 50 percent of the short for yourself, for your 

account, my question is, when asked how can you be selling this 

security, how do you get comfortable with the source of this security, was there an obligation at that time, if you were going and 

intended to stay short with half the short side, was it your responsibility to answer that direct question, hey, we are going short and 

we are staying short? How do you view your responsibility—that is 

my question—under those circumstances? 


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Mr. SPARKS. Mr. Chairman, this transaction was a static synthetic, which meant the assets were the assets and they could not 

change. Anybody participating in it should look at the assets themselves. 

Senator LEVIN. Are those assets open to everyone who buys those 

synthetics, the specific assets, or are they protected? Are those not 

commercially protected, the specific source? 

Mr. SPARKS. If that is a legal question, people have access to the 

information, Mr. Chairman. 

Senator LEVIN. The buyer is raising a question with you about 

these assets. He is asking a direct question: How can you get comfortable with these assets from this source? How do you guys get 

comfortable? Your answer is not, under my hypothetical—which is 

not hypothetical; it is factual. But assuming you are going to buy 

half the short position and keep it, my question is: Did you not 

have a responsibility to answer a direct question, how can you get 

comfortable with these products from that source by saying we are 

going short, half the short is what we are buying? How do you view 

your ethical responsibility? 

Mr. SPARKS. Mr. Chairman, and again, the facts about—— 

Senator LEVIN. Again, you do not want to answer the question. 

Mr. SPARKS. No. The question that investors should and did focus 

on were whether the names that they had risk to was something 

they actually wanted at that price. 

Senator LEVIN. My question, Mr. Sparks, is a very direct question. You were asked a question, Goldman was asked a question: 

How do you get comfortable with the source of these securities? Instead of disclosing right at that time, what I think you ought to 

disclose anyway when you are on the other side of a deal—we will 

get into that. But instead of disclosing that you had half of the 

other side of the deal, half the short side, you did not tell them 

that. Instead you told your salespeople, ‘‘Keep pushing this deal.’’ 

You had three people turn it down because of the source, and you 

kept pushing it. But now answer my question. When you are asked 

the question, how do you get comfortable with these securities 

given the dubious source of the security—you got clients, they do 

not want to buy the security with so much exposure to the New 

Century mortgages. Those New Century mortgages have had problems. 

I am going to ask you for the last time, and if you do not want 

to answer it, you can say you do not want to answer it. But, clearly, you understand it. Did you not have a responsibility when you 

were asked point blank how do you get comfortable in this kind of 

a situation when there is so much exposure to New Century mortgages, did you not then at least have an obligation to disclose, hey, 

we are not comfortable, we are selling this thing short, we are 

going on the short side? Do you understand the question? 

Mr. SPARKS. Mr. Chairman, I understand the question. I have 

not gone through all of the emails, but what clients who did not 

want to participate in that deal did not. 

Senator LEVIN. And the client asked you a question, how do you 

guys get comfortable—it is a question. What was your answer? 

Mr. SPARKS. Mr. Chairman, we—— 

Senator LEVIN. Did you tell them—— 


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1See Exhibit No. 172, which appears in the Appendix on page 1101. 

2See Exhibit No. 173, which appears in the Appendix on page 1109. 

Mr. SPARKS. We would have had the sales force get on with the 

deal team and walk through each security that they had exposure 

to and answer any questions that they had about that security. 

Senator LEVIN. Don’t you also have a duty to disclose an adverse 

interest to your client? Do you have that duty? 

Mr. SPARKS. About? 

Senator LEVIN. If you have an adverse interest to your client, do 

you have the duty to disclose that to your client? 

Mr. SPARKS. The question about how the firm is positioned or our 

desk is positioned? 

Senator LEVIN. If you have an adverse interest to your client 

when you are selling something to them, do you have the responsibility to tell that client of your adverse interest? 

Mr. SPARKS. Mr. Chairman, I am just trying to understand what 

the adverse interest means—— 

Senator LEVIN. No, I think you understand it. I do not think you 

want to answer. How did you get comfortable with all the New 

Century collateral? 

Mr. SPARKS. Mr. Chairman, I—— 

Senator LEVIN. I am just going to go on because you are not 

going to answer the question. It is obvious. 

In particular, let me ask you this question. Keep going now on 

that exhibit.1 Considering that you are holding the equity—do you 

see that in that email chain, March 13, 2007? 

Mr. SPARKS. Yes, sir. 

Senator LEVIN. They thought you were actually holding the equity, which is being on the long side, right? 

Mr. SPARKS. Yes. In this email, that is what this looks like. 

Senator LEVIN. So they thought you are on the long side, but not 

told you are on the short side of the same deal when specifically 

asked the question as to how you got comfortable, not disclosing 

that you are betting against it, not just buying the equity. 

Now, let me keep going. By the way, that Anderson deal was 

downgraded from AAA to junk in 7 months. Did you make money 

on that deal, on the short position? 

Mr. SPARKS. Well, I know on the longs that we took, we lost 

money. 

Senator LEVIN. I understand. I am asking about the short position you took. 

Mr. SPARKS. And on the shorts, Mr. Chairman, I do not know 

how much of it we had, if any. 

Senator LEVIN. OK. 

Mr. SPARKS. And so I cannot—I just do not have that number. 

Senator LEVIN. Do you want to check your records and tell us 

how much money you made on that? 

Mr. SPARKS. I will have to get back to you and work with the 

people at Goldman Sachs. 

Senator LEVIN. Mr. Sparks, turn to Exhibit 173.2 This is an 

email message, November 2006, between two Goldman Sachs employees in sales. It discusses selling Fremont securities. One salesperson sends to the other a client’s explanation of why they do not 


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want to buy the securities—even after talking to Fremont, by the 

way. The client wrote, ‘‘. . . [F]remont refused to make any forward looking statements so we really got nothing from them on the 

crap pools’’—‘‘the crap pools that are out there now.’’ 

The salesperson wrote, ‘‘They are concerned about all the Fremont exposure they already have,’’ and they ‘‘are going to put Fremont ‘in the box’ for the time being.’’ 

Were you aware of the poor reputation that Fremont had, and 

that is, loans among the highest default rates in the country? Were 

you aware of it at the time? 

Mr. SPARKS. Mr. Chairman, can I just read the email? 

Senator LEVIN. Exhibit 173. Do you see it? ‘‘[F]remont refused to 

make any forward looking statements so we really got nothing from 

them on the crap pools that are out there now.’’ Do you see that? 

Mr. SPARKS. I do not want to slow you down. I have not read the 

whole thing, so I—— 

Senator LEVIN. I am just asking you, look at the bottom paragraph there, the last two lines. ‘‘[F]remont refused to make any forward looking statements so we really got nothing from them on the 

crap pools that are out there now.’’ Do you see that? 

Mr. SPARKS. Yes, sir. 

Senator LEVIN. OK. Now, were you aware of Fremont’s poor reputation at the time? 

Mr. SPARKS. This email—— 

Senator LEVIN. Do you remember whether you were aware at the 

time of their poor reputation? Do you remember? 

Mr. SPARKS. Whether they had a poor reputation in November? 

Senator LEVIN. Yes, with high default rates. 

Mr. SPARKS. Fremont originated subprime loans. People understood that. 

Senator LEVIN. Yes or no, were you aware of their poor reputation and high default rate. 

Mr. SPARKS. I do not recall at that time. 

Senator LEVIN. You sold about $700 million in subprime residential mortgage-backed securities, helping Fremont do that. Within 

10 months, those securities were downgraded and today have junk 

status. You also bought some of the Fremont securities, immediately bought loss protection through a CDS on those securities. 

In other words, you were betting against those securities at the 

same time you were selling those crap pools to your client. Do you 

know how much money you made on those shorts? Do you remember? 

Mr. SPARKS. Chairman, I do not remember. The one point I 

would say about this email is it looks like the customer had the 

chance to evaluate the investment and decided not to invest. 

Senator LEVIN. I am just telling you how much you sold of the 

securities. I just informed you that Goldman—helped Fremont 

package and sell $700 million in subprime residential mortgagebacked securities. That is what I am telling you when I am asking 

you that. You also took out a short position. Do you know how 

much you made? 

Mr. SPARKS. No, sir, I do not. 


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1See Exhibit No. 105, which appears in the Appendix on page 674. 

2See Exhibit No. 155, which appears in the Appendix on page 971. 

Senator LEVIN. Now, take a look at Timberwolf, a Timberwolf 

deal which is Exhibit 105.1 This is a $1 billion hybrid CDO, 

squared so-called, that Goldman put together and underwrote in 

the first quarter of 2007. Timberwolf references a variety of assets, 

including $15 million from an Abacus CDO and more from a Washington Mutual Option ARM. 

Goldman Sachs participated in this deal as one of the short buyers. Do you remember that? Can you see that from that? 

Mr. SPARKS. I do not see where it says that we were short. 

Senator LEVIN. Well, you will just have to assume that my statement is accurate for the time being. It is accurate. I want to go on. 

You participated in the deal as one of the protection buyers. You 

do not remember that? You do not remember Timberwolf? You do 

not remember participating—— 

Mr. SPARKS. No. I remember Timberwolf. 

Senator LEVIN. Do you remember whether you were on the short 

side? 

Mr. SPARKS. I remember a few things about Timberwolf. 

Senator LEVIN. Do you remember whether you were on the short 

side? Do you remember? Yes or no. 

Mr. SPARKS. We likely would have provided a number of shorts, 

and I do not recall if we covered them or not. 

Senator LEVIN. All right. 

Mr. SPARKS. I also recall—— 

Senator LEVIN. But not whether you covered them. That means 

you would have sold them down the line. But in any event, would 

you have stood to gain, do you remember, if Timberwolf assets declined in value or if they defaulted or if there was a credit downgrade? Do you remember? 

Mr. SPARKS. I know that on the Timberwolf deal, with the longs 

we took, we lost hundreds of millions of dollars. 

Senator LEVIN. I am talking about the shorts. The profits on the 

shorts consistently—and that happened throughout the year—more 

than made up for what you lost on longs. Do you know how much 

you made on the shorts? 

Mr. SPARKS. Mr. Chairman, on that particular deal, I would be 

surprised if that is true with respect to the gain/loss outcome. 

Senator LEVIN. OK. Timberwolf closed at the end of 2007. Your 

sales team sold $600 million in Timberwolf securities. Take a look 

at Exhibit 155.2 Do you see that? 

Mr. SPARKS. I see a list of sales on CDOs. 

Senator LEVIN. OK. Take my word for it. It is $600 million. Your 

sales team—now, take a look at Exhibit 105. 

Mr. SPARKS. Mr. Chairman, on Exhibit 155—— 

Senator LEVIN. No, just go to Exhibit 105. I will come back to Exhibit 155. 

Mr. SPARKS. Could I just clarify? You are talking about—there 

were sales to two counterparties. One was Greywolf, who was the 

manager. 

Senator LEVIN. Of Timberwolf. 


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1See Exhibit No. 166, which appears in the Appendix on page 1012. 

Mr. SPARKS. The other was Bear Stearns Asset Management. Is 

that what you are asking me to look at? 

Senator LEVIN. I asked you to look at Exhibit 105. 

Mr. SPARKS. OK. 

Senator LEVIN. Now, before you sold all that stuff that we just 

described in Exhibit 155, $600 million of Timberwolf securities is 

what you sold. Before you sold them, this is what your sales team 

were telling to each other. Got it? Exhibit 105? 

Mr. SPARKS. Yes, Mr. Chairman. 

Senator LEVIN. Look what your sales team was saying about 

Timberwolf: ‘‘Boy that Timberwolf was one shi**y deal.’’ They sold 

that shi**y deal. 

Mr. SPARKS. Mr. Chairman, this email was from the head of the 

division, not the sales force. This was—— 

Senator LEVIN. Whatever it was, it is an internal Goldman document. 

Mr. SPARKS. This was an email to me in late June. 

Senator LEVIN. Right. And you sold—— 

Mr. SPARKS. After the transaction. 

Senator LEVIN. No. You sold Timberwolf after as well. 

Mr. SPARKS. We did trades after that. 

Senator LEVIN. Yes, OK. The trades after—— 

Mr. SPARKS. Some context might be helpful. 

Senator LEVIN. The context, let me tell you, the context is mighty 

clear. June 22 is the date of this email: ‘‘Boy, that Timberwolf was 

one shi**y deal.’’ 

How much of that shi**y deal did you sell to your clients after 

June 22, 2007? 

Mr. SPARKS. Mr. Chairman, I do not know the answer to that, 

but the price would have reflected levels that they wanted to invest 

at that time. 

Senator LEVIN. You did not tell them you thought it was a shi**y 

deal? 

Mr. SPARKS. Well, I did not say that. 

Senator LEVIN. No. Who did? Your people internally. You knew 

it was a shi**y deal, and that is what your email shows. 

Mr. SPARKS. And, again, I think the context, the message that I 

took from the email from Mr. Montag was that my performance on 

that deal was not good, and I think the fact that we had lost money 

related to that was not good—— 

Senator LEVIN. How about the fact that you sold hundreds of millions of that deal after your people knew it was a shi**y deal? Does 

that bother you at all? You sold a customer something—— 

Mr. SPARKS. I do not recall selling hundreds of millions of that 

deal after that. 

Senator LEVIN. All right. Let us take a look. Exhibit 166 is a series of emails.1 The first is June 26, 2007. That is after June 22. 

A July 1, 2007, email tells the sales force the top priority is 

Timberwolf. Your top priority to sell is that shi**y deal. 

Mr. SPARKS. Mr. Chairman, my comment was I did not recall the 

sales, not that we were trying to sell. 


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Senator LEVIN. OK, you are trying to sell a shi**y deal, and it 

is your top priority. Come on, Mr. Sparks. 

Mr. SPARKS. Well, Mr. Chairman—— 

Senator LEVIN. Should Goldman Sachs be trying to sell—and, by 

the way, it sold it, a lot of it, after that date. Should Goldman 

Sachs be trying to sell a shi**y deal? 

Mr. SPARKS. Well—— 

Senator LEVIN. Can you answer that one? 

Mr. SPARKS [continuing]. Again, I did not use those words. 

Senator LEVIN. Can you answer that one yes or no? 

Mr. SPARKS. There are prices in the market that people want to 

invest in things. I did not use that term with respect to this deal. 

Senator LEVIN. Who did use that term? Who is Tom Montag? 

Who is Daniel Sparks? 

Mr. SPARKS. That is me—— 

Senator LEVIN. I know it is. Who is Tom Montag? 

Mr. SPARKS. Tom Montag was the head of the division at the 

time. 

Senator LEVIN. And he was telling you on June 22, ‘‘Boy, that 

Timberwolf was one shi**y deal.’’ And then you got Exhibit 166, a 

series of emails pushing the Goldman sales force to sell Timberwolf 

securities. The first is a June 26, 2007, email from GS Syndicate. 

That is your sales force. The sales force is told in Exhibit 166, 

‘‘Please focus on the CDO axes below,’’ one of which is Timberwolf. 

The next email, take a look, July 1, 2007, tells the sales force the 

top priority is Timberwolf. 

The next email is July 24, 2007. Timberwolf is again listed as 

one of the top priorities. 

Next is an email, July 3, still after ‘‘the shi**y deal’’ assessment, 

in which one of GS sales team leaders, Matthew Bieber, writes 

that, with regard to Timberwolf, ‘‘I’m all over these guys.’’ 

The last email, August 22, again, highlights Timberwolf as a top 

priority. 

So if you cannot give a clear answer to that one, Mr. Sparks, I 

do not think we are going to get too many clear answers from you. 

But I have taken much more than my time, and we are going to 

come back to you and to the others on my second round. 

I will turn to Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

I would like to start my questioning by asking each of you a fundamental question. Investment advisers have a legal obligation to 

act in the best interests of their clients. 

Mr. Sparks, when you were working at Goldman, did you consider yourself to have a duty to act in the best interests of your clients? 

Mr. SPARKS. Senator, I had a duty to act in a very straightforward way, in a very open way with my clients. Technically, with 

respect to investment advice, we were a market maker in that regard. But with respect to being a prudent and a responsible participant in the market, we do have a duty to do that. 

Senator COLLINS. OK. You are not really answering my question. 

I understand the difference between suitability standards, which 

you did have to follow, versus a fiduciary obligation to act in the 

best interests of your clients. I understand that you do not have a 


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legal fiduciary obligation, but did the firm expect you to act in the 

best interests of your clients as opposed to acting in the best interests of the firm? 

Mr. SPARKS. Well, when I was at Goldman Sachs, clients are 

very important and were very important, and so—— 

Senator COLLINS. Could I—I am starting to share the Chairman’s 

frustration already, and I am only 30 seconds into my time. Could 

you give me a yes or no to whether or not you considered yourself 

to have a duty to act in the best interests of your clients? 

Mr. SPARKS. I believe we have a duty to serve our clients well. 

Senator COLLINS. I guess, Mr. Chairman, that I am not going to 

get an answer to my question any more than you did with yours. 

Mr. Birnbaum, I am going to ask you the same question. Do you 

have a duty to act in the best interests of your clients? 

Mr. BIRNBAUM. Not only do I believe that we do, I believe that 

we did. 

Senator COLLINS. Mr. Swenson? 

Mr. SWENSON. I believe it is our responsibility as market makers 

to provide a market-level bid and offer to our clients and to serve 

our clients and helping them transact at levels that are fair market 

prices and help meet their needs. 

Senator COLLINS. Your clients are not paying you big fees just to 

efficiently conduct transactions. I have never seen an investment 

bank run ads that brag about its facility with conducting transactions. They are paying you for judgment as well. 

Mr. Tourre, same question for you. Do you have a duty to act in 

the best interests of your clients? 

Mr. TOURRE. Senator, I believe we have a duty to serve our clients, and as our role—with respect to our role as market maker, 

to show prices to our clients and to offer them liquidity. I do not 

believe we were acting as investment advisers for our clients. 

Senator COLLINS. Mr. Tourre, you are giving the same kind of 

answer that Mr. Sparks did. I understand that you are serving 

your clients. Do you believe that you have a duty to act in the best 

interests of your clients? 

Mr. TOURRE. Again, Senator, I will repeat, we have a duty to 

serve our clients by showing prices on transactions that they ask 

us to show prices for. 

Senator COLLINS. Mr. Birnbaum, since you are the only one who 

answered the question and you said yes, do you think that since 

there is apparently some confusion or some difference of opinion on 

this issue, do you think that Congress should impose a clear fiduciary obligation to act in the best interests of your clients on 

broker-dealers? 

Mr. BIRNBAUM. First, I want to clarify. I worked with these gentlemen for years, and I think they share my sentiments on this 

issue, even if that is not what you are getting out of it right now. 

Senator COLLINS. Well, I think they spoke for themselves. But 

why don’t you answer my current question? 

Mr. BIRNBAUM. Your current question is a regulatory question? 

Senator COLLINS. I am asking you, since we are considering financial regulatory reform, should we amend the law to impose a 

clear fiduciary duty on broker-dealers to act in the best interests 


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1See Exhibit No. 61, which appears in the Appendix on page 471. 

of their clients similar to the legal requirement that is already imposed on investment advisers? 

Mr. BIRNBAUM. I think conceptually that does not seem like an 

issue. I am not completely familiar with how that works, but conceptually it seems like an interesting idea. 

Senator COLLINS. Mr. Tourre, I would like to ask you about a 

specific email, and it is Exhibit 61 in your exhibit book,1 if you 

could turn to that. 

This is an email that you wrote on December 28, 2006, and it referred to a list of the clients that might be most profitable in the 

coming year. And you referred to this list, and you are not happy 

with this list because you believe that the list is skewed towards 

sophisticated hedge funds. You implied that the list should include 

fewer sophisticated hedge funds, and it goes on to say, ‘‘with which 

we should not expect to make too much money since (a) most of the 

time they will be on the same side of the trade as we will, and (b) 

they know exactly how things work and will not let us work for too 

much [money] vs. buy-and-hold rating-based buyers who we should 

be focused on a lot more to make incremental [money] next year.’’ 

This sounds like a deliberate attempt to sell your products to less 

sophisticated clients who would not understand the products as 

well so that you could make more money. Would you like to comment on that? 

Mr. TOURRE. Senator, would you mind telling me where exactly— 

I just do not see it. 

Senator COLLINS. Well, it is on the bottom of Exhibit 61. It is 

very clear. It is an email to you. It is the last paragraph on that 

page. 

Mr. TOURRE. Sorry. Which date? 

Senator COLLINS. It is Exhibit 61. It is your December 28, 2006, 

email, and it is at the bottom of the page. 

Mr. TOURRE. I see that email. 

Senator COLLINS. OK. 

Mr. TOURRE. Can you repeat your question, Senator? 

Senator COLLINS. Mr. Chairman, I cannot help but get the feeling that a strategy of the witnesses is to try to burn through the 

time of each questioner. 

Mr. Tourre, the email that you sent on December 28, 2006, refers 

to a list of potential clients that might be most profitable in the 

coming year, and you say that the list should include fewer ‘‘sophisticated hedge funds with which we should not expect to make too 

much money since (a) most of the time they will be on the same 

side of the trade as we will, and (b) they know exactly how things 

work and will not let us work for too much [money]. . . .’’ And you 

refer instead to another kind of buyer, ‘‘buy-and-hold rating-based 

buyers,’’ who you can make more money from because they have 

less sophistication. 

This sounds like a deliberate strategy to sell products, complex 

products to less sophisticated clients who would not understand the 

products as well so that you can make more money? 

Mr. TOURRE. Senator, I will try to answer your question with two 

separate parts. 


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1See Exhibit No. 104, which appears in the Appendix on page 673. 

2See Exhibit No. 26, which appears in the Appendix on page 306. 

3See Exhibit No. 48, which appears in the Appendix on page 376. 

One, I do not think I was expressing our ability to make more 

money from rating-based clients by saying that they were less sophisticated. As far as I can read this email today, what I think I 

was expressing was the fact that hedge funds have a tendency to 

usually argue very much about prices, and, with respect to our role 

as market maker, the money we make is bid-offer spread on transactions where we buy and we sell. 

So I think what I was expressing in that email was that with respect to ratings-based clients, they had a tendency to argue less 

about bid-offer spread than hedge fund clients. 

And the second part of the answer that I wanted to make clear 

is all the clients we did business with on the CDO desk, including 

ACA and IKB, which we probably will talk about separately, were 

highly sophisticated institutions which were also falling in the sort 

of ratings-based buyer category. 

Senator COLLINS. Well, Mr. Tourre, that is not how it reads to 

me. It reads to me that you wanted to deal with people who did 

not ‘‘know exactly how things work’’ and would allow you to make 

more money, and that raises the whole issue of whether you are 

truly disclosing all the information that you should be to your clients and whether your clients are aware that the whole system 

seems to be rife with conflicts of interest. 

Mr. Birnbaum, I want to ask you a question about an exhibit. It 

is Exhibit 104,1 and I am going to describe it. I realize that is a 

big exhibit book, although it is well ordered. 

On July 25, 2007, the CFO of Goldman wrote an email to the 

Goldman president, and in that email the CFO responded to an update on mortgage-related investments that had declined in value 

and wrote, ‘‘Tells you what might be happening to people who don’t 

have the big short.’’ 

Mr. BIRNBAUM. Excuse me. Are you on Exhibit 104? 

Senator COLLINS. I apologize. It is Exhibit 26,2 top of the page, 

‘‘Tells you what might be happening to people who don’t have the 

big short.’’ 

There was also an October 29—— 

Mr. BIRNBAUM. Was that a question or—— 

Senator COLLINS. I am getting to the question. It is a 2007 internal Goldman presentation that seems to confirm that the company 

took the big short position, and that document asserts that early 

in 2007, Goldman’s mortgage trading desk ‘‘started putting on big 

short positions.’’ 

Mr. BIRNBAUM. Which exhibit is that? 

Senator COLLINS. That is Exhibit 48.3

Mr. Birnbaum, this is my point: We have an email from the CFO 

that talks about people who had lost money that says, ‘‘Tells you 

what might be happening to people who don’t have the big short.’’ 

We have an internal Goldman presentation that refers to starting 

to put on big short positions. And yet Goldman executives, this 

panel, and the testimony to come have stated repeatedly that Goldman never had an overall strategy to short mortgage-related investments. 


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1See Exhibit No. 162, which appears in the Appendix on page 997. 

If Goldman’s position were truly to just get back to home, to remain as neutral as possible, how do you account for all of these references to the big short? 

Mr. BIRNBAUM. I think the first thing to clarify is I was not on 

the first email that you are referring to, so I would be interpreting 

David Viniar’s words in that case. And I think in the other exhibit 

you mentioned—I do not know if it was Exhibit 48 or what it was, 

but that departmental presentation, I did not prepare that. I do not 

think I was on that email either. 

I just want to clarify. My position here was I had a role in the 

ABS Group. The ABS Group was a part of the Structured Products 

Group, which was a part of the Mortgage Department, which was 

a part of the firm. So my role was a—I had a singular voice, and 

I mentioned in my presentation, I had a view, I took a view, and 

that was not necessarily the view of the department or the firm, 

and that did not reflect the position necessarily for the department 

or the firm. And if you are asking me to interpret this email, again, 

I was not on this, so I would be speculating as to what these people 

meant. 

Senator COLLINS. Well, Mr. Chairman, I think it is very clear 

what the Goldman executives meant, and I, too, am baffled that 

they continue to maintain that they did not have an overall net 

short position, particularly seeing the chart that you put out.1

Mr. BIRNBAUM. Do you mind if I comment on that chart for a moment? Because I saw a similar chart last week while interviewing 

with your staff, and I think that chart is, at best, misleading. That 

chart is an amalgam of positions that cannot necessarily—they are 

apples and oranges being added up together that do not reflect the 

firm’s position or the firm’s profit and loss statement to the extent 

the market would go up or down. And the analogy that I used with 

your staff last week—and I will use it again—would be if you were 

to trade, say, $100 in Johnson & Johnson versus $100 in Google, 

if you were to trade those against each other—so let us say you 

were long $100 in Google and you were short $100 in Johnson & 

Johnson, if you added those two together, they would look like a 

zero on a chart like that. But I think anybody who knows those two 

stocks would know that the person who has that position would not 

be indifferent as to which way the market would go. The Google 

position would be much more sensitive than the Johnson & Johnson position. 

That chart is an amalgam of AAAs, BBBs, As, very different 

things being added together that do not reflect the firm’s P&L. 

Senator COLLINS. Mr. Chairman, it seems to me that the documents that you have compiled, that your staff has compiled, tell a 

very different story. 

Thank you, Mr. Chairman. 

Senator LEVIN. By the way, before you proceed, Senator Kaufman, let me just assure Senator Collins and all the other Members 

of our Subcommittee and our witnesses that we are going to stay 

here as long as it takes to get the answers. So there may be a 

strategy. I noticed very much the same thing that Senator Collins 

did about the refusal to give answers, the long delays in those anVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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swers. But it is not going to work. We are going to stay here as 

long as it takes to get this information before the public. 

Senator Kaufman. 

Senator KAUFMAN. Mr. Sparks, can you tell us, do you know 

what a stated income loan is? 

Mr. SPARKS. I am generally familiar. That term could be used— 

at least I do not think that term is a technical term, but that term 

could be used with respect to certain ways loans were originated 

and how income by the borrower was represented. 

Senator KAUFMAN. Well, we had 3 days of hearings and had folks 

from Washington Mutual, regulators, and the rating agencies. They 

all seemed to know what a stated income loan is. 

Mr. Birnbaum, do you know what a stated income loan is? 

Mr. BIRNBAUM. I think it is just what it sounds like. 

Senator KAUFMAN. Which is? 

Mr. BIRNBAUM. My understanding—and I think there are some 

people who are more qualified to answer this question than me. 

But my understanding is that is when the borrower stated his income rather than being verified. 

Senator KAUFMAN. Right. Mr. Swenson, is that your understanding? 

Mr. SWENSON. I agree. 

Senator KAUFMAN. Are you aware that stated income loans were 

originally for high-net-worth incomes, Mr. Sparks, but were beginning to spread throughout the mortgage industry? You were not 

concerned about stated income loans at all or the fact that they 

were stated income loans going out and being used to determine 

whether loans should be given to borrowers? 

Mr. SPARKS. Senator, I was aware that that business activity 

from the mortgage originators was growing. 

Senator KAUFMAN. Did that cause you any concern? 

Mr. SPARKS. Well, we operate in the markets, and the prices in 

this instance where we would probably see that is if the loan originator that is a client of ours wanted to sell assets, that was their 

objective, we would factor that in to what we did with respect to 

pricing and diligence and the like. 

Senator KAUFMAN. So the fact that some of your mortgage originators were presenting mortgages to you for securitization that 

were stated income loans—remember, a stated income loan is a 

case where you walk in and you say, ‘‘Mr. Sparks, what is your income?’’ You tell me what it is, that is the end of the road. No W– 

2 form, no checking. That is it. So as this went on, you became concerned that this was growing? 

Mr. SPARKS. Well, Senator, I was just saying that I had knowledge of it. I was not making a judgment about the practice. 

Senator KAUFMAN. Sure. What do you think about the practice? 

Mr. SPARKS. Well, we were not a big originator. 

Senator KAUFMAN. But you did securitize—— 

Mr. SPARKS. I believe we securitized some of that. I think that 

type of loan has a risk to it that when it is verified has a different 

risk to it. 

Senator KAUFMAN. OK. Can I say that one of the regulators said 

at the hearing we had earlier that it was anathema to the banking 

business. The idea that someone could come in and just based on 


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what they say, their word could be used for these loans would be 

an anathema. 

Mr. SPARKS. Again, Senator, we were not a big originator in this 

space. We were not a big originator of that product. 

Senator KAUFMAN. But you securitized these loans, right? 

Mr. SPARKS. Yes. 

Senator KAUFMAN. Yes, you did. And do you know whether Goldman was securitizing WaMu mortgages or Long Beach mortgages 

at this time? 

Mr. SPARKS. WaMu, Long Beach is and was a client of Goldman 

Sachs. 

Senator KAUFMAN. And in May 2006, Goldman Sachs acted as colead underwriter with WaMu to securitize $532 million in subprime second-lien, fixed-rate mortgages originated at Long Beach? 

Does that sound reasonable to you? 

Mr. SPARKS. Yes, Senator. 

Senator KAUFMAN. What would you think if you heard that— 

what would be a reasonable percentage, do you think, of home equity loans that you would securitize that had stated income as the 

basis for income in those loans? What would be a reasonable number, do you think? 

Mr. SPARKS. Well, I am not familiar with the specifics of that 

deal, and in hindsight, those deals did not perform. So I do not 

know what a reasonable percentage would be. The deal would be 

what it was, and—— 

Senator KAUFMAN. Take a wild guess. 

Mr. SPARKS. And it would be disclosed as to what it was. 

Senator KAUFMAN. Right. It was not disclosed, how much of 

these were stated income loans. 

Mr. SPARKS. Well, with respect to the origination practices, those 

would have been disclosed. 

Senator KAUFMAN. But they would not be disclosed to the people 

who were buying your securitized mortgages. I guarantee they 

were not disclosed. 

Mr. SPARKS. Well, with respect to the origination practices—and, 

again, I would have to look at the particular deal—— 

Senator KAUFMAN. We got the origination practices. What we are 

trying to do here today is talk about what happened after the originators got through with it and after the rating agencies put the 

rating on it and the rest of it and then it went out. There was this 

great sucking from Wall Street to get more and more of these loans 

into the marketplace, and you can see that it was an explosion. Is 

it fair to say there was an explosion in these CDOs and RMBSs? 

Mr. SPARKS. Well, Senator, when we participated in the market—and these deals are in the structured finance arena of the 

market. 

Senator KAUFMAN. Right. 

Mr. SPARKS. You would know from your participation in the market what types of investors wanted to buy what types of risk. 

Senator KAUFMAN. Right. But you were selling—this is a product—this is a product you were selling. It is like selling a car—— 

Mr. SPARKS. And there would be—and we would also know what 

types of investors wanted Long Beach or Washington Mutual loans 


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to invest in, in securitized format. So we would know what investors actually had demand for that product. 

Senator KAUFMAN. Right. But what percentage do you think 

would be a reasonable percentage—I mean, as you said, these all 

went bad. Ten thousand loans in 2006—— 

Mr. SPARKS. I do not know about all, but—— 

Senator KAUFMAN. Well, excuse me—— 

Mr. SPARKS. Senator, I do not know what the right percentage 

would be. 

Senator KAUFMAN. Would you say 10 or 15 percent? 

Mr. SPARKS. Again, it depends on the deal, and I do not know. 

Senator KAUFMAN. Well, suppose I told you that in these deals 

that you were securitizing, 90 percent of the home equity loans 

were made on stated income. Would that be something that would 

cause you concern? 

Mr. SPARKS. Well, this particular deal I think in hindsight was 

a second-lien subprime deal, so it did not perform well. 

Senator KAUFMAN. Would it concern you that the subprime deals, 

50 percent of them are stated income loans? 

Mr. SPARKS. Again, I think that many of those deals that we 

brought did not perform well, and that is not a good thing for us 

or our clients. 

Senator KAUFMAN. But I mean, couldn’t it be reasonable to believe that when the great preponderance of the mortgages in the 

package that you were selling to folks were stated income loans, 

there was a pretty good chance that a large percentage of these 

were eventually going to fail? 

Mr. SPARKS. Senator, at the time things happened in the market 

and were accepted in the market that in hindsight look very different than they did at the time in the market. 

Senator KAUFMAN. I got two things out of these hearings. One, 

nobody did anything wrong, this was a natural disaster, like a hurricane hit. The mortgage market fell, and nobody knew it, and nobody forecasted it. And the second thing is that these things were 

just something that happened. Basically, I am just saying if you 

did some research into this—and I am sure had people in your organization—they were coming in. These loans were pouring into 

your—you were sucking them in, in order to sell them and make 

money, which is entirely acceptable. Just a little bit of research 

into how these things were being funded—by the way, let me ask 

you: Did you ever have any concern during 2006 and 2007 that 

there were an awful lot of home mortgage loans being securitized? 

Mr. SPARKS. Yes, Senator. 

Senator KAUFMAN. And did you ever say, ‘‘I wonder what is going 

on with those loans’’? I mean, ‘‘I wonder how all these people are 

coming forward that are going to need these types of loans’’? 

Mr. SPARKS. Senator, when I said I was concerned, I was concerned about risk that we had—— 

Senator KAUFMAN. Risk. That is what I mean. That is what I am 

saying. So normally due diligence—again, I think the argument 

that, ‘‘Well, everybody was doing it,’’ is an argument that has been 

used over the years. These halls are full of folks who have come 

before Senate committees and said, ‘‘Well, everybody was doing it.’’ 

So I do not think the ‘‘everybody was doing it’’ thing is going to 


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hold up real well. And so I am just trying to figure out when— 

when I say this to people, I am telling you—and I say, ‘‘Do you 

know what a stated income loan is? Do you know that you could 

just walk into a bank and tell them what your income was and 

they would give you a loan? And you know what happens next? 

They go to Wall Street’’—and this is going to sound a little—I totally believe where some of the smartest people I know work, and 

you know what they did? They packaged these things up. Did they 

ever ask how many were stated income loans? I do not know. Did 

they ever ask, did anybody say let us take a look at how these 

loans are being put together? And stated income is just the easiest 

one to explain to people. 

Do you believe that they did this and no one knew, no one knew 

at Washington Mutual, no one knew at Standard & Poor’s and 

Moody’s, and no one knew at the premier investment banking 

house of the United States of America, Goldman Sachs? 

Mr. SPARKS. Senator, I did not mean to imply that we did not 

know anything. We had a team that did diligence to understand 

originators and loan packages that we bought. But I would like to 

make the point—— 

Senator KAUFMAN. Sure. 

Mr. SPARKS [continuing]. That that team may have liked that 

risk and, in fact, did. And on that deal—— 

Senator KAUFMAN. Liked the risk that somebody could go in and 

originate a loan just on their stated income that 90 percent—the 

stated income started out as something that was for high-wealth 

individuals. It was a very small percentage. But starting around 

2005, 2006, it grew and grew and grew. But when you are talking 

about 90 percent of the prime home equity loans, 73 percent of the 

Option ARMs, and 50 percent of the subprime loans where the 

basis for income for the borrower is what they say their income is. 

Mr. SPARKS. And, Senator, we made a number of poor business 

decisions, especially in hindsight, but at the time there were people 

in my business unit who actually wanted to be long that risk, and 

on that type of deal—— 

Senator KAUFMAN. They had no idea that the risk was 90 percent 

stated income loans. I do not think anybody knew that. 

Mr. SPARKS. Well, again, I would have to look at the particular 

deal. 

Senator KAUFMAN. I mean, that is—I am just having a hard 

time—I am trying to put myself back in your position, which is always a difficult thing to do. But I see these mortgages pouring in. 

I would say: Where are they coming from? And especially the people in your operation who were originating these loans. The idea 

that you can get away with—I will get away with it and I am for 

it, you are just selling something and that is the way it is, and, 

they are taking the risk, and people want to buy these things. I do 

not think anybody in America wants to buy a mortgage from someone whose income is what they state their income can be. I do not 

think anybody wants to buy that. Is that fair? 

Mr. SPARKS. Today? 

Senator KAUFMAN. No. Anytime. 

Mr. SPARKS. Well, there were a lot of investors who had a lot of 

appetite in the period we are talking about, including a number of 


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people in the firm and in my business unit. So I think hindsight 

and your own investment view is an example of why there are markets—— 

Senator KAUFMAN. Look, I hate hindsight, and I hate Monday 

morning quarterbacking, and I hate connecting the dots and connecting all this. So I do not—I really do not feel on this one that 

I am up here, using a morality that was developed in the last 15 

minutes in order to ask you questions about this thing and embarrass you. That is not what I am about at all. And I do not think 

anybody in this room, if I polled them, would say that it is unreasonable to expect that when you are securitizing loans, that the 

idea that these loans are stated income loans is a problem. It is a 

problem in terms of risk. So that language works a lot of places, 

but I just do not think it works in these stated income loans. 

By the way, do you—and I guess this is really for the folks that 

worked for you down the line, but did you ever have a situation 

where you eliminated originators? 

Mr. SPARKS. Yes, and we had a number of situations where we 

just did not start doing business with originators. When you say 

eliminated,. I am assuming you mean stop doing business—— 

Senator KAUFMAN. No, the same thing, yes, either not do business—— 

Mr. SPARKS. I do not know, Senator, for sure about that. I do 

know that there were a number of originators that we chose not 

to do business with. 

Senator KAUFMAN. And do you know what was the standard for 

them? I mean, how did you get to be an originator? I mean, what 

were some of the criteria? Do you have any idea? 

Mr. SPARKS. How did we choose certain people to do business 

with and not do business with? 

Senator KAUFMAN. Yes. 

Mr. SPARKS. Well, our team would go out and anybody we bought 

loans from, we would do due diligence on. We would work to understand their origination guidelines and standards. We would also 

look at the institution itself with respect to their capital and what 

they did. 

Senator KAUFMAN. And Long Beach, you looked at Long Beach 

and said, ‘‘Boy, that is a great originator. I would love to have 

them’’? That is right here, Long Beach. You were doing Long 

Beach—— 

Mr. SPARKS. Yes, we did business—— 

Senator KAUFMAN [continuing]. In 2006, 2007, and I am not 

going to get into the Long Beach thing because we do not have 

time to do it. But Long Beach was one of the main players in the 

stated income. I do not know how you could turn someone else 

down and accept Long Beach. I cannot ask you about a specific case 

because that is not your area of expertise. 

The Treasury Department Inspector General, Eric Thorson, testified before the Subcommittee that the mix of stated income loans 

from one originator of the numbers I gave you was a target-rich investment for fraud. What do you think about that? Do you think 

if you got these originators using stated income loans that it is a 

target-rich environment for fraud? 


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Mr. SPARKS. Well, I think as the purchaser and assumer of risk 

from these originators, we suffered with respect to that. And so, I 

do not—that particular point I do not know that I have a particular 

view on, but it appears that there were a number that actually was 

the case in hindsight. 

Senator KAUFMAN. Yes, in—well, no. Do not do the hindsight 

thing with me. I mean, come on. In hindsight—at the time, if you 

knew at the time what was going on, you would say this is as target-rich investment for fraud, that 90 percent of the home equity 

loans are stated income loans, these things are just pouring out of 

these originators. I mean, I am not interested in new data. I am 

just talking about data that was available at the time. You would 

think that something was going on here when you have 90 percent 

of your loans stated income loans. 

Mr. SPARKS. When we are buying loans, we do not want to buy 

loans with fraud in them. 

Senator KAUFMAN. Exactly. No, I know that. I am just saying 

that this information—do you know anything about thin files? 

Have you ever heard the term ‘‘thin files’’? 

Mr. SPARKS. Senator, I may have heard it. I do not really recall 

the specifics of it. 

Senator KAUFMAN. Mr. Birnbaum, do you know anything about 

thin files? 

Mr. BIRNBAUM. I think I read something about that recently in 

‘‘The Big Short.’’ 

Senator KAUFMAN. So you understand what thin files are, but 

you did not know—— 

Mr. BIRNBAUM. It is detailed in the book. 

Senator KAUFMAN. Right. Did anybody at Goldman Sachs ever 

use thin files in putting together CDOs, the thin-file approach? 

Mr. BIRNBAUM. Well, just to be clear, my job function had nothing to do with putting together CDOs, so I cannot speak to that. 

Senator KAUFMAN. In terms of securities—— 

Mr. BIRNBAUM. Thin files is something I literally heard of for the 

first time last week. 

Senator KAUFMAN. Right. And, Mr. Swenson, as far as you know, 

Goldman Sachs never used the thin-file approach in order to make 

more—organizing CDOs? 

Mr. SWENSON. No. 

Senator KAUFMAN. And, Mr. Sparks? 

Mr. SPARKS. Again, I am not familiar with the approach, but if 

you described it to me, I would be happy to—— 

Senator KAUFMAN. No, I mean, if you did not hear of it, then 

clearly you did not use the process, it is fair to say. I mean, you 

never heard about it in Goldman Sachs, anyone ever doing anything like using this thin files specifically. And how about 

barbelling? Mr. Sparks, have you ever heard of barbelling? 

Mr. SPARKS. Well, I have heard of barbelling mainly with respect 

to trading positions. 

Senator KAUFMAN. Have you ever heard of barbelling with regard to RMBSs? 

Mr. SPARKS. That term could just mean a number of things, so 

could you—— 


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Senator KAUFMAN. Mr. Birnbaum, did you just read about it recently? 

Mr. BIRNBAUM. I will go with that. 

Senator KAUFMAN. OK. Mr. Swenson. 

Mr. SWENSON. I am not aware of that term. 

Senator KAUFMAN. What is alleged, what happened was people 

would take advantage of the fact that rating agencies went with an 

average. So what they would do with barbelling is they would go 

out and pick up FICO scores of 550, which are almost guaranteed 

to fail, mix them in with FICO scores of 650, so they came out with 

about 615 and then sold them. 

Mr. Sparks, you never heard of anything like that at Goldman 

Sachs, right? 

Mr. SPARKS. Well, I know that clients—or when we were putting 

deals together—the deal teams would work very hard to put together—whatever the loan package was, and work with the rating 

agencies to come up with what the capital structure would be. That 

includes credit enhancement. So I do not recall somebody coming 

to me saying, ‘‘Hey, we are going to barbell this.’’ 

Senator KAUFMAN. Right. 

Mr. SPARKS. But there would be a mix of collateral—— 

Senator KAUFMAN. Let me ask you a similar question then. How 

about gaming the rating agencies? Did you ever think there were 

people at Goldman Sachs sitting around trying to figure out, 

whether it is barbelling or thin files or something like that, trying 

to figure out what can we get through here, through the rating 

agencies? 

Mr. SPARKS. No. As far as gaming, no. As far as working with 

the agencies, to come up with a capital structure and a credit enhancement that worked for the deal, yes, there was constant dialogue and work together for that. 

Senator KAUFMAN. And, Mr. Birnbaum, dealing with rating agencies, did you ever get the feeling there were folks sitting around 

trying to figure out what is the best way to put this together for 

rating agencies so that we can make the most money on these 

RMBSs? 

Mr. BIRNBAUM. Just to be clear, I never deal with the rating 

agencies—— 

Senator KAUFMAN. Oh, you never did. Mr. Swenson, you never 

dealt with that either? 

Mr. SWENSON. No, I did not. We were secondary traders responsible for making markets in ABS securities. 

Senator KAUFMAN. Mr. Sparks, how did you feel about dealing 

with the rating agencies? Did you ever feel like sometimes you 

might pick a rating agency based on—if you had two rating agencies, one would give you AAA and the other give you AA, that you 

might go with the AAA rating agency? 

Mr. SPARKS. There were times that that is correct, Senator. 

Senator KAUFMAN. And did you ever think there was kind of subtle pressure on the rating agencies that maybe they ought to rate 

something AAA? 

Mr. SPARKS. Well, I think the rating agencies worked very hard 

and were under a lot of pressure to analyze the pools that they 

were rating. So I think they were under a lot of pressure. 


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Senator KAUFMAN. They were under a lot of pressures in order 

to keep market share and in order to keep their business alive, so, 

therefore, they had to rate competitively against the other rating 

agencies. Is that a fair assumption of what is going on? 

Mr. SPARKS. Well, I think there was some competitiveness to it, 

but I also—I felt like the rating agencies attempted to do their job 

and worked hard at it. I think there was some component of competitiveness in it, but I think they were honestly trying to do their 

job and rate the deals. 

Senator KAUFMAN. Mr. Tourre, you have dealt with rating agencies, right? 

Mr. TOURRE. I did, Senator. 

Senator KAUFMAN. And how did you find the rating agencies? 

Did you ever work with them in such a way as to try to turn AA 

into AAA? 

Mr. TOURRE. I merely applied their rating models—they had, a 

lot of documentation about how they rate, all these transactions, 

and we merely applied those models to rate our products. 

Senator KAUFMAN. So under oath you are saying you were never 

involved in any gaming like barbelling or thin file or anything like 

that? 

Mr. TOURRE. Well, each transaction had its specific aspects that 

require discussions with the rating agencies. 

Senator KAUFMAN. No, I am just saying, but during those discussions you never at Goldman Sachs ever engaged in what is popularly known as barbelling or thin files in order to come up with a 

security? 

Mr. TOURRE. First, I do not know what thin files was, and I— 

not that I remember. 

Senator KAUFMAN. Thank you. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much. Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman. I am going to take 

my privilege as Ranking Member to make my opening statement 

now, and I apologize to the panel that I was not here. I am working 

on another financial problem that is a little bit bigger than this one 

with the White House and the Debt Commission. 

Senator Levin, I want to thank you for this fourth and final hearing. I want to thank the staffs. I think they have worked well together, and I think we have done a good role of putting forward 

what the questions are. I also want to thank the witnesses for 

making themselves available to answer our questions. 

The hearing to me is particularly important because this week 

the Senate is trying to consider major financial reform legislation 

that could have profound effects on our economy. And we are 

hurrying these hearings. The Commission that the Congress commissioned to study this that is going to have a report due in December is not going to have a report, and yet we are going to pass 

a bill before we find everything, and that is somewhat concerning 

to me. But, nevertheless, there is a lot of evidence in front of us 

that needs to be clarified. 

In recent months, Congress and the American people have been 

debating the causes of our financial crisis and looking for solutions. 


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Mr. Chairman, I commend you for advancing the discussion with 

our investigations of institutions like Washington Mutual, the Federal regulators, and particularly the Office of Thrift Supervision. 

We would have been fine without them ever being there because 

they actually did not do anything. 

What we have learned is that there are no easy answers. This 

is important to keep in mind when Congress debates major legislation. I certainly have my own views about what caused the financial crisis, but most honest observers would acknowledge that the 

roads of responsibilities lead to places like Washington and Congress as well as Wall Street. 

We also cannot forget that there are numerous causes to the financial crisis, not just one. In truth, we all took turns inflating the 

housing bubble. Today we are looking at the role of one investment 

bank, Goldman Sachs. My goal is simply to uncover the truth of 

what happened in several of these transactions. If we can understand this piece of the puzzle, we will be in a much better position 

to craft responsible legislation that addresses the real problem, not 

the symptoms of the problem. And more importantly, the American 

people will be better informed and more equipped to hold us accountable. 

The investigation into Goldman Sachs has given the Subcommittee an opportunity to dive into the firm’s decisions regarding mortgage investments. Even though Goldman Sachs is the 

focus, I would suggest that the questions we are going to ask the 

witnesses today should also be asked of other leading investment 

banks. Congress has a responsibility to understand how widespread some of these complex financial transactions may be and 

the ethics and motivations behind them. 

The key question before us, I believe, is whether Goldman Sachs 

was making proprietary trades that were contrary to the financial 

interests of their customers. Sorting out these potential conflicts is 

central to understanding how we move forward with financial reform and also understanding that there is a role for a market 

maker who plays both sides of the market. And we cannot lose 

sight of that. 

Several instances, however, seem to show bankers and traders 

were focused on doing what was right for the firm rather than 

what was in the best interest of their clients. In an exchange over 

the Abacus deal, one employee remarked, ‘‘The way I look at it, the 

easiest managers to work with should be used for our own priorities. Managers that are a bit more difficult should be used for 

trades like Paulson.’’ 

Goldman employees knew that such tactics could hurt their reputation if they were uncovered. Markets can be complex, but they 

are built on three simple concepts: Truth, trust, and transparency. 

Without them, the cost of doing business is too high, and markets 

cannot function properly. 

I have several questions about these deliberations within Goldman Sachs. I am committed to withholding final judgment until all 

our hearings are complete. Some of what we uncovered paints a 

fairly dark picture of what was going on inside investment banks. 


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1See Exhibit No. 55b, which appears in the Appendix on page 441. 

To the witnesses, I would say this is your opportunity to explain 

to us and the American people what happened. And, again, I thank 

you for being here. 

Now I would like to move to my questions, Mr. Chairman. 

Mr. Swenson, if you would, would you turn to Exhibit 55b?1 This 

is a copy of your own performance evaluation for 2007, and I want 

to spend some time with you on that, with your own self-assessment, and I have some questions. You wrote this document, I believe. What was the purpose of this document? 

Mr. SWENSON. The purpose of this document was to go over my 

accomplishments for that year. 

Senator COBURN. OK. You say, ‘‘It should not be a surprise to 

anyone that the 2007 year is the one that I am most proud of to 

date. I can take credit for recognizing the enormous opportunity for 

the ABS synthetics business 2 years ago.’’ 

You go on to say that you identified ‘‘key market dislocations 

that led to tremendous profits.’’ 

Is that an accurate representation? 

Mr. SWENSON. Yes, it is. 

Senator COBURN. Later in this document, you run through some 

of your biggest trades, including a $1.8 billion short on CDOs, 

collateralized debt obligations, and you say you oversaw and directed the covering of $9 billion in short positions. Is it accurate 

to say that you went extremely short and made a lot of money? 

Mr. SWENSON. Dr. Coburn, you were not here for my opening 

statement. I went over a number of the trades that we did and a 

timeline and a series of trades that we did over the course of 2006 

and 2007. So for others in the room, I am sorry I am repeating myself a little, but we did a number of trades in 2006 and 2007 that 

made us put our ABS Desk specifically net short at various times 

with a short bias and at times flat, and we added a significant 

amount of risk where we went long at the end of the first quarter. 

Throughout the second quarter, we added a lot of risk, net long positions. And in the third quarter, at one point we had a short bias, 

and we covered a substantial amount of risk over the course of that 

quarter into the end of August. 

Senator COBURN. Thank you. But you did in 2007 go much more 

short than you were in 2006. Is that an accurate statement? 

Mr. SWENSON. It is—— 

Senator COBURN. Because of what you saw in the market. I am 

not critical of it. That is your job as a market maker: To read the 

tea leaves. I am not being critical. I am just saying you had a 

stronger short position in 2007 than you did in 2006. 

Mr. SWENSON. Yes, we did. 

Senator COBURN. All right. Mr. Birnbaum in his review writes, 

‘‘I consider myself to be initial or primary driver of the macro trading direction for the business.’’ Would you agree with this statement? 

Mr. BIRNBAUM. Is there—— 

Senator COBURN. I am asking this to Mr. Swenson. 

Mr. BIRNBAUM. Oh. 


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Mr. SWENSON. I viewed our business as being market makers for 

ABS securities. 

Senator COBURN. All right. But the question I am asking you: Do 

you agree with Mr. Birnbaum’s statement in writing in his review, 

he said, ‘‘I consider myself to be the initial or primary driver of the 

macro trading direction for the business.’’ Do you agree with that? 

Mr. SWENSON. I do not know the context of those particular 

words. Is it in a document here, sir? 

Senator COBURN. Yes, we can get that for you. 

Mr. Birnbaum, what do you think? You wrote it. The reason I am 

asking the question, you seem to have—in your own self-assessment, you are both taking credit for the same thing. And I am 

wanting to know who is the driver here. Who made the decision? 

Mr. BIRNBAUM. We worked as a team. 

Senator COBURN. Well, you worked as a team, but somebody 

leads the team. Who led the team? 

Mr. BIRNBAUM. We worked as a team 

Senator COBURN. Who led the team? Who was the leader of your 

team? 

Mr. BIRNBAUM. Are you implying that you can only have one person leading teams? 

Senator COBURN. Well, you only have one Lloyd Blankfein, right? 

He is the CEO. So in terms of your team, who has the line responsibility for your team? 

Mr. BIRNBAUM. Mr. Swenson was my superior. 

Senator COBURN. OK. 

Mr. SWENSON. And ultimately Mr. Sparks. 

Senator COBURN. OK. So there was a leader. Somebody is ultimately responsible, correct. 

Mr. SWENSON. Correct. 

Senator COBURN. Mr. Birnbaum says he had his own plan implemented by buying up ‘‘almost every single name CDO protection 

. . . opportunity in a 2-month period.’’ Is that the same thing that 

you were taking credit for, Mr. Swenson? 

Mr. SWENSON. Yes. We worked together on the same desk. 

Senator COBURN. Mr. Swenson, you also say in this assessment 

that it was clear to you in the early summer of 2006 that ‘‘the market fundamentals in subprime and the highly levered nature of 

CDOs was going to have a very unhappy ending.’’ That is a quote 

from your self-assessment. Did you share that knowledge with anybody else at the firm other than those who read your self-assessment? 

Mr. SWENSON. Sir, do you mind pointing exactly where this quote 

was so I—— 

Senator COBURN. It is in your self-assessment. 

Mr. SWENSON. Yes, I understand, but what page? 

Senator COBURN. I will get it to you here in a second. We will 

move on while—— 

Mr. SWENSON. I am just trying to be helpful, sir. 

Senator COBURN. Let us assume—I will get you where that was 

stated, all right? And my staff will find that and we will give it to 

you. It is on Exhibit 55b, on page 2, is where you made that statement. Single-name CDO short. 


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1See Exhibit No. 69, which appears in the Appendix on page 486. 

Did you share that with other members of the firm other than 

those who read your self-assessment? 

Mr. SWENSON. No. 

Senator COBURN. You were obviously correct, weren’t you, in 

your assessment? 

Mr. SWENSON. Yes. 

Senator COBURN. All right. Given your awareness, were you concerned that your mortgage division continued to market and sell 

mortgage-related CDOs to the firm’s clients? You are sitting here 

projecting what you see happening in the market. Was there any 

concern that you were continuing to market into a market that 

looked like it was declining and you were recommending taking a 

position against it? 

Mr. SWENSON. Dr. Coburn, at that time in the summer of 2006 

and into 2007, the market was going up in price. We were very 

long ABS assets and ABX single-name synthetics at that time. The 

market for the underlying securities in RMBS transactions was 

generally very tight and very robust with deals oversubscribed. 

So at that time, there was a great deal of demand for securities, 

and there were not many players that had a negative view on the 

product or the housing market in 2006 that were buying a lot of 

these securities. Those views changed, but over time there was a 

great deal of debate on the direction of the mortgage market. All 

through the third and fourth quarter, there were opportunities 

when prices went down, and it brought in a tremendous amount 

of demand for people to buy securities at lower prices. No one was 

certain that these things were going to happen. 

Senator COBURN. No, I agree with that, and I can appreciate it. 

But part of your expertise was in terms of you put that in as a 

statement of qualifications of a great job that you had done that 

year because you recognized the potential for it. So let me go back. 

The statement was ‘‘the market fundamentals in subprime and the 

highly leveraged nature of CDOs was going to have a very unhappy 

ending.’’ That is your quote. And so I go back. Did you share that, 

your feeling that you put in your own self-assessment, with other 

principals at the firm? 

Mr. SWENSON. We debated the direction of the market as a group 

all the time. I mean, there were a number of traders on our ABS 

Desk. There were, five or six, and we discussed the nature of the 

performance of the underlying transactions. At that time our desk 

was long. 

Senator COBURN. But you had sold $1.8 billion in short CDOs. 

Mr. SWENSON. Not at that point. Over time that position through 

our market making and principaling was put on—not in September 

2006. 

Senator COBURN. All right. Go to Exhibit 69,1 if you would. And 

while you are looking for that, I want to follow up on something 

Senator Kaufman asked. You packaged and sold mortgage-backed 

securities from Long Beach that were AAA rated that the vast majority of them were stated income loans. Is that an accurate statement? 


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Mr. SPARKS. I do not know the number percentage-wise, Dr. 

Coburn, but that is possible. 

Senator COBURN. Well, it was well over 50 percent. We know the 

number. 

Mr. SPARKS. We did a number of deals with Long Beach. 

Senator COBURN. And so going back to follow up on what Senator 

Kaufman said, the rating agencies rated these AAA in spite of the 

fact on their due diligence they should have known that the majority were stated income loans. 

Mr. SPARKS. Dr. Coburn, yes, and—well, I do not know exactly 

what they knew. It would have been determined under the diligence they did. But I will tell you, Goldman Sachs also many times 

invested in the equity of those deals. 

Senator COBURN. I understand. Everything can be invested in if 

the price is right compared to the risk. I am not disputing that. But 

I am going back to the question that you have AAA rating on stated income loans, on packages you put together to underwrite. Correct? 

Mr. SPARKS. Yes. 

Senator COBURN. OK. Now, Mr. Swenson, again, Exhibit 69. In 

October 2007, Goldman Sachs made quite a bit of money when 

Moody’s credit rating agency downgraded $32 billion in BBB and 

BBB-minus bonds. After you send this email informing your colleagues of those downgrades, Donald Mullen emails you and says, 

‘‘Sounds like we will make some serious money.’’ Why was that? 

Mr. SWENSON. Just give me one second to read the context of the 

email. 

Senator COBURN. OK. 

Mr. SWENSON. Sorry. 

[Pause.] 

Mr. SWENSON. This email specifically goes over a position in a 

single-name CDO, ABS CDO synthetic that we have. What happened was when the rating agencies downgraded a number of the 

underlying RMBS securities, it triggered an event which would 

mean that we would end up with an implied write down event 

which would shut off the coupons in a number of the tranches— 

or one of the tranches that we were short on. So we would not need 

to pay our protection payment on that security and eventually recoup the gains on that trade. 

Senator COBURN. And I am not stating that there is anything 

wrong to hedging your long position. Do not get me wrong. I guess 

the thing that I would ask: Did you at any time see any flaws in 

the rating agencies’ assessment of the products that you were putting out there? 

Mr. SWENSON. Dr. Coburn, I did not work on the construction of 

CDOs. I was a market maker in ABS securities, and as a market 

maker, we are asked to take principal risk from our clients, whether it is a buy or a sell, at various times. 

With that, it is for us to manage our risk as principal because 

clients expect us to transact at the time that they come to us and 

ask to transact, not wait for us to find the other side. So as principal, we manage that by incorporating a view or a bias in the way 

we position ourselves. 


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Senator COBURN. Let us say somebody brought to you another 

package that you were making a market in. And you are making 

a market for a product that absolutely stinks. You know it stinks. 

The rating agency knows it stinks. Would Goldman still make a 

market in that if the money could be made off of it by the client 

and Goldman? 

Mr. SWENSON. We bid on—our requirement for our desk is to bid 

on ABS securities. When clients come to us, we try to give—we give 

the market value bid or the offer for that security. 

Senator COBURN. So you are a true market maker. So even if it 

is the worst possible combination of securities, there is a price at 

which the risk is worth taking. Is that correct? 

Mr. SWENSON. That is correct. 

Senator COBURN. All right. Mr. Tourre, I know it is a difficult 

time for you. In addition to the SEC accusations against you and 

the media circus around you, this past weekend your employer released some rather embarrassing personal emails from you that appear to be largely unrelated to this or any other investigation. Do 

you have any feelings or questions about why that was done? 

Mr. TOURRE. Dr. Coburn, these emails were personal emails that 

I deeply regret. They reflect—— 

Senator COBURN. I am not making a judgment on it. I am asking 

you a question. Do you have any thought about the motivation on 

why they were released? 

Mr. TOURRE. I do not know, sir. 

Senator COBURN. How did it make you feel when they were released publicly? 

Mr. TOURRE. As I will repeat again, Dr. Coburn, I regret, these 

emails. They reflect very bad on the firm and on myself, and, I 

think, I wish I had not sent those. 

Senator COBURN. Is there a large number of in-house Goldman 

lawyers that have spoken with you prior to this hearing? 

Mr. TOURRE. I have spoken to lawyers prior to this hearing, yes. 

Senator COBURN. How many? 

Mr. TOURRE. I don’t remember. 

Senator COBURN. Several? 

Mr. TOURRE. Yes. 

Senator COBURN. It is true that they have hired an interpreter, 

a French interpreter, to translate for reporters personal notes you 

had written to close friends? Is that true? 

Mr. TOURRE. I do not know. 

Senator COBURN. OK. Are you personally represented by lawyers 

paid for by Goldman Sachs? 

Mr. TOURRE. Yes. 

Senator COBURN. OK. Mr. Chairman, my time is up. 

Senator LEVIN. Thank you very much, Dr. Coburn. Senator 

McCaskill. 

Senator MCCASKILL. I want to make clear that I understand that 

for most of these transactions we are talking about today you considered yourself a market maker. And by that, you were trying to 

allow clients to bet on a certain outcome. And for purposes of my 

questions today, I would like to limit this to synthetic CDOs because I think they are the best representative of why most of 

America does understand what happened. We are not talking about 


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a farmer trying to get certainty on a commodity. We are not talking 

about an airline company trying to get certainty on jet fuel, which 

is the societal reason that we have market makers to put predictability into a business model that will allow more informed risk 

taking as it relates to a business model. But the synthetic CDOs 

were really about somebody just wanting to place a bet, and so I 

want to try to continue with the analogy of you being the house or 

the bookie. 

Most people in America understand about a football bet. I have 

usually bet on MU versus KU because I went to MU and I care 

about MU. But the line is important. Obviously, if you are going 

to be a serious bettor, you have got to know what the line is. You 

have got to know how many points you are going to get or how 

many points you are going to give. And that is, I think, where we 

can start drawing the analogies to your jobs. You were trying to 

make a market, and staying close to home was trying to get the 

line right. Staying close to home was to not be too far out on one 

side or the other. When the bookie gets too many bets on MU, if 

MU is getting points, it gives fewer points to MU to move more bettors over to KU and vice versa. The bookie moves the line in order 

to even out the bets. So the perfect bookie who makes a lot of 

money is somebody who just gets the vig. And depending on whether you are betting in an office pool that is illegal or whether you 

are betting in Las Vegas, the vig is going to vary anywhere from 

5 to 10 percent. 

I do not know who the right person is to ask this—what is your 

vig, Mr. Sparks, on these deals? What is the vig you make, assuming all you are doing—not playing in the market, but all you are 

doing is trying to stay close to home like a bookie would try to do 

in order to minimize their risk? 

Mr. SPARKS. Senator, can I just, instead of using the bookie analogy, just talk about—I think your question about profits and what 

we can make as a client—— 

Senator MCCASKILL. I want to know, generally speaking, the vig 

on a bookie bet. You are the house. You are the bookie. People are 

booking their bets with you. That is what they are doing. That is 

what a synthetic CDO is. I do not know why we need to dress it 

up. It is just a bet. That is all it is. 

Mr. SPARKS. There is fee business, which I do not think is what 

you are talking about, and then there is market-making business. 

In this particular sector, typically you would have to do trades 

where you assumed risk. When that was not the case, there is an 

SEC markup rule with respect to a certain percentage, but that is 

for risk-free trades, and at this time in this market, that was not 

a typical thing where you would have a purely risk-free trade. 

The amount of bid-offer spread, which would be a term we would 

have used, would be very dependent on the product, the rating, the 

liquidity of the product, and the—if I did not mention liquidity, it 

was a huge issue. So, the bid-offer spread could vary at various 

times, but one of the things people expected us to do was to make 

a market and to have a bid-offer spread. 

The great thing about making a market is when you do that, clients can tell from your price relative to the prices that other people 


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are making in that market on similar securities, if you are a better 

seller or buyer. 

And so, I actually—I am a believer in markets, and I think that 

is one of the nice things that price can affect, both your risk and 

it can also help people know where to go if they want to acquire 

risk. 

Senator MCCASKILL. OK. Let us talk about what people are betting on. And what I would like to ask a couple of questions about 

are the—you call them different things in different memorandums 

in here, whether it is Timberwolf or Abacus—the asset selector or 

the asset selecting agent. I think you called it a different term. 

Now, this is important because these are the folks that are figuring 

out what is going to be in the bet, right? What everybody is betting 

on. So the compilation of what is in this thing you create for people 

to bet on is done by these asset selectors. Who decides who the 

asset selector is for a deal? 

Mr. SPARKS. Senator, in CDOs or synthetic CDOs, there were a 

number of different forms, and that term, the importance was what 

the term was defined as. Typically, you would have or you may 

have a manager for a CDO, and that manager—— 

Senator MCCASKILL. But let me ask specifically because you are 

going to get off on—let me ask, who decided who the asset selector 

was on Timberwolf? What person in your organization would decide 

who the asset selector is on Timberwolf? 

Mr. SPARKS. Well, Timberwolf was—there is a client of Goldman 

Sachs called Greywolf, and they are an asset manager and had a 

desire to grow their assets under management. By being CDO 

manager, that is one way for them to do that. And we worked with 

them to help them with respect to growing their assets under management. So we would have chosen that client to do that deal with. 

Senator MCCASKILL. OK. Who would have chosen the—I think in 

the Abacus it was called the portfolio selection agent. Who chose 

ACA in Abacus? Who chose ACA? 

Mr. TOURRE. If I may answer, Senator, in the Abacus 07 AC–1 

transaction, it was a combination of Goldman Sachs and Paulson 

who selected ACA. 

Senator MCCASKILL. OK. Now, this is weird. This is where people do not get this. This is where I do not get it, and this is where 

a lot of the anger and passion and energy is coming from. Paulson 

came to you and said: I want to make a bet. I want to go short on 

all these really bad mortgage loans that are out there that are all 

going to start going belly up. 

You want to help him make a market, right? Is that correct, Mr. 

Tourre? 

Mr. TOURRE. Yes. 

Senator MCCASKILL. OK. So he comes to you and says: I am your 

customer, and I want to bet short. Now, the weird thing is—I read 

your statement carefully, and you parsed your words. You said, ‘‘I 

recall informing ACA that Paulson’s fund was expected to buy credit protection on some of the senior tranches of the AC–1 transaction.’’ Well, why wouldn’t you just tell them we are doing this because Paulson wants to go short? 

Mr. TOURRE. I worded this carefully, one, because I do not remember the exact words I used. 


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Senator MCCASKILL. OK. 

Mr. TOURRE. And, two, because we were not sure at that time 

which tranches Paulson was expecting to buy protection on. And, 

three, because Goldman Sachs ultimately was not under any obligation to resell protection to Paulson. It could decide to keep that 

risk position for itself. 

Senator MCCASKILL. OK. So here is the weird thing. What is 

Paulson doing in the room with the guy picking the assets? Why 

is Paulson even in the room much less meeting with them without 

you there? Was IKB there? 

Mr. TOURRE. Senator, in—— 

Senator MCCASKILL. Answer my question. Was IKB there? 

Mr. TOURRE. No. 

Senator MCCASKILL. OK. And was IKB going to be a bettor, too? 

Mr. TOURRE. IKB was going to be—well, at which point in time, 

Senator? 

Senator MCCASKILL. When they were deciding—when Paulson, 

who came to you to place a bet, and you put him in the room with 

the folks that were going to decide what they were betting on. 

Mr. TOURRE. Senator, at—— 

Senator MCCASKILL. Who put him in the room? 

Mr. TOURRE. Senator, at that time, we had not discussed with 

IKB, this investment yet. 

Senator MCCASKILL. OK. So when you did discuss the investment with IKB, did you say we had a client—by the way, we are 

the house, we are supposed to be the bookie, but you need to know 

that we decided to let the client who wanted to bet against this 

deal, we decided to put them in the room with the people who were 

picking what was going to go in it? Did you tell IKB that? 

Mr. TOURRE. I did not tell IKB about the existence of Paulson. 

Senator MCCASKILL. And do you see how that seems weird? 

Mr. TOURRE. Well, IKB knew that this was a synthetic CDO 

transaction for which by construction there was both—— 

Senator MCCASKILL. I just need somebody to acknowledge that 

that seems weird, that one side is coming to you wanting to place 

a bet short. You put them in the room with the people you decide 

are going to pick what is in the deal to bet short on, and the people 

you sell the transaction to that you want to sell an equity position 

in never gets to know that Paulson is in the room picking the stuff. 

That just seems bizarre to me. 

Mr. TOURRE. Senator, if I may say a couple of things. 

One, ultimately ACA selected the reference portfolio, so there 

were suggestions from many different parties. 

Senator MCCASKILL. Were they in the room with them or just 

Paulson? I do not think anybody was ever in the room but Paulson, 

were they, Mr. Tourre, really, honestly? I mean, let us be honest 

here. This was a Paulson deal. You were trying—and you put ACA 

in there as some kind of fig leaf so you could do exactly what you 

are doing now and say ACA was a reputable firm and they had all 

this CDO experience. Why didn’t you use ACA on any of the other 

deals? Why did you use—you know what the interesting thing is 

on Timberwolf? You know who Greywolf is? It is all your alumni. 

It is the former guys that sat at your desks. They are all Goldman 


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1See Exhibit No. 98, which appears in the Appendix on page 603. 

Sachs people on the Greywolf deal. Why didn’t you take any warehouse position on Abacus as you did on Timberwolf? 

Mr. TOURRE. We were left with unsold risk in the Abacus 07 AC– 

1 transaction, Senator. 

Senator MCCASKILL. Yes, I know. I mean, here is the thing. You 

have got these two transactions—and, by the way, they are very 

close in time, OK? One is March and one is April. And I—well, 

maybe I will take some time to go through them. Let me go 

through some of the Timberwolf documents because—and I am not 

going to have you look at them because it takes too long if you look 

at them. I am going to make representations to you that I am going 

to read directly out of the documents, and then the record will bear 

out that I am reading directly out of the document, because I think 

it is important to get a sense of this. 

Mr. SPARKS. Senator, can I make a point that might be helpful 

on disclosure in this sector? 

Senator MCCASKILL. Yes. 

Mr. SPARKS. These securities are backed by assets. There are 

years and years of input that regulators, internal and external 

counsel, and investors and market participants have had with respect to asset-backed securities. 

Senator MCCASKILL. You are talking about the assets, these 

subprime loans that you were buying from Long Beach that you 

knew had—already you had to buy back $1 billion worth of mortgages—— 

Mr. SPARKS. No, Senator. 

Senator MCCASKILL [continuing]. Because half of them were 

fraudulent? Are you talking about those assets? 

Mr. SPARKS. Senator, I am talking—this is a broad topic about 

this industry and disclosure for securities when they were sold, and 

I do think it is relevant, if that is OK. 

Senator MCCASKILL. OK. I understand that there is—we are trying to hone in on why I have got so many unemployed people in 

my State and why so many people that I work for in Missouri have 

lost incredible amounts of money in their pensions. That is what 

we are honing in on today. So I want to look at these two transactions, and I want to talk a little bit about Timberwolf. 

OK. Timberwolf, in a document dated November 10, 2006—this 

is the memorandum, and you were cc’d on it, Mr. Sparks.1 This is 

basically where you go through and you talk about the asset selector, and that is where you learn that this firm that you picked on 

the asset selector on that, you had Greg, who was a partner at 

Goldman Sachs and was co-head of the Structured Products Group. 

In addition to Greg, you had Joe Marconi, a former managing director at Goldman Sachs in ABS Finance, joined Greywolf and is 

focused on structured product opportunities. 

Of the 26 members of the research investment team that were 

investing—that were researching these assets to go into this synthetic derivative—by the way, this is the same one that your folks 

called ‘‘shi**y’’ later. This is the same one, OK? Seventeen members of the research staff are Goldman Sachs alumni. 


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1See Exhibit No. 98, which appears in the Appendix on page 603. 

2See Exhibit No. 103, which appears in the Appendix on page 671. 

Now, they are not charging any management fees, Greywolf is 

not, and they are committing to 50 percent of the equity. You guys 

were sharing the warehousing risk, and, by the way, you were approving every asset going into the warehouse. Every single one. 

Now, that is in November 2006. 

Now, keep in mind, this instrument does not—— 

Mr. SPARKS. Senator McCaskill. 

Senator MCCASKILL. Yes. 

Mr. SPARKS. I do not know what page it is, but that is correct 

that former colleagues of ours had started a firm or joined the firm 

and that we shared warehouse risk on that transaction, if that is 

the question. 

Senator MCCASKILL. OK. That was in November. And then in 

December, we have an email from Deeb Salem—I do not know if 

I said his name right. No, it is from Michael Swenson.1 It is from 

Michael Swenson, and it is to Kevin Gasvoda and Justice Mahoney, 

and it says, ‘‘After initially passing at 65-00 - ollie hit us at 65-00.’’ 

Then Deeb Salem says, ‘‘This is worth 10. It stinks. I don’t want 

it in our book.’’ This is all on Timberwolf. 

Now, keep in mind, this is December before you had gone out 

and tried to sell this thing, OK? 

Mr. SWENSON. Senator, I am sorry, but I do not believe that 

email is regarding Timberwolf. Could you please point us to the exhibit here in the book? 

Senator MCCASKILL. Sure. I am sorry, it may not be. GSAMP 06– 

FMIN N2, is that Timberwolf? 

Mr. SWENSON. Senator, without the document I cannot answer 

your question. I am sorry. I am trying to be helpful. 

Senator MCCASKILL. OK. It just takes so long. It is—what document is it? It is under Tab 98, and it is immediately following the 

memorandum about the makeup of Timberwolf. Maybe 0277 is the 

page right in front of it. 

Did you find it? 

Mr. SWENSON. No. 

Senator MCCASKILL. OK. Well, I will come back to it. 

Mr. SWENSON. The Deeb Salem email—— 

Senator MCCASKILL. We will have another time, and I will make 

sure you have a copy of it in front of you. OK? I have got plenty 

more. Let us go to March. 

Mr. SWENSON. Senator, I think this email does not have anything 

to do with Timberwolf. I am sorry. 

Senator MCCASKILL. OK. All right. Well, we will show it to you, 

and if it was placed in the wrong place, then that is fine. 

But in March, the subject line says—it does say Timberwolf. 

‘‘Great job, Cactus Razzi trading us out of our entire Timberwolf 

single A position.’’ That is March. 

Now, then we have some interesting representations in May. 

This is Exhibit 103,2 where there is a series of emails, basically 

where there is some worrying about misrepresentations. And these 

are emails from Daniel Sparks to Donald Mullen. ‘‘There are some 

people working on Timberwolf [blank] is continuing to work [blank] 


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sales person feels there is a decent chance (but it will be a week 

out as they are traveling). Also, Cornac team working on it. If we 

get strong bids, can’t we hit them?’’ 

And then a response back from Don Mullen to Daniel Sparks: ‘‘I 

doubt they will sell over weekend. And Harvey is concerned about 

the representations we may be making to clients as well as how we 

will price assets once we sell them to clients. I think we need to 

sort these things out before we make sales.’’ 

And then the next one is from Harvey Schwartz to Daniel Sparks 

and Donald Mullen: ‘‘Don’t think we should slow or delay discussions. However, we need to huddle quickly before hitting bids, I 

think.’’ This is all in May. 

Then the next email from Daniel Sparks says, ‘‘Sounds fine.’’ 

Then the next email is from Tom Montag to Daniel Sparks and 

others: ‘‘Of course we should but this is how we find value by showing assets and seeing where bid comes. If [blank] can value bad 

debt from [blank] they can do this. They don’t look to us for guidance. They pay what they think it’s worth. Is there a different 

issue? We will value where the market shows us . . . if we find a 

bid, won’t we?’’ 

And then the last one from Donald Mullen to Sparks and 

Montag: ‘‘Agreed we just need to make sure the proper communication occurs with clients. And we have thought through post sale 

pricing.’’ 

So what is clear—and then you have the one later about how 

shi**y it was, OK? What is clear here is that there did not seem 

to be a great deal of confidence in the long side of this particular 

instrument. But the salespeople were being pushed to move it, and, 

it just looks like that you guys are not only making the market, 

you are playing in the market and mucking it up. Do you understand that? 

Mr. SPARKS. Senator, I just read this particular email, and the 

issue that was being discussed in this particular email was when 

you make a sale on an illiquid asset, what is your bid price, you 

show that client, because oftentimes you marketed it and sometimes you had financed it. So there is a bid-offer spread with respect to securities and market makers, and my recollection of this 

particular point was what are we going to show them as our bid 

after that, and let us make sure we thought that through. And so 

on this particular email, that is what I recall. 

Senator MCCASKILL. OK. Well, I guess what I would really like 

more clarity on—and I will come back to this in my next questioning—is, where in the organization does the decision made about 

someone who is coming to you—was somebody wanting to bet one 

side or the other on Timberwolf? It says in the memo that ‘‘we have 

been approached.’’ Were you approached by Greywolf or were you 

approached by a client? 

Mr. SPARKS. Well, Greywolf is a client, and Greywolf wanted to 

grow assets under management. So that is something money managers do. 

Senator MCCASKILL. So Greywolf was—they wanted to do this to 

grow their assets under management as a client of yours? 

Mr. SPARKS. Correct. 


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Senator MCCASKILL. In that instance, you did not have a client 

wanting to bet one side or the other. You were helping them be 

part of the house. You were not helping them bet one side or the 

other. 

Mr. SPARKS. Well, I would need to review it, but I believe that 

they were willing to take an equity stake in their own deal. I would 

like to review that just to make sure. 

Senator MCCASKILL. They did. They took a 50-percent equity 

stake. 

Mr. SPARKS. And so I would like to avoid the betting analogy, but 

part of their goal was to earn fees by managing assets, and we 

were trying to be helpful to them in that regard. 

Senator MCCASKILL. OK. And who is it that picked ACA? Who 

picked ACA? 

Mr. TOURRE. Again, it is a combination of Goldman Sachs and 

Paulson. 

Senator MCCASKILL. Now, typically, when somebody wants to 

make a bet, do you let them pick who picks what is in it? 

Mr. TOURRE. From an ACA perspective, they achieved two objectives in that transaction. One, similar to what Mr. Sparks said, 

they grew their assets under management and earned fees; and, 

two, they invested close to $1 billion of risk in the transaction as 

well for their insurance company. So they achieved their investment objectives. 

Senator MCCASKILL. OK. But you did not answer my question. 

Typically, do you let a client who wants to make a bet, wants you 

to do an instrument so they can make a bet—that is what Paulson 

wanted. He wanted you to make up a synthetic that he could bet 

on. Typically, when somebody comes to you and wants to bet, do 

you let them help pick the assets that go into the instrument, typically? 

Mr. TOURRE. In every synthetic CDO transaction, the protection 

buyer has to be involved in some shape or form in the creation of 

the portfolio; otherwise, there would be no transaction. If only the 

sort of protection seller could decide in its sole capacity as protection seller, the end assets, the protection seller would only select 

Treasury securities, and the transaction would have no risk. And 

no protection buyer could be in a situation to buy protection on 

such transactions. 

So even though in these transactions ultimately the portfolio selection agent ends up selecting all the securities, there are always 

suggestions from different parties as to, what the portfolio selection—how the portfolio gets constructed. 

Senator MCCASKILL. You understand that this does not make 

common sense, right? That somebody would want to go long on a 

fund that they were letting somebody who was going short pick the 

stuff in it. You understand that does not make common sense? 

Mr. TOURRE. Once again, the portfolio selection agent approved 

every single security in the deal. However, without a protection 

buyer, there is no deal. So Goldman Sachs and Paulson had to be 

also buying protection on this portfolio. 

Senator MCCASKILL. My time is up, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator McCaskill. Senator Pryor. 


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Senator PRYOR. Thank you, Mr. Chairman. And I would like to 

start, if I could, with Mr. Sparks. 

Mr. Sparks, I would like to follow up on a question that Chairman Levin asked you in his first series of questioning, and what 

he said was, ‘‘Do you have a responsibility to disclose to a client 

when you have an adverse interest to the client?’’ 

Do you have a responsibility to disclose to a client when you have 

an adverse interest to the client? 

What is the answer to that? 

Mr. SPARKS. And, Senator, by adverse interest, do you mean a 

position that is different than them, or that there is something that 

we can effect that could harm them? Because if it is the former, 

our positioning, the answer is no. If we can do harm to them, the 

answer is absolutely. 

Senator PRYOR. OK. So you do have, at least in some contexts, 

but not all, a responsibility to disclose to a client when you have 

an adverse interest to the client? 

Mr. SPARKS. I mean, Senator, I am just trying to be careful with 

my words with respect to what adverse interest could mean. If we 

were positioned a certain way, that is one thing. Again, we could 

have positions, there could be other positions at the firm. 

Senator PRYOR. Do you have a responsibility to tell them what 

your positions are? 

Mr. SPARKS. No. 

Senator PRYOR. Why not? 

Mr. SPARKS. Market makers are going to have positions all the 

time, and that is not something that is a responsibility of a market 

maker to tell your counterparties at all times how you are positioned. 

Senator PRYOR. But why not? Shouldn’t there be more transparency there? 

Mr. SPARKS. That is a prospective question or a current question? 

Senator PRYOR. Either way. 

Mr. SPARKS. Well, currently that is not an obligation. 

Senator PRYOR. Should it be? 

Mr. SPARKS. I know you are trying to figure this out—— 

Senator PRYOR. You have been in this business for close to 20 

years, correct? 

Mr. SPARKS. Sure. I think it would create a number of issues because those positions change a lot, and, frankly, you do not always 

know what the positions are with respect to the person making 

that transaction. So I think functionally it would be very difficult. 

I also think that there are some things about it that could create 

other problems, such as if you—let us say you sold something to 

somebody and you were long, and you told them you were long. 

And then you went short. Do you need to call them back and tell 

them, ‘‘I am now short’’? Or do I need to call them before I go 

short? I just think there are a lot of issues that it could raise with 

respect to that. 

Senator PRYOR. But at the moment when one of your clients, one 

of your customers, is making their decision, don’t you think you 

owe them all the information that you have, including where your 

company is and how your company is positioned? 


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Mr. SPARKS. I think we owe them all of the information with respect to that instrument that they are going to take a position on. 

That is not necessarily where we are, including because how we are 

positioned is not going to affect how that instrument performs. 

Senator PRYOR. Well, it may not affect how it performs. It could, 

but it may not. But it does indicate, how you understand the deal, 

and if you think this is a good investment or not, or, if you are anticipating it doing one way or the other, shouldn’t they know how 

you internally evaluate this? 

Mr. SPARKS. Senator, we could be—— 

Senator PRYOR. Put your money where your mouth is. You put 

your money somewhere. Shouldn’t they know that? 

Mr. SPARKS. Senator, we could be long a deal and not think it 

is a great deal, and we could be short a deal and like the deal but 

have it that position. So I do not think it is the obligation currently 

to disclose what your position is at that time. 

Senator PRYOR. Well, let me ask about the rules of the road, because you just said you do not think it is a responsibility. Is there 

an established set of ethics in your industry of certain things you 

have to do or cannot do? 

Mr. SPARKS. Well, again, I am not in the industry anymore. I do 

know, Senator, that—— 

Senator PRYOR. But you were in the industry for, what, you said 

18 years? I think that is what you said. 

Mr. SPARKS. About 19 years. 

Senator PRYOR. Nineteen years. 

Mr. SPARKS. There are things such as—and the comment about 

investment adviser and fiduciaries. There are also rules with respect to research that I know that market makers in the investment banking industry are very careful to make sure that they follow. But market making itself, so long as people understand what 

they are investing in, I do not think that knowledge of the position 

of their counterparty is something that has to be disclosed, and I 

do not think it currently is disclosed by market makers. 

Senator PRYOR. So you are saying that there is a time in which 

you put on the market maker cap and the rules change for you? 

Mr. SPARKS. We are market makers—in my business, we were 

market makers. 

Senator PRYOR. OK. But let me ask this: When you are selling 

a security such as a CDO, my understanding is you are not a market maker. Isn’t it true that you are a placement agent and as a 

placement agent you have a duty of full disclosure? 

Mr. SPARKS. Senator, that is correct. It might be helpful if I talk 

about in our department we really had two—we had a number of 

business activities, but we had two major business activities. One 

was an aggregation and distribution business where we aggregated 

assets, loans or securities or synthetics, and then distributed them 

in new issue type situations. In those situations, disclosure with respect to the assets and how the deals work—and that is very specific disclosure that has had years and years of input from regulators, counsel, other investors. That is that business. 

Senator PRYOR. And those rules work well, those disclosure rules 

work well. 


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Mr. SPARKS. Well, those disclosure rules are meant to provide an 

investor with what they need to make their decision investing in 

that particular product. 

Senator PRYOR. OK. 

Mr. SPARKS. The second part of the business is a market-making 

business, which is a trading business. Now, there are risks in both 

of those businesses, but I thought it might be helpful for you to understand how we approach things. 

Senator PRYOR. But the market-making business does not have 

the same disclosure rules as the other one does. 

Mr. SPARKS. Because it is not creating new securities. There is 

disclosure on new securities, that is, if it is registered, it is dictated 

by the SEC. If it is not, then it is not. But usually they follow guidance for similar types of transactions. In secondary trading, it is 

just trading products that were already created. 

Senator PRYOR. So let me go back to my question earlier about 

ethics. I mean, lawyers have to follow certain ethical standards. A 

doctor has to follow certain ethical standards. CPAs follow ethical 

standards, and, most professions have some sort of manual or some 

sort of code of ethics that they follow. Are you saying that is not 

the case in all aspects of your industry? 

Mr. SPARKS. No, Senator. I know where I worked, ethical standards were very important. 

Senator PRYOR. Were those done by the company, or were they 

done by the industry, or were they done by the government? 

Mr. SPARKS. At Goldman, ethical standards were a focus. Numerous times there would be various off-site—when I say off-site, I 

mean you would take people out of what they were currently doing 

to go and discuss ethics and how important it is and how you deal 

with complex issues. 

Senator PRYOR. Were those Goldman standards, or were they 

some sort of national standard or some industry standard? When 

you talk about ethics, what are you talking about? 

Mr. SPARKS. Those were Goldman standards, but I would tell you 

that industry—they factored in industry standards, and I would 

say, I guess, national standards. But I think Goldman Sachs had 

its own view of what those standards should be, and I found them 

to be typically very well thought out and, probably more robust 

than what a number of people in the industry would have had. 

Senator PRYOR. And I think this goes back to Senator Collins’ 

question where she asked you do you have a duty to act in the best 

interests of your clients, and based on what you have just said, it 

just depends on the circumstances. 

Mr. SPARKS. Well, I was trying to be careful with the concept of 

fiduciary, and we should work with clients to help them achieve 

their objectives. That does not mean that we are always going to 

have the same view on a particular investment, and they may want 

to sell something that we want to buy or vice versa. And I do not 

think there is a problem with that in the role of a market maker. 

Senator PRYOR. OK. I am not sure everyone agrees with you on 

that, but I will take your answer. 

Let me ask now about a statement. I have just jotted something 

down here, and it says, ‘‘Goldman sold a synthetic collateralized 

debt obligation’’—CDO—‘‘without disclosing that a hedge fund 


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manager, John Paulson, helped design the CDO and was betting 

against the CDO.’’ Is that true? 

Mr. SPARKS. Well, I think you are referring to the ACA transaction, the Abacus transaction that has been discussed. Any CDO— 

well, let me tell you how we, at Goldman Sachs, when CDOs were 

constructed, they were not constructed in a vacuum. Typically, we 

knew people who had investment criteria that they wanted to fill 

and wanted to invest in various parts of the capital structure with 

various underlying assets at various prices. At the same time, we 

had to get that risk, which means somebody had to sell the risk 

to create it. That could be done in cash form. It could be done in 

synthetic form. So I think it is helpful to note that these deals were 

not created in a vacuum. 

In that particular transaction, the function of providing the risks 

to it is from Goldman Sachs Capital Markets, I believe is the correct entity. I would like to check it, but I am pretty sure that is 

correct. That Goldman actually provided the risk, meaning went 

short into the Abacus ACA transaction. Goldman Sachs then, in its 

hedging of its positions, laid that risk off to a client that Goldman 

knew wanted to take that. So, I am trying to be specific on that 

question, Senator. 

Senator PRYOR. Right, but so let me ask again: Goldman sold a 

synthetic collateralized debt obligation without disclosing that a 

hedge fund manager, John Paulson, helped design the CDO and 

was betting against the CDO. Did you disclose to your customers 

there that John Paulson was on the other side of this transaction 

and he had helped put it together? 

Mr. SPARKS. Well, I did not disclose—I was not specifically involved in that, but I would tell you that the disclosure documents 

would show what had been industry standards and what were material to that deal, which were the assets and how the deal worked. 

How the assets got in there, who was short it or long it, other than 

Goldman—because Goldman was technically shorted into that deal. 

In making the investment decision, what people should focus on 

and what is relevant to focus on were the assets and how the deal 

worked, not necessarily whose idea it was or various people who 

might have had input, because in the asset-backed business, the 

focus and what determines the outcome of those securities are the 

securities themselves and how the deal works. 

Senator PRYOR. Do you believe that Goldman’s actions contributed to the financial downturn we experienced in 2008? 

Mr. SPARKS. We had clients who lost money, and that is not 

good. That is not good for us. That is not good for our clients. We 

dealt with institutional investors. But when you look at the overall 

economy, there were a lot of individuals out there who were 

harmed because of the financial crisis, and although we did not 

deal directly with them, I know that I do, and I think my colleagues do or my former colleagues do, have sympathy for them. 

With respect to regrets, which I think may be what you are asking—— 

Senator PRYOR. I did not ask about regret. I noticed, though, 

from the record that—— 

Mr. SPARKS. Senator, if I could finish. 

Senator PRYOR. Go ahead. 


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Mr. SPARKS. Regret to me means something that you feel like 

you did wrong, and I do not have that. What I do have, though, 

is, we made mistakes in our business, like I think any business 

does, and we made some poor business decisions in hindsight. 

Senator PRYOR. So do you think you contributed, your actions 

contributed to the financial downturn that we experienced in 2008? 

Mr. SPARKS. Do I think my personal actions did? 

Senator PRYOR. Goldman Sachs. 

Mr. SPARKS. I do not know. I would like to think about that and 

respond. I have not thought about that specifically. 

Senator PRYOR. Let me go ahead and ask the rest of the panel 

that. Mr. Birnbaum, do you believe that Goldman Sachs’ actions 

contributed to the financial downturn that we experienced in 2008? 

Mr. BIRNBAUM. I think it is important to distinguish our role in 

terms of the products that we were trading versus making broader 

judgments about Goldman Sachs. So I just want to be clear. Are 

you asking about our specific role with the products that we traded? Or are you asking us to sort of editorialize about the financial 

system and how investment banks played a role? 

Senator PRYOR. Well, I was actually asking about Goldman 

Sachs, but if you want to editorialize on the financial system, you 

can. But I was asking about Goldman. 

Mr. BIRNBAUM. Look, I think that, not working in a lot of areas 

of Goldman, there are things that may have happened that multiple investment banks and commercial banks may have provided 

too much credit, and that may have contributed to a bubble. And 

I would second what Mr. Sparks said. We are all sympathetic to 

the negative impact of that bubble. There was a lot of human pain 

and suffering that came from the bursting of the housing bubble. 

And to the extent that investment banks and commercial banks 

may have extended too much credit at certain periods of time—and, 

again, that is just—I do not have any personal witnessing of that— 

then it is possible. 

Senator PRYOR. I guess what I am hoping to hear from the answers here is that you all take responsibility for your actions, and 

I have not heard that really so far in the first two, but I would like 

to ask the third. Mr. Swenson, did—or excuse me—— 

Mr. BIRNBAUM. Well, I do not think—which actions are you referring to that I took that I am not taking responsibility for? And Mr. 

Sparks as well. 

Mr. SPARKS. Senator, just to clarify, I do take responsibility for 

my actions, so if I left you with that impression, I want to be clear. 

I take responsibility for my actions. 

Senator PRYOR. And do you think that your actions at Goldman 

and Goldman’s actions generally contributed to the downturn that 

we experienced in 2008? Or you think Goldman was not part of the 

problem here. Is that what you are telling the Subcommittee? 

Mr. SPARKS. Well, and I think that the purpose of this Subcommittee is to talk about what the problem is. I think it is clear 

that credit standards overall got loose. 

Senator PRYOR. Got what? 

Mr. SPARKS. Loose, too loose. 

Senator PRYOR. OK. 


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Mr. SPARKS. And that there were assumptions made, and I think 

risk overall was not respected across the industry, and we participated in that industry. So I do not know—I am not trying to avoid 

your question, Senator, but, I mentioned my feelings of what I did, 

and I do not have regrets about doing things that I think were improper. But we were a participant in an industry that got loose. 

Senator PRYOR. Mr. Swenson. 

Mr. SWENSON. I think the reservation here is on the contributed 

part versus what caused, and we did not cause the financial crisis 

specifically to the mortgage desk, which is what I am here to speak 

about. You have two panels in subsequent meetings to speak about 

Goldman Sachs and our businesses. 

I do not think that we did anything wrong. There are things that 

we wish we could have done better in hindsight, but at the times 

that we made the decisions, I did not think we did anything wrong. 

Senator PRYOR. Mr. Tourre. 

Mr. TOURRE. Senator, I would echo some of my colleagues’ comments. First, I take full responsibility for my actions. Second, I am 

saddened and humbled by what happened, in the market in 2007 

and 2008, in the overall financial crisis. But I believe my conduct 

was proper. 

And, again, to the extent excess credit contributed to the asset 

price bubble which ultimately magnified the crisis, Goldman Sachs 

was involved in some of these products that potentially could have 

excessive credit extension, but, again, I firmly believe that my conduct was correct. 

Senator PRYOR. I think that is one of the problems here, Mr. 

Chairman. I think as part of your oversight here, I think the American people are hoping that you help us all figure out what went 

wrong and how we can fix it, but also I think that there is a lot 

of concern with the general public—and I know I am speaking for 

Arkansas here—that people around the country feel like Wall 

Street has contributed, in fact, has largely caused—I am not talking about one individual or one company, but Wall Street has contributed to and caused a lot of the economic crisis that we have 

been going through, and hopefully most of that is behind us now. 

But, my sense is that people feel like you are betting with other 

people’s money and other people’s future because, for example, in 

the real estate area, someone gets a mortgage and that gets sold 

and it gets chopped up and bounced around; and, instead of Wall 

Street, it looks more like Las Vegas. But they look at that, and all 

of a sudden they are losing control of their financial security. And 

I feel like, the fact that all of you have said basically throughout 

the course of this hearing really there is not a real clear ethical 

standard, there are not real bright lines on what you can and cannot do, and you wear different hats, and it is complicated; and, the 

fact, as Senator McCaskill said, you are market makers, but you 

are also playing in that market. And whether that is truly a conflict of interest or not, whether you truly have a fiduciary responsibility or not, I just think that we need to spend some time as the 

Senate and the Subcommittee and various committees in the Senate thinking through that. And, anyway, some of the things that 

we have heard today are very troubling, and I do sense that you 

are not taking full responsibility for your actions at Goldman’s and 


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also Goldman’s actions and also the industry’s actions that helped 

contribute to this financial meltdown. 

So, with that, Mr. Chairman, thank you. 

Senator LEVIN. Thank you, Senator Pryor. Senator Ensign. 

Senator ENSIGN. Thank you, Mr. Chairman. This is an incredibly 

important hearing, and I appreciate you holding this. I want to 

make a couple of comments before I get into your questions. 

First of all, Senator Pryor, I think most people in Las Vegas 

would take offense at having Wall Street compared to Las Vegas, 

because in Las Vegas actually people know that the odds are 

against them. They play anyway. On Wall Street, they manipulate 

the odds while you are playing the game, and I would say that it 

is actually—it is much more dishonest because it is almost like 

somebody was playing a slot machine and the guys on Wall Street 

were in there kind of tweaking the odds while you were playing it, 

and in their favor the vast majority of the time. 

Senator PRYOR. That is a fair point. And also in Las Vegas people are betting their own money, and that is not always the case 

with—— 

Senator ENSIGN. That is very good. 

A couple other comments. First of all, I think that Wall Street 

definitely had a role in the financial crisis, but I also think we have 

a responsibility here on our end between the Community Reinvestment Act, Fannie and Freddie, out of control that we let them get, 

that is certainly—because without the real estate market doing 

what it was doing, I mean, that is where these bets were occurring, 

and everybody got the false idea that the whole real estate value 

was going to continue to go up and up and up, where bubbles never 

continue to go up. We know that. And, unfortunately, a lot of smart 

people on Wall Street got fooled by that. 

The point that I want to make also is that you all have mentioned that you are market makers, and I think part of this hearing is to find out whether you were actually market manipulators 

instead of just market makers. And I think that is a key part of 

it, and that is where I am going to take some of my questioning. 

I want to start with talking about the role of the credit rating 

agencies. Did you personally or do you know of Goldman Sachs employees who actually spoke to the credit rating agencies and tried 

to influence how some of these tranches were rated? Go down the 

line, just yes or no. 

Mr. SPARKS. Senator, I personally did not typically speak with 

them, but people on my team worked with the agencies on new 

issues with respect to helping them understand it and how the 

deals would be rated. 

Senator ENSIGN. OK. Next. 

Mr. BIRNBAUM. I did not know anyone who would fit under that 

category. 

Mr. SWENSON. I have the same answer as Mr. Birnbaum. 

Senator ENSIGN. OK. 

Mr. TOURRE. I did work with rating agencies, Senator, similarly 

to explain to those rating agencies the products that needed to be 

rated. 

Senator ENSIGN. OK. This would be for Mr. Sparks and Mr. 

Tourre. How do you justify taking BBB-rated products, repackaging 


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them, and getting the rating agencies to re-rate those as AAA-rated 

products? Because that is what they did. 

Mr. TOURRE. Should I try to address that question, Senator? 

Senator ENSIGN. Sure. 

Mr. TOURRE. Ultimately, rating agencies have their own models 

to rate products. We were not influencing in any shape or form, the 

way they rated these transactions, at least their models. We were 

just applying their modeling assumptions. 

Senator ENSIGN. In their modeling assumptions, which nobody 

supposedly knows about, though, you both said that you either did 

yourself or you know people who did, went to the rating agencies 

and tried to convince them about the products. How can you justify 

taking BBB-rated products, repackaging those as AAA products— 

trying to sell those as AAA products? I mean, because that is what 

a lot of the CDOs did, correct? 

Mr. SPARKS. Yes. 

Senator ENSIGN. That is correct? 

Mr. SPARKS. Senator, the rationale that the agencies gave, I believe, was because of an assumption of diversity, which meant that 

certain deals would perform differently than other deals. And so in 

that collection, the assessment from the agencies and I think the 

market assessment at the time was that deal performance had less 

correlation amongst themselves. 

Senator ENSIGN. Mr. Tourre, you were about to answer. 

Mr. TOURRE. I would just add one more point, which is that rating agencies rely on, historical data to rate those transactions, and 

when rating the products I think you are referring to as CDO products, repackaging BBB securities, they relied on the historical performance of BBB-rated obligations to rate the CDO products. 

Senator ENSIGN. Do you think that their ratings made sense? 

Mr. TOURRE. I mean, the methodology made sense. 

Senator ENSIGN. You believe their methodology made sense? 

Mr. TOURRE. The mathematical methodology made sense. The assumption that, historical performance is a good indicator of future 

performance for certain asset classes proved to be not correct. 

Senator ENSIGN. Did you ever feel an obligation to people who 

were buying those products from you to let them know that these 

were BBB-rated products that were repackaged as AAA? 

Mr. TOURRE. I mean, the specifics of the products were always 

disclosed in the offering documents. 

Senator ENSIGN. That is not what my question was. Did you feel 

an obligation at all—this gets back to not necessarily a fiduciary 

obligation, but did you feel these people are buying this stuff from 

us, and do you understand that these are triple—I mean, did you 

tell them specifically that these were actually BBB-rated products 

that were repackaged and the credit rating agencies somehow in 

their wisdom repackaged them or rescored them as AAA-rated 

products? 

Mr. SPARKS. Senator, you are exactly right on point, and that relates to a point I am not sure if you were here for, which is what 

the underlying assets are is what is material. So that information 

would be disclosed at new issue as to what underlies the security. 

Senator ENSIGN. Goldman Sachs, though, is looked at, I think, by 

a lot of people—one of the reasons that people want to do business 


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with Goldman Sachs and some of the other major players in Wall 

Street is that they feel that you have a certain level of expertise. 

And I think that is kind of what we are trying to get at up here, 

is whether or not you believe the modeling was correct, good modeling as far as rating agencies were concerned, Mr. Sparks? 

Mr. SPARKS. I do not have the specifics of their modeling. I think 

in hindsight the historical correlation was much higher than what 

the rating agencies assumed. 

Senator ENSIGN. I think for anybody to defend what the rating 

agencies did would be ludicrous at this point, and I think that 

there is plenty of evidence out there to show what they did. 

Do you all pay the rating agencies? 

Mr. SPARKS. Typically, that would be paid by people involved in 

the deal. So it could be a deal expense. It could be an issuer. 

Senator ENSIGN. Right. So Goldman Sachs does pay large 

amounts of money to the rating agencies. Is that correct? 

Mr. SPARKS. On those deals, oftentimes it did. 

Senator ENSIGN. And do you think that that maybe appeared— 

has at least an appearance of a potential conflict of interest? 

Mr. SPARKS. With respect to maybe appearance of a conflict of— 

yes, I think that there is that concern with respect to that particular point. 

Senator ENSIGN. I want to go to a deal that Goldman Sachs did, 

known as Hudson 1. It was a synthetic CDO that referenced $2 billion in subprime BBB-rated mortgage-backed securities. Goldman 

selected the referenced assets. The purpose of the transaction appears to have been to get those assets off Goldman’s own books. 

Basically Goldman was the only buyer to sell this CDO and then 

make a bet against it. Is that an accurate description of what happened with Hudson 1? 

Mr. SPARKS. Senator, I believe that deal was purely static synthetic, which means—— 

Senator ENSIGN. Describe static synthetic, because one of the 

things that I think confuses a lot of people is the definitions that 

you all put on things. For instance, you called something that was 

actually the first floor, the bottom floor, you described it as a mezzanine so it did not sound so bad. There is a lot of spin that happened in your terminology in dealing with all these financial products to make them sound a little better than others. So could you 

please explain as we are going just for other people listening? 

Mr. SPARKS. Yes, Senator. The term ‘‘static’’ meant that the assets that were set in the deal could not change. The reason that 

is important is there were other CDOs that were done where an 

asset manager or someone else could choose to change the assets 

in the pool under certain parameters. So in this particular case, 

static meant here are the reference notes, the reference obligations 

that you are exposed to, and this is what they are going to be. 

Synthetic meant that there were no actual cash securities that 

had been put in there, so, Goldman did not sell those securities 

into that because there were not securities with respect to the reference on that. 

Senator ENSIGN. Yes, but it operated the same way as cash being 

in there, didn’t it? 


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Mr. SPARKS. Correct. It had the risk of that, and that deal, my 

recollection is it had a combination of single-name CDS and some 

of the risk related to the ABX Index outright. 

Senator ENSIGN. And Goldman obviously recognized that there 

was some significant risk with that particular product, and that is 

why they sold them short, correct? 

Mr. SPARKS. Well, again, this deal I think was done in October 

2006, if I—— 

Senator ENSIGN. I do not have the date in front of me. 

Mr. SPARKS. There were investors, a lot of investors, in 2006 and 

there continued to be investors in 2007 who wanted exposure and 

risk in certain forms. And so, I had mentioned that these deals did 

not operate in a vocuum—— 

Senator ENSIGN. Is that a little unusual, though, for Goldman 

Sachs to be the only part of it that did the entire deal on the short? 

Mr. SPARKS. Well, most of the time—not all the time—on synthetics, Goldman would provide the synthetic short into the deal 

for a number of reasons, some of which included the fact that we 

were involved in the deal. But then what we did with our risk on 

the other side could vary. 

Senator ENSIGN. I think that one of the points that needs to be 

made, first of all, is—and I think it is evidenced by the hearings 

that this Subcommittee has been having—is that this is an incredibly complex area of not only our markets but of our law. And, Mr. 

Chairman, I think that the hearings that you are holding are very 

valuable. But I think that we are just scratching the surface, and 

I think it is one of the reasons that I believe very strongly we need 

to fix the markets, we need to have a lot more transparency, and 

we need to make sure that people are not being market manipulators, that, some of the lines of questioning today that have come 

out, actually probably some good suggestions in there, but a lot 

more needs to be done and a lot more research needs to be done. 

And I hope that the Senate actually takes its time, so one is that 

we do not end up hurting the little guys out there in Main Street 

and we actually go after the people that—whether it was AIG, 

Goldman Sachs, any of the other big traders, whether it was 

Fannie Mae and Freddie Mac. I hope that is what the financial regulatory reform focuses on. 

I do want to get—and just I hate to keep harping on this, but 

I think this is going to be an important part of what comes out, 

and that is, do you believe that—and since the two of you are the 

only ones who responded to this earlier, getting back to the rating 

agencies, do you believe that Goldman Sachs improperly influenced 

the rating agencies? 

Mr. SPARKS. No, Senator. 

Senator ENSIGN. Mr. Tourre. 

Mr. TOURRE. No, Senator. 

Senator ENSIGN. I appreciate having that on the record. 

The other point that I think that needs—kind of an interesting 

point, when everything was going up, markets were going up, everybody was batting happy, people at your firms and people at 

other firms on Wall Street made a heck of a lot of money in bonuses. Would you agree with that? I mean, large amounts of 

money. A pretty factual statement, wouldn’t you agree? 


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Mr. SPARKS. Are you asking me? 

Senator ENSIGN. Yes. Interesting when everything kind of came 

to a crash, incredible bonuses were still paid out, even in firms 

where their actual investors lost huge amounts of money, lost everything. Do you think that the incentives that are set up in firms 

like Goldman Sachs are the proper incentives to have folks engage 

in ethical behavior? 

Mr. SPARKS. Well, Senator, I think Goldman Sachs works hard 

to engage in ethical behavior in all aspects—— 

Senator ENSIGN. I did not say that. I said: Do you think the way 

that the pay structure and the bonuses are set up lead to the proper incentives to have the people at Goldman Sachs and other folks 

who do what you do on Wall Street, do you think that those incentives are there that lead to ethical behavior? 

Mr. SPARKS. Well, again, Mr. Birnbaum and I do not work there 

anymore, so I do not know exactly what their—— 

Senator ENSIGN. That is why I am asking you just a general comment about the way that bonuses are paid on Wall Street. Obviously, when the bonuses are paid when everybody is making 

money, that kind of makes sense to me. But when everybody is— 

all your people who are buying things from you who bought in the 

past, all of a sudden they lose huge amounts of money, and folks 

still get paid huge bonuses, that does not make sense. That does 

not make sense to a lot of Americans. That is what I am asking. 

Do you think the incentives are the proper incentives to have ethical behavior on Wall Street? 

Mr. SPARKS. Again, Senator, I do not know—— 

Senator ENSIGN. It is just your opinion. 

Mr. SPARKS. I do not know currently what those are, so I do not 

want to—— 

Senator ENSIGN. The way that you were paid in the past, how 

about that? 

Mr. SPARKS. I believe consistent—yes, in the past, I believe at 

Goldman Sachs that—— 

Senator ENSIGN. You had proper incentives, bonus structures 

were proper? 

Mr. SPARKS. I believe at Goldman Sachs in the past I had every 

reason to be ethical with respect to what the firm did with me, including compensation. 

Senator ENSIGN. Mr. Birnbaum. 

Mr. BIRNBAUM. I mean, just to give some background on how 

people at Goldman—and I cannot speak for the way it works today 

because I am not there anymore. But the way people are paid there 

and the way people are promoted there, it is a function of performance, and a lot of that performance is indeed financial. But a huge 

component of performance at a place like Goldman is of a qualitative nature. It has to do with the culture of the firm, and it has 

to do with ethics, and it has to do with how one works within a 

team. And I can assure you that you can have enormous financial 

performance, but if you were not cognizant of ethics, you would not 

be promoted, you would not be paid; in fact, you would probably 

be fired. 

Senator ENSIGN. OK. Mr. Swenson. 


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Mr. SWENSON. I echo the comments that Mr. Birnbaum said. The 

simple answer to your question is yes. 

Senator ENSIGN. OK. Mr. Tourre. 

Mr. TOURRE. I would echo some of my colleagues’ comments that 

the compensation structure which is based on the firm’s performance, the business’ performance, and, the personal performance, at 

least at Goldman Sachs, I think were aligning incentives correctly. 

Senator ENSIGN. OK. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator Ensign. I think as all the 

questions have gone today, I think that we are seeing some of the 

problems. 

Thank you, Senator Ensign. Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman. I appreciate your 

holding this hearing. It has been a pretty long morning. I do not 

know if there is going to be anybody coming after me or not, but 

I want to thank you folks for being here today. I appreciate it very 

much. I think we will head in a couple different directions here. 

Mr. Birnbaum, why, how, and when did you become convinced 

that there was a housing bubble on the verge of collapse? 

Mr. BIRNBAUM. I do not believe I used those words. 

Senator TESTER. OK. You guys have got a bevy of attorneys that 

have briefed you on everything. If you do not want to answer my 

questions, you do not have to. 

Mr. BIRNBAUM. I want to answer your questions precisely. 

Senator TESTER. I will rephrase it. Why, how, and when did you 

become convinced that there was a housing bubble that was in decline? 

Mr. BIRNBAUM. My sentiment that I expressed in my opening 

statement was that there was a market in residential mortgagebacked securities in subprime that I thought was overvalued. 

Senator TESTER. OK. So it was based on the housing bubble, and 

its decline or collapse, however you want to put—however I want 

to put it. 

Mr. BIRNBAUM. I did not say that, though. That is how you put 

it. 

Senator TESTER. OK. So did you not think the housing market 

was in decline? 

Senator TESTER. Do you think the housing is in decline right 

now? 

Mr. BIRNBAUM. At that point in time, housing was in decline already. 

Senator TESTER. What point in time? I did not bring up a date. 

Mr. BIRNBAUM. You were referencing my opening statement, I 

think. 

Senator TESTER. I was just asking you a question. When do you 

think the housing market started in its decline? When did you 

come about that? 

Mr. BIRNBAUM. When did housing start to decline or when—— 

Senator TESTER. When did you become aware of it? 

Mr. BIRNBAUM. When did I become aware that housing values 

were declining? 

Senator TESTER. Yes. 


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Mr. BIRNBAUM. I believe housing started to decline in the beginning or to the middle of 2006. It depends on how you track these 

things. 

Senator TESTER. OK. Middle or end of 2006. And you base that— 

and I do not want to put words in your mouth—on the subprime 

market? 

Mr. BIRNBAUM. Well, no. You asked me about housing. 

Senator TESTER. OK. The housing market, what did you base 

that decline upon? 

Mr. BIRNBAUM. Well, typically when people are talking about the 

housing market declining or going up, they are talking about housing prices. So we all have publicly available information on housing 

prices that is released, typically monthly, sometimes quarterly, and 

if that is what you are referring to—— 

Senator TESTER. So the housing decline was based on housing 

prices around the middle to end of 2006. It was not based on 

subprime or—it was based on that pattern. I am not trying to set 

you up for anything. 

Mr. BIRNBAUM. No, I just want to understand the question. 

Senator TESTER. I want to know when—look, a lot of these vehicles that were developed were based on housing. You guys are 

smart guys, and particularly I want to know from you, Mr. 

Birnbaum, when you saw the downturn, the potential collapse. You 

said the middle, end of 2006. I was wondering what you base that 

on, and you said the value of housing at that point in time. Or 

what did you say? 

Mr. BIRNBAUM. Well, we had all seen a deceleration—first, a deceleration and then a decline in housing values. That was one of 

many things that I think concerned people. 

Senator TESTER. Did this change your view of mortgage-backed 

securities? 

Mr. BIRNBAUM. Well, the mortgage market is a big market. You 

have agency mortgages, you have non-agency mortgages, you have 

prime mortgages, subprime mortgages. 

Senator TESTER. Sure. 

Mr. BIRNBAUM. I believe what I referred to in my opening statement was the subprime market. 

Senator TESTER. OK. So based on subprime, did it change your 

view of the mortgage-backed securities? 

Mr. BIRNBAUM. It changed my view of the likely direction of the 

market. 

Senator TESTER. OK. Did you share your thoughts with others at 

Goldman, or did you keep them to yourself? 

Mr. BIRNBAUM. I did socialize my thoughts with some people. As 

I mentioned in my opening statement, there was a vigorous debate 

about Goldman about that issue. 

Senator TESTER. OK. Given that knowledge, were you surprised 

by Mr. Tourre’s statement that the Abacus deal was similar to others in terms of quality? 

Mr. BIRNBAUM. I was not surprised by that statement. 

Senator TESTER. You were not surprised by it? 

Mr. BIRNBAUM. No. 

Senator TESTER. OK. Should we be reassured that the Abacus 

deal was no worse than any of the others, then? 


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Mr. BIRNBAUM. Well, I did not work on the Abacus deals. I could 

not be surprised because I did not work on those deals. 

Senator TESTER. OK. All right. That is fine. 

They always say you always want to know the answer to a question before you ask it, and I do not know the answer to this question because it is—I am going to start with you, Mr. Sparks. Do 

you think that Goldman Sachs did anything wrong in this whole 

process of these synthetic CDOs? 

Mr. SPARKS. Well, I do not think Goldman did something wrong, 

meaning—— 

Senator TESTER. So you do not think Goldman did anything 

wrong? 

Mr. SPARKS. But that does not mean that we did not do deals 

that were bad decisions to do and did not perform like we wanted 

them to do, and it does not mean that we did not periodically make 

mistakes like any other business does. But ‘‘wrong’’ to me has some 

qualitative comment about doing something inappropriate. That 

does not mean we did not make mistakes or do deals that did not 

turn out the way we had hoped they would. 

Senator TESTER. OK. What is your definition of a synthetic CDO 

so we know if we are on the same page? 

Mr. SPARKS. Sure. It would be a collection of—well, there could 

be a number. Basically it is a CDO where there is no cash instruments involved, so the reference portfolio, although it is listed as 

a bunch of assets, it is clear it is actually not that. It is done by 

shorting in some sort of derivative into that, and from that you can 

either create cash instruments for people to invest in or synthetic 

instruments. 

Senator TESTER. Do you know when this idea was thought up, 

the synthetic CDO idea? Is this a fairly new phenomenon or has 

it been around for decades? 

Mr. SPARKS. I believe it would have been—and I cannot give you 

an exact date, but I believe it would have been in the early 2000s. 

It happened to a larger degree in the corporate market. 

Senator TESTER. And this was just to give folks that had money 

something to gamble on? You can say what you want, but it is 

gambling. I am not going to go down to bookie and all that line, 

but you are basically gambling on something that has—you are not 

going to get any money out of it to do the synthetic CDO. 

Mr. SPARKS. No. Sometimes you can do a synthetic CDO and actually create cash bonds by putting in some collateral, but I think 

your question is why. 

Senator TESTER. Yes. 

Mr. SPARKS. There are and were investors who wanted to invest 

in these types of structures at those market levels. They actually 

desired to get more exposure or exposure tailored to something that 

they wanted. 

Senator TESTER. And in letting the people know about how they 

are designed and what is in them, does anybody have obligation to 

let those investors know what is in that financial instrument? 

Mr. SPARKS. Yes, and at new issue, disclosure is provided that 

shows both what the underliers are, how the deal would work with 

respect to any potential changes to the underliers, and then how 

the cash flows actually will work, because typically those transVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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actions would be tranched with respect to risk layers, but not always. 

Senator TESTER. OK. So the Chairman in his questioning 

asked—I think it was you, Mr. Sparks—how you got comfortable 

with sales. And I am just going to bring three of them up—four of 

them, actually. I am going to bring four of them that came out of 

documents the Subcommittee did. 

There was a Hudson 2006–1 synthetic CDO sold December 2006; 

18 months later it was—these were AAAs—downgraded to junk. 

There was an Anderson 2000–1, set up the first quarter of 2007; 

7 months later it was downgraded to junk. 

There was the Timberwolf that has been talked about here before, March 2007, AAA downgraded to junk in less than year. That 

was the bad deal one. 

There was the Abacus, closed end of April 2007; within 6 months 

it was rated down by 84 percent. 

Now, going back to the answer that Mr. Birnbaum gave that we 

could see some things happening in the middle of 2006, middle of 

2007, all of these—all but one of these came after that effect. How 

can you in good faith set these aside and sell them out and collect 

the fees and make the dough? 

Mr. BIRNBAUM. Well, is that to me, sir? 

Senator TESTER. Yes, sure. 

Mr. BIRNBAUM. I just want to clarify. The things that I was referring to are things that every market participant observed. 

Senator TESTER. That is OK. That is all right. I am not assuming 

that you were brilliant in that assertion. I think it is spot on. I appreciate that answer. I am just asking Mr. Sparks, after the fact 

we saw things happening, and every one of these were—it looks 

like a wreck waiting to happen because they were all downgraded 

to junk in very short order. 

Mr. SPARKS. Well, Senator, at the time we did those deals, we 

expected those deals to perform. 

Senator TESTER. Perform in what way? 

Mr. SPARKS. To not be downgraded—— 

Senator TESTER. Perform to go to junk, so that the shorts made 

out? 

Mr. SPARKS. To not be downgraded to junk in that short a time 

frame. In fact, to not be downgraded to junk. And so, if I could finish. 

Senator TESTER. OK. Keep going. 

Mr. SPARKS. I mentioned that we made some bad business decisions. These deals performed horribly. That is bad. 

Senator TESTER. And there is a pattern of it, yes. 

Mr. SPARKS. OK. That said, at the time, just because one person 

in my business unit or a few people might have had one view, I 

can tell you there were a lot of other people in my business unit 

that had a very different view, and there were a lot of other investors that had a very different view. 

Senator TESTER. Do you feel confident that the information about 

each one of these that was about these was given to the investors, 

all the information that was out there, and the credit rating agencies, too? 


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Mr. SPARKS. Well, I generally feel that the disclosure for the new 

issues that Goldman Sachs brought was good. 

Senator TESTER. How about these? 

Mr. SPARKS. Including these. 

Senator TESTER. OK. I think there was a credit rating agency 

that testified—correct me if I am wrong, Mr. Chairman. I know you 

are busy so you might not be able to—but that said that in the Abacus deal they did not know anything about Paulson; it would have 

changed the thing markedly if they would have. Whose obligation 

is it to tell the credit rating agency? 

Mr. SPARKS. Senator, I do have a view on that comment, and I 

think I said earlier that I found the rating agencies to work very 

hard in what they did and trying to get the right answer. On that 

particular comment, the rating agencies rate the deal. That means 

what the assets are in the deal and—whatever the assets are, they 

are. And so I found—I was surprised by that comment because the 

deal is the deal, and the agency understood that, and so that was 

a surprising comment to me. 

Senator TESTER. It does not—and this has happened before, but 

it really does not click—going back to Senator McCaskill’s question, 

it does not click that there was something fundamentally wrong 

with Paulson being able to pick these? 

Mr. SPARKS. Well, Goldman Sachs—Senator, I just want to make 

sure you understand mechanically how that type of deal worked. 

Senator TESTER. Are you saying Paulson did not have any role 

in this at all? 

Mr. SPARKS. No, sir, I am not. 

Senator TESTER. OK. Then—— 

Mr. SPARKS. Goldman Sachs—— 

Senator TESTER. Then let us just leave it at that level. 

Mr. SPARKS. OK. 

Senator TESTER. Paulson had a role in picking these securities, 

and you do not see anything wrong with that? In fact, if the credit 

agency is saying that it would have fundamentally changed the 

way they rated it, you cannot associate yourself with those comments because you do not think they are right? 

Mr. SPARKS. Well, Goldman Sachs provided the short risk to that 

transaction, a very specific set of names. Whatever Goldman did 

with those names, how that affects what a rating agency rates 

that, that to me does not make any sense. 

Senator TESTER. OK. We have got—I do not know what you call 

it—a fault line or whatever it might be. That may be the wrong 

term. 

I want to go back to a previous question that was asked that 

dealt with—and you kind of all skirted it except for Mr. Birnbaum. 

But it has been brought up several times here, by the Ranking 

Member also. That is, who do you consider yourself working for? 

Who is in the best interest here, the client or the firm? Now, I do 

not want to go back and forth and go through the same questions 

that were answered before. But the question is that you have to 

work for one or the other when push comes to shove. You cannot 

be for both because there are certain times where you just cannot 

be for both. Am I wrong in that assumption? Go ahead, Mr. Sparks. 


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Mr. SPARKS. Senator, that is a very complicated question, but if 

you do not prudently manage your risk, you will not be around to 

work for your clients. 

Senator TESTER. OK. 

Mr. SPARKS. So I think you are looking for a broad response to 

that, and I would say clients are extremely important to Goldman 

Sachs and to market makers that I think are going to have a 

chance to succeed. But that does not mean that you should be imprudent with respect to risk. 

Senator TESTER. OK. I think everybody—I should not speak for 

everybody on the Subcommittee, but I will try and they can correct 

me later if they want. But I think everybody understands that 

there needs to be some level of regulation here, mainly because 

from my perspective, because of the TARP bailout, it is probably 

why Goldman is still here, because of the taxpayers and because 

the Congress did what they did. 

But I guess the question here is that, as we move forward—and 

I list Anderson and Timberwolf and Abacus, and all these where 

I think they were clients of yours that bought this stuff. It went 

south in a regular pattern. It just was not one, it was not a 

changed interest. And you guys made some dough on it, on the 

short selling of it. You did. And Paulson made out like a bandit on 

this thing. 

Mr. SPARKS. Senator, on each of those deals, I—— 

Senator TESTER. So the firm did pretty well. 

Mr. SPARKS. I do not think the firm did well on every one of 

those deals. In fact, it is possible and more likely that on those particular deals the firm lost a fair amount of money. I would have 

to go back and do the math on each one, but on those deals that 

you picked out that performed very poorly—and they did—Goldman Sachs I think lost a fair amount of money because Goldman 

retained a fair amount of risk on those deals. 

Senator TESTER. Yes, I mean, even including the short selling 

you did on it? 

Mr. SPARKS. That is why I would need to go back and net it off. 

Senator TESTER. Yes, I think the Chairman asked you for that 

information, so we will be looking forward to that. 

OK. If you were in my shoes and we are on the verge of doing 

some Wall Street reform, potentially—I hope we get pass the verge 

and get into the debate of it—what would you change? Anything? 

Mr. SPARKS. Senator, I think clearly some things need to be 

changed. I have not read what is proposed, so I am not in a great 

position to—— 

Senator TESTER. You really do not need to read what is proposed. 

Actually, you are in the business. OK? I am a farmer, and if you 

asked me what we need to change in agriculture, I could tell you 

pretty quick. I am assuming that you are a smart guy in the financial services—I know you are, and I do not mean that as a derogatory comment. 

As you look at the regulations that fell in—and some people 

made a lot of money, some people lost a lot of money. I do not know 

if it was because people did not get told the whole story or not. If 

they did not, then I think there is a problem there. But is there 


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anything in the regulatory that you looked at—you work and you 

are high up in management—what would you change? 

Mr. SPARKS. Well, again, I do not work at Goldman Sachs anymore, so I do not want to speak for Goldman—— 

Senator TESTER. I know, but going back, I do not think things 

have changed with the regulatory structure at all since you worked 

there. 

Mr. SPARKS. I feel like we worked really hard to manage our risk 

prudently. I think it is a very hard question, and I think that when 

you look at what gradually became too much credit available in the 

system and there were many people who participated in that system and actually, so long as that was going, it was good for those 

people. The kind of regulator, not meaning technical regulator, but 

there was not a defuse valve to monitor that. 

Senator TESTER. OK. And, actually, the testimony says it. Even 

when the markets were going down—Senator Ensign talked about 

it. Let me see if I can find the exact statement here. You guys did 

pretty well—2009 Goldman Sachs’ annual report states that the 

firm did not generate enormous net revenues by betting against 

residential-related products. Documents obtained by the Subcommittee, however, indicate two top Goldman mortgage traders, 

Michael Swenson and Joshua Birnbaum, discussed their 2007 performance evaluation as a very profitable year and extraordinary 

profits. So you guys made money going both directions. 

Mr. SPARKS. Senator, I would just like to clarify a couple of the 

numbers—— 

Senator TESTER. And there is a lot of folks that did not make 

money going both directions. There is a lot of guys that lost their 

retirement, they lost everything they had when it dropped off. 

Senator ENSIGN. Senator Tester, one of the clarifying points is 

even if Goldman Sachs did not make it, the executives did. 

Senator TESTER. Yes. 

Senator ENSIGN. They made huge bonuses. 

Senator TESTER. I am with you. We are together. Go ahead, Mr. 

Sparks. 

Mr. SPARKS. Senator, there are two things I thought just to clarify. One, on the graph that was shown—I ran the Mortgage Department, and I was responsible for risk in my department. I do not 

think that was reflective of the risk that I managed. 

And two, I have heard a lot of numbers about what Goldman 

Sachs made. My department, which included these guys and other 

businesses, including commercial mortgages where we made 

money, the number was $1.1 to $1.2 billion in 2007. That is the 

revenue number. So that is the number I know. That was roughly 

20 to 25 percent more than the year before. And the reason I give 

you that, I felt—and I said I was proud. I thought the firm managed it well. 

Senator TESTER. OK. 

Mr. SPARKS. But that was not that typical a year in that business. So I just wanted to make sure that the numbers that I 

know—that I pointed that out, because I had heard some numbers 

that I felt like were not accurate. 

Senator TESTER. OK. Well, first of all, I do want to thank you 

all for being there, and I mean that. I also would like to have you 


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1See Exhibit No. 170c, which appears in the Appendix on page 1085. 

2See Exhibit No. 86, which appears in the Appendix on page 550. 

3See Exhibit No. 90, which appears in the Appendix on page 588. 

guys just go out and have a pop, and we will leave the attorneys 

out of this thing, because I know you have got to cover yourselves 

on a lot of this stuff. The fact is I think we have got a problem, 

and I think we have got a problem with what has gone on on Wall 

Street, and I do not want to see it reoccur again. And the truth is 

I need good information if I am going to make good decisions. A 

lot of that good information could come from you guys. I think you 

have had to temper it. I understand that. That is OK. I think it 

has been pretty obvious. But that is OK. That is what you were instructed to do, and you did a good job. 

But the fact is that the bottom line is we cannot let this happen 

again, or if it does happen, the chances have to be very slim of it. 

And when you have got folks out there that are betting basically 

on the weather or whatever it might be, I just think it can put the 

whole thing into a turmoil unless it is pretty tightly controlled. 

That is my own opinion. But I do not—we have got to figure out 

how to do that so it is done right and transparency is the bottom 

line. 

Thank you, Mr. Chairman. I overspoke my time. Thank you very 

much. 

Senator LEVIN. Thank you, Senator Tester. 

Turn to Exhibit 170c,1 if you would, Mr. Sparks. A number of my 

colleagues have raised the Hudson deal. This is the deal where you 

were selling your own stuff from your own inventory to people, and 

bet against it heavily. We are going to go into that deal now. You 

were selling this to others. 

First of all, what are you selling to others? Here is what you are 

selling to others, according to your own employee, Exhibit 170c. 

You are selling junk. OK? That is what that employee says. The 

question from a man named Tetsuya Ishikawa to Sarah Lawlor. 

‘‘Understand AIB’’—which is Allied Irish Bank—‘‘do . . . deals but 

what specifically did AIB say was ‘junk’ about the Hudson Mezz 

deal?’’ 

What did one of your potential clients say was junk about the 

stuff you were trying to sell? And what is the answer to that? ‘‘You 

may want to ask Sarah about this when she’s there tomorrow and 

Friday. . . . She said’’—this is now your employee—‘‘AIB are too 

smart to buy this kind of junk’’—that is the junk you are selling, 

Mr. Sparks. 

Now, let us see what is it you are selling. Take a look at Exhibit 

86.1 This is an exhibit entitled—same thing—Hudson Mezzanine, 

sent by Peter Ostrem, who is the head of Goldman’s Asset-Based 

Securities CDO Desk, to the Goldman team, announcing a new 

CDO. What is this new CDO? It is Hudson. ‘‘We have been asked 

to do a CDO of $2 billion for the [trading] desk.’’ That is the Goldman trading desk, and that is ‘‘obviously important to [structured 

product]’’ folks. They say that in Exhibit 86. We have been asked 

to put together a CDO that contains our stuff from our inventory. 

Your inventory is too long. This is now towards the end of 2006. 

Now take a look at Exhibit 90.3 Who do you think is betting 

against the stuff that you are referencing in this synthetic CDO? 


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1See Exhibit No. 87, which appears in the Appendix on page 551. 

You are referencing your own stuff, and it is junk. That is your 

own employee’s assessment. And you are trying to get out of this, 

and so you create a synthetic CDO so you can transfer that risk 

to your customers. OK? And who do you think is going to benefit 

when you transfer that risk on the short side? The so-called protection buyer. Take a look at Exhibit 90. ‘‘Goldman was the sole buyer 

of protection on the entire $2.0 billion of assets.’’ 

If you can sell your junk and shift the risk on that in a synthetic 

CDO, Goldman puts $2 billion in its pocket. 

Now, you have got a marketing booklet. That is Exhibit 87.1

Mr. SPARKS. Senator, I missed the one before Exhibit 87. I apologize. Could you tell me—— 

Senator LEVIN. No, I am not going to waste any more time. 

Mr. SPARKS. OK. I am just trying to flip through to make sure 

I understand exactly—there were a number of Hudson deals, and 

I am just making sure—— 

Senator LEVIN. OK. All right. 

Mr. SPARKS [continuing]. I remember which deal it was. 

Senator LEVIN. Maybe we can get an answer this time. Hudson 

Mezzanine. Are we ready? Which one didn’t you understand? Did 

you understand the one about junk? 

Mr. SPARKS. I read the one where AIB called it junk and decided 

not to invest. 

Senator LEVIN. And your own person said they are too smart to 

buy this kind of junk. 

Mr. SPARKS. I thought they said that it was junk and they were 

too smart to buy it. I will look at it again. I am just trying to go 

fast. 

Senator LEVIN. OK, take your time, Exhibit 170c. A Goldman 

Sachs person, Ishikawa, wrote: ‘‘You may want to ask Sarah about 

this when she’s there tomorrow and Friday. . . . She said ‘AIB are 

too smart to buy this kind of junk . . .’ ’’ 

Mr. SPARKS. I see that now, Senator. 

Senator LEVIN. OK. Now let us talk about what you are selling. 

Mr. SPARKS. So then I go to Exhibit 86—— 

Senator LEVIN. You are on the short side of this, right? You are 

going to make money if this synthetic CDO is sold. Is that correct? 

You are getting rid of—— 

Mr. SPARKS. Senator, at this particular time, because I believe 

this email was September 2006. I believe at the time the firm was 

positioned very long with respect to the market at that time. 

Senator LEVIN. It was, and you are trying to be less long. 

Mr. SPARKS. You had said the firm got short. I do not believe it 

got short. 

Senator LEVIN. You are creating a synthetic CDO, and there is 

a bet going on against stuff that is in your inventory; you are betting against that stuff, and someone else is betting for it. 

Mr. SPARKS. We were long risk, and we were reducing risk. 

Senator LEVIN. That is exactly what I said. You are trying to 

shift the risk of that junk to somebody else. This is what is going 

on. 


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1See Exhibit No. 90, which appears in the Appendix on page 588. 

2See Exhibit No. 87, which appears in the Appendix on page 551. 

3See Exhibit No. 91, which appears in the Appendix on page 589. 

It is a synthetic CDO, OK? The whole point of the synthetic 

CDO, if you will take a look at that exhibit that I just referred you 

to, Goldman is the sole buyer of protection. You got that? 

Mr. SPARKS. That is the one I was looking for, but I—— 

Senator LEVIN. Exhibit 90.1

Mr. SPARKS. Thank you. 

Senator LEVIN. Do you see it there, the middle of the page? October 30, 2006. ‘‘Goldman was the sole buyer of protection on the entire $2 billion of assets.’’ You are trying to shift the risk, exactly 

as you said. You are trying to shift the risk, and you did it. 

So you are benefiting now from selling stuff from your inventory. 

You want to go less long, and you are betting against that. OK? 

We are together? 

Mr. SPARKS. Mr. Chairman, any time we sell something to somebody, we have transferred the risk. I agree with that. 

Senator LEVIN. Right. That is all I am saying. In this case, it is 

junk from your inventory, and you are trying to go less long. 

Mr. SPARKS. Well, I can tell you at the time, Mr. Chairman, I did 

not believe it was junk, and we did not believe it was junk. A salesperson said that. I think that is a salesperson who had an opinion, 

and as I mentioned, a lot of people had different opinions. 

Senator LEVIN. Right. That is true. Your salesperson believed it 

was junk. That is who was selling your stuff. 

Now, take a look at Exhibit 87.2 This is your sales pitch. ‘‘Goldman Sachs has aligned incentives with the Hudson program by investing in a portion of equity and playing the ongoing role of Liquidation Agent.’’ So now you are telling people that you are on the 

long side. That is your Executive Summary. You tell them in some 

fine print somewhere that you are shifting the risk, but this is 

what the Executive Summary says. It states you have ‘‘incentives 

aligned with the program.’’ 

No, you do not. Your incentives are aligned against this thing. Your incentives are to sell $2 billion and shift the risk. And so you 

are telling people, that you are selling this to—that Goldman Sachs 

has aligned incentives with the Hudson program by investing in a 

portion of equity. That means you are on the long side. You are investing a little bit on the long side. Two billion bucks of risk you 

are shifting, and you are telling people in the Executive Summary 

that the incentives are aligned. They are not aligned. They are the 

opposite. You are shifting risk. You are not taking on risk. This is 

one of your structured products that you are selling, these synthetic CDOs that nobody can figure out. 

Take a look at Exhibit 91,3 Mr. Sparks. This is another synthetic 

CDO that you guys are peddling, shifting risk, making money when 

you go short. You tell Mr. Montag, ‘‘Need you to send message to 

Peter Ostrem and Darryl Herrick telling them what a great job 

they did. They structured like mad’’—‘‘they structured like mad’’— 

‘‘and traveled the world, and worked their tails off to make some 

lemonade from some big old lemons.’’ Making lemonade from some 

big old lemons! 

You say that—by the way, going back to Hudson—— 


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1See Exhibit No. 55c, which appears in the Appendix on page 447. 

Mr. SPARKS. Is that in Exhibit 91, lemonade? 

Senator LEVIN. Exhibit 91. Look right in the middle. ‘‘Need you 

to send message’’—you see those words? ‘‘Need you to send message to Peter Ostrem and Darryl Herrick’’—who is Peter Ostrem? 

Mr. SPARKS. Peter Ostrem at the time was a managing director 

that ran our cash CDO business. 

Senator LEVIN. All right. And who is Darryl Herrick? 

Mr. SPARKS. Darryl was part of Peter’s group. 

Senator LEVIN. ‘‘. . . and tell them what a great job they did. 

They structured like mad.’’ What did they do? They made some 

lemonade from some big old Goldman Sachs lemons. 

You have got no regrets? You ought to have plenty of regrets. I 

do not think that you are willing to acknowledge them, but you 

ought to have them. I do not think you will acknowledge them. 

That is why we have got to do some regulation and reregulation. 

Take a look, Mr. Birnbaum, if you would, at your own assessment of what you did in 2007. You had a great year. 

Mr. BIRNBAUM. What page? 

Senator LEVIN. Exhibit 55c.1 Now, you had made a decision to 

shift the direction and go from a long position to a short position. 

And here is what you said, that the ‘‘execution of strategies has 

clearly been a concerted team effort.’’ Do you have this now, Mr. 

Birnbaum? Do you see where I am at? 

Mr. BIRNBAUM. I am catching up to you. 

Senator LEVIN. OK. Well, I will not make you catch up. I want 

you to read every word with me, so I will wait until your eyes are 

on the same words I am on. 

Mr. BIRNBAUM. So which page are you on? 

Senator LEVIN. Page 2. 

Mr. BIRNBAUM. I am with you. 

Senator LEVIN. It says, ‘‘Vision, risk taking, market calls.’’ 

‘‘Whereas execution of strategies has clearly been a concerted 

team effort, I consider myself the initial or primary driver of the 

macro trading direction for the business.’’ Got it? Macro trading direction for the business. Here is what you say. 

You made three major calls: ‘‘December to February’’—that is December 2006 to February 2007—‘‘With the desk quite long and 

ABX trading down from par . . ., we had a rough start to the 

year.’’ By the way, that year started in December. ‘‘The prevailing 

opinion within the department was that we should just ‘get close 

to home’ and pare down our long.’’ 

This is what Mr. Sparks was talking about. There are differences 

in the department. Everyone does not agree. There is a difference 

of opinion. I am going to keep going. 

So there was some opinion that we ‘‘should just get ‘close to 

home’ and pare down our long.’’ But you—and then reading at the 

bottom of the page, you had five reasons there why you should not 

just pare down, you ought to make a big bet going short. And then 

you said, ‘‘I concluded that we should not only get flat, but get 

VERY’’—capitalized—‘‘short.’’ That is not my emphasis. That is 

yours, that you should get very short. And what did you do? You 

began ‘‘socializing’’ the idea. You wanted to avoid group-think, so 


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1See Exhibit No. 46, which appears in the Appendix on page 361. 

you independently went to a whole bunch of folks to see if anybody 

could poke holes in the plan. ‘‘Although opinions varied on execution probability, primarily on the back-end, we all agreed the plan 

made sense.’’ ‘‘We all agreed the plan made sense.’’ 

And then you socialized with Sparks and Ruzika, and what did 

you do? You ‘‘implemented the plan by hitting on almost every single name CDO protection buying’’—that means you are heading in 

the short direction—‘‘in a 2-month period. Much of the plan began 

working by February . . . our very profitable year was underway.’’ 

This is a very profitable year where you were working. You were 

betting against the market. You were going short. 

And then down at the bottom of that paragraph, ‘‘Again, when 

the prevailing opinion in the department was to remain close to 

home, I pushed everyone on the desk to sell . . . aggressively and 

quickly.’’ OK? 

You made a lot of money monetizing that. ‘‘We sold billions of 

index and single name risk’’—you sold them, and you cashed in. 

And here is what you said: ‘‘when the index dropped 25 points in 

July, we had a blow-out profit and loss month, making over $1 billion that month.’’ 

Now, what you said in the report is what happened. This is what 

you folks reported to the SEC. October 4, 2007. This is Exhibit 46.1

This is a letter from Goldman to the SEC. Take a look at the bottom of page 3. 

‘‘[I]t is important to note . . . that we are active traders of mortgage securities and loans and, as with any of the financial instruments we trade, at any point in time we may choose to take a directional view . . .’’ That is your words, Goldman Sachs. You may 

choose to take a directional view. 

Mr. BIRNBAUM. This is Exhibit 46? I am just asking you. 

Senator LEVIN. Exhibit 46, bottom of page 3. I am not asking you 

this question. I am asking Mr. Sparks this question, or any of you. 

But basically making a statement and then asking if you want to 

respond to it. I mean, this is a statement of Goldman Sachs to the 

SEC. I am not sure you want to quibble on this one. But, in any 

event, October 4, 2007. 

So, ‘‘at any point in time we may choose to take a directional 

view of the market and will express that view through the use of 

mortgage securities, loans and derivatives. Therefore, although we 

did have long balance sheet exposure to sub-prime securities in the 

past three years, albeit small exposure, our net risk position was 

variously either long or short depending on our changing view of 

the market.’’ 

So your risk position was dependent on your changing view of 

the market. But now comes the line which we might as well all 

agree upon before the next two panels start—this is what you represented to the SEC and what the facts clearly show. 

‘‘For example’’—presumably of your decision on directional 

view—‘‘during most of 2007, we maintained a net short sub-prime 

position and therefore stood to benefit from declining prices in the 

mortgage market.’’ 


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1See Exhibit No. 45, which appears in the Appendix on page 349. 

Is there any doubt in your mind that was true? Is there any 

doubt in your mind that what Mr. Viniar said later on that year 

was also true? This is what Mr. Viniar said at the end of the third 

quarter. He is the Chief Financial Officer. This is Exhibit 45,1 by 

the way, if you want to track it. 

‘‘Let me also address mortgages specifically’’—this is the end of 

the third quarter. It was around September. ‘‘The mortgage sector 

continues to be challenged and there is a broad decline in the value 

of mortgage inventory during the third quarter. As a result, we 

took significant markdowns on our long inventory positions during 

the quarter, as we had in the previous two quarters.’’ That is getting out of the long position. 

And then he said the following: ‘‘However, our risk bias in that 

market was to be short and that net short position was profitable.’’ 

Do you disagree with that, Mr. Sparks? Do you disagree with 

that one statement? 

Mr. SPARKS. During the third quarter that we had a net short 

bias? I do not disagree with that statement. 

Senator LEVIN. And you disagree with this statement? 

Mr. SPARKS. I said I do not disagree. I am sorry. 

Senator LEVIN. Do you disagree with the statement that was 

made to the SEC, bottom of Exhibit 46, page 3, last line, that ‘‘during most of 2007, we maintained a net short sub-prime position 

and therefore stood to benefit from declining prices in the mortgage 

market’’? That was stated to the SEC. Was Goldman Sachs telling 

the truth to the SEC? 

Mr. SPARKS. I understand that. I did not write this. 

Senator LEVIN. All right. Mr. Birnbaum, do you know whether 

that was a true statement or not? 

Mr. BIRNBAUM. Again, these are not my words. I did not—— 

Senator LEVIN. I am just asking you if the statement is true that 

Goldman Sachs made to the SEC. That is all I am asking you. 

Mr. BIRNBAUM. Well, this is a long document. I mean, I have not 

even read it—— 

Senator LEVIN. I am asking you about that statement at the bottom of page 3, that ‘‘during most of 2007, we maintained a net 

short sub-prime position and therefore stood to benefit from declining prices in the mortgage market.’’ 

Mr. BIRNBAUM. There is only one thing I can comment on, and 

that is my position. And you read my self-review. 

Senator LEVIN. OK. 

Mr. BIRNBAUM. And I stand pat with what I wrote there, and—— 

Senator LEVIN. And is that review totally consistent with this? 

Mr. BIRNBAUM. Just to be clear, my review pertains to my business that I worked with—— 

Senator LEVIN. I got you. Is your review—— 

Mr. BIRNBAUM. This is only a small part of the firm. 

Senator LEVIN. Is your review consistent with what I just read? 

Mr. BIRNBAUM. My review only—— 

Senator LEVIN. Mr. Swenson. 

Mr. BIRNBAUM. My review only relates to my—— 


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Senator LEVIN. I understand. Is this something that you agree 

was an accurate statement when Goldman Sachs made it to the Securities and Exchange Commission in October 2007? 

Mr. SWENSON. Yes. 

Senator LEVIN. Thank you. 

Mr. SWENSON. And I would like to add the nature of our risk—— 

Senator LEVIN. Oh, I was just hoping for a yes. 

Mr. SWENSON. Yes, but the nature of our risk changed over the 

course of that year, which I mentioned in my opening statement. 

Senator LEVIN. We understand. Thank you very much. Dr. 

Coburn. 

Senator COBURN. Thank you, Mr. Chairman. 

I have a question for each of you that I would like just a yes or 

no answer. Is there a policy within Goldman Sachs that if you feel 

something is either out of the ordinary or unethical, that you are 

not to communicate that in an email? And have you ever been instructed on what you will or will not communicate on emails? In 

other words, are there things that you are not to communicate in 

emails? Mr. Sparks. 

Mr. SPARKS. The ethical question, if there is something that you 

have an ethical question about, you are supposed to raise it to your 

superior. But with respect—— 

Senator COBURN. Have you ever been instructed not to raise that 

in an email? 

Mr. SPARKS. No. 

Senator COBURN. There is no policy within Goldman that you 

cannot raise ethical questions on emails? 

Mr. SPARKS. Not that I am aware of. 

Senator COBURN. Mr. Birnbaum. 

Mr. BIRNBAUM. I am not aware of a policy like that. 

Senator COBURN. Mr. Swenson. 

Mr. SWENSON. I am not aware of a policy. 

Senator COBURN. Mr. Tourre. 

Mr. TOURRE. I am not aware of a policy. 

Senator COBURN. Are you aware of any policy that would restrict 

your communication on emails about anything related to your business within Goldman? And, again, you all have been—are under 

oath. All I want is a yes or no. Have you been instructed on certain 

things you will not communicate in an email relating to the business? I am not talking about personal now. 

Mr. SPARKS. Within the firm, no. Personal stuff, the firm does 

not—prefers you not to, and then I would say there are things 

about what can go outside of Goldman that there are policies 

about. 

Senator COBURN. OK. 

Mr. BIRNBAUM. It has been a little while since I worked there, 

and I do not remember all the policies. We had a lot of policy updates. 

Senator COBURN. Well, you would know this policy if it was 

there. 

Mr. BIRNBAUM. I do not remember all the policies. 

Senator COBURN. So your answer is you do not know? 

Mr. BIRNBAUM. My answer is, I do not remember all the policies. 

Senator COBURN. That is a very unsatisfactory answer. 


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1See Exhibit No. 26, which appears in the Appendix on page 306. 

Mr. Swenson. 

Mr. SWENSON. There is no policy. 

Senator COBURN. Thank you. 

Mr. Tourre. 

Mr. TOURRE. There is no policy. 

Senator COBURN. OK. Thank you. I want to go just a little further on an email. If you all will look at Exhibit 26,1 this is an email 

dated July 25, 2007, from the executive VP and chief financial officer, and it was not necessarily communicated to you. This is a summary of revenues and estimates year to date, and this would be the 

estimate for revenues and estimate for pre-tax profit, and this goes 

to Mr. Cohn and copied to several others. It says, ‘‘Tells you what 

might be happening to people who don’t have the big short.’’ It is 

not really fair to ask you to comment on that, but there were discussions about changing your positions in relationship to the mortgage market, the derivatives, and the packaged securities. There is 

no question about that, right? You all have testified you were 

changing position. Correct? 

Mr. SPARKS. Yes, Dr. Coburn. 

Senator COBURN. All right. Everybody agrees with that? You 

were changing positions. You saw a market that was tanking. You 

were trying to limit your loss as good fiduciaries for your business, 

but also to balance that loss as a market maker. Is that correct? 

Mr. SPARKS. Can I just, Dr. Coburn, I thought you said we were 

changing our positions. We were oftentimes changing our positions. 

I thought you meant did—— 

Senator COBURN. I understand, but there has never been a position change like what took place in the last 4 years in this country 

in the mortgage markets. There has never been anything like that. 

Maybe when we shut off exports of commodities to the Russians 

during the Afghanistan invasion, but there has never been a 

change like that before in this country. So I understand you change 

positions all the time, but there has never been anything to compare to what happened in terms of the collateralized debt obligations and the residential mortgage-backed securities in this country. Would you agree with that? Do you know anything in your history? I am 62 years old. I have never seen anything like it. 

Mr. SPARKS. It was definitely unique. 

Senator COBURN. I am not critical of it. It is smart, if you see 

a market tanking, to get out of the market. I mean, you are market 

makers, but you are also proprietary traders. So you are not only 

having to make a market, which puts you on exposure for some 

losses, but you also have proprietary trading, so you make more of 

your money now proprietary trading than you do any other way, 

at least the last few quarters you have. 

So it is a fact that you were changing positions as a firm in the 

mortgage-backed industry and the derivatives associated with that. 

Correct? Anybody disagree with that? I am taking it that means 

nobody disagrees. 

Mr. BIRNBAUM. I would just second what Mr. Sparks said. We 

were changing positions all the time. 


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1See Exhibit No. 174, which appears in the Appendix on page 1110. 

Senator COBURN. Mr. Birnbaum, you did not hear what I just 

said. Everybody changed positions. As a matter of fact, they got so 

much change in their position they lost half of everything they 

owned, the vast majority of people who did not have access to the 

same data you did or were not smart enough to take care of it. So 

you cannot compare this change in position—this was a drastic 

change in position where you went significantly short on the basis 

of smart knowledge of what was going on in the market. You do 

not have to apologize for it, but do not compare it to a change in 

what the CPI might be one month over the next to changing positions. It is inappropriate, and it is also discourteous to us. We are 

not that stupid. 

Now, I am going to pass out for each of you copies of some things 

that are not in the reference binder, but they are copies of emails 

collected from your firm.1 Have they been passed out? So everybody 

has that, and I think our panel members have it as well. 

The first is related to Mr. Tourre, and I want you to go along 

with this and try to answer some of these questions for me, if you 

would. Tell me, in your mind what is an equity investor? 

Mr. TOURRE. It is a party who buys an equity position in a transaction. 

Senator COBURN. And describe an equity position. What are they 

buying, in your mind? 

Mr. TOURRE. They are buying the residual piece of a transaction. 

Senator COBURN. OK. And it may be long, it may be short, it 

may be a derivative, it may be a combined—or it may just be a 

pure equity, right? A stock. 

Mr. TOURRE. It could be a stock. 

Senator COBURN. Right. OK. Did you ever tell ACA Paulson 

would be an equity investor? 

Mr. TOURRE. No. 

Senator COBURN. At no time did you infer that, tell them that, 

or state that, at any time with ACA? 

Mr. TOURRE. No, sir. 

Senator COBURN. OK. Did you tell ACA that Paulson was short 

on the deal? I am talking about the Abacus deal. 

Mr. TOURRE. I do not specifically remember the words I used, but 

I did mention to ACA that Paulson’s expectation was that they 

were buying credit protection on senior tranches of that portfolio. 

Senator COBURN. OK, but that is the same thing as saying they 

are going to buy a short position. 

Mr. TOURRE. Yes. 

Senator COBURN. Was there ever any inference when you said 

that they were also taking a long position—that they were taking 

a long position and insure their long position by buying on the 

short side? 

Mr. TOURRE. To me, buying protection on senior layers of risk 

means being short. 

Senator COBURN. OK. So somebody would not necessarily buy 

long on the higher tranche and sell equity protection on the lowerquality tranche. 

Mr. TOURRE. Correct. 


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Senator COBURN. Nobody would do that? 

Mr. TOURRE. Correct. 

Senator COBURN. OK. Why wouldn’t they? If the different 

tranches have different values, even though the whole thing is AAA 

rated, why would they not buy protection on the highest-risk portion of the deal? 

Mr. TOURRE. I am sorry. Can you repeat the question, Senator? 

Senator COBURN. Why would somebody not buy protection on the 

lowest potential performing component of the deal and buy long on 

the top end of the deal? 

Mr. TOURRE. If somebody has an interest in buying protection on 

a portfolio, depending on the objectives from a carry perspective, 

that party may decide to buy protection on the first loss, the mezzanine, or the super-senior tranche. I think it is an investment decision that has to do with carry, and—— 

Senator COBURN. So they might straddle that for their own insurance, but that is it? 

Mr. TOURRE [continuing]. Views on ultimate losses on the reference portfolio. 

Senator COBURN. Right. OK. Mr. Tourre, to your knowledge, of 

the securities that were kicked out by ACA of the Abacus deal, do 

you have any knowledge that anywhere in Goldman that they— 

once those were kicked out, that they bought a short position in the 

securities that were kicked out? 

Mr. TOURRE. I am sorry. Who bought a short position? 

Senator COBURN. Goldman. Of the securities that were kicked 

out of the Abacus deal, do you have any knowledge anywhere available to you that anybody in Goldman created a short position on 

those securities that were kicked out? 

Mr. TOURRE. When you say ‘‘kicked out,’’ you are—— 

Senator COBURN. They were not part of the deal. In other words, 

ACA said, ‘‘No, we are not taking these.’’ Did anybody within Goldman take a short position on the ones that they were not included 

in the tranches? 

Mr. TOURRE. I do not know, Dr. Coburn. 

Senator COBURN. Does anybody else have an answer for that 

question? Is there any knowledge anywhere about anybody knowing whether or not you specifically took short positions on portfolios 

that were rejected from the Abacus deal? 

Mr. SPARKS. Dr. Coburn, I do not know. 

Senator COBURN. OK. 

Mr. BIRNBAUM. As I had mentioned earlier, I did not work on 

those transactions. 

Senator COBURN. OK. Mr. Swenson. 

Mr. SWENSON. I do not know. 

Senator COBURN. All right. Thank you. Now to the documents. 

The first document is an email about a location—‘‘Canceled: Meet 

with Paulson, potential equity investor.’’ And this actually comes 

from Laura Schwartz, which is on January 8, 2007, 7:05 p.m. 

Laura is communicating to a gkreitman1@bloomberg.net, with a 

copy to Keith Gorman on a Paulson meeting. ‘‘I have no idea how 

it went - I wouldn’t say it went poorly, not at all, but I think it 

didn’t help that we didn’t know exactly how they want to participate in the space. Can you get me some feedback?’’ 


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She is talking about Paulson there, right? You have these in 

front of you, correct? 

Mr. TOURRE. Yes, sir. 

Senator COBURN. Is she talking about the Paulson group? 

Mr. TOURRE. I believe she is talking about the Paulson meeting, 

yes. 

Senator COBURN. OK. And then a phone call on January 10, 

2007. Did you have that phone call? 

Mr. TOURRE. I do not remember, Senator. 

Senator COBURN. You do not remember. All right. But it is in the 

record that it happened. You would agree to—this is your records. 

Mr. TOURRE. I am sorry. When you say this is my—— 

Senator COBURN. These are not your records. I take it back. They 

are ACA records. 

On January 28, 2007, you have an email from Laura Schwartz 

to Alan Roseman and Ted Gilpin; subject: ‘‘Not a boon doggle.’’ 

And, again, the Abacus deal comes up at a per chance meeting in 

Colorado—no, in Wyoming. She went to a conference, hammered 

out collateral and structural issues on two deals with both the 

Paulson PM—does the PM refer to ‘‘prime mover’’ or ‘‘principal 

maker’’ or—— 

Mr. TOURRE. Traditionally, it is ‘‘portfolio manager.’’ 

Senator COBURN. Portfolio manager, OK. That fits. And the Morgan Stanley proprietary head. ‘‘The Paulson [portfolio manager] 

wasn’t even at the conference but came over to me in the mountain 

cafeteria and asked to get together.’’ 

So here is a meeting between ACA and Paulson’s portfolio manager, correct? You would agree that is what this implies? 

Mr. TOURRE. Reading this email right now, it looks like it, sir. 

Senator COBURN. OK. Thank you. 

So then back from Mr. Gorman to Laura Schwartz, ‘‘Looks good 

to me. Did they give a reason why they kicked out all of the Wells 

deals?’’ And then at the bottom of this email is, ‘‘Attached is the 

revised portfolio that Paulson would like us to commit to - all 

names are at the Baa2 level. The final portfolio will have between 

80 and these 92 names. Are ‘we’ ok to say yes on this portfolio?’’ 

OK. And, again, this is inside ACA documents. You probably 

have not been aware of this. 

And then Mr. Pellegrini with Paulson & Company sends to 

Laura Schwartz on February 13th, ‘‘In answer to your question, the 

reasons we decided to go ahead with ACA are that, on the one 

hand, you have an impressive infrastructure and track record and, 

on the other hand, you are willing to execute a relatively less lucrative assignment with the same level of diligence and energy that 

you apply to all your deals. I also appreciated your direct personal 

involvement in selecting the deal’s portfolio of reference obligations.’’ 

Mr. Tourre, what does that say to you? 

Mr. TOURRE. Well, I have never seen this email before, so I am 

just—— 

Senator COBURN. But what would you infer from the fact that 

somebody at Paulson is saying that it was Ms. Schwartz who was 

directly personally involved in selecting the deal’s portfolio of reference obligations? 


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Mr. TOURRE. The way I read this email today is, Paolo Pellegrini 

is thanking Laura Schwartz for working on this transaction. 

Senator COBURN. Well, you do not think it is significant in light 

of the accusations that have been made about Abacus that a 

Paulson representative would imply in this email that he selected 

the deal’s portfolio of reference obligations rather than them? 

Mr. TOURRE. Dr. Coburn, I think we went through this before. 

Goldman Sachs, Paulson, and IKB all made suggestions. I apologize because you were not here when I made my statement. 

Senator COBURN. Right. 

Mr. TOURRE. But out of the initial list of obligations that Goldman Sachs and Paulson had identified, ACA removed more than 

half of them. So ultimately there is not a single obligation in the 

07 AC–1 transaction, there is not one single one that was not selected by ACA. 

Senator COBURN. OK. Thank you. That is helpful. 

All right. Mr. Chairman, I am over my time. I will yield back. 

Senator LEVIN. Mr. Tourre, let me go back to where Dr. Coburn 

left off. When my staff talked to you, we asked you whether or not 

Paulson had established the portfolio selection criteria, such as 

FICO scores, loan-to-value ratios, etc. Was that true? And did you 

answer that was true, in fact? 

Mr. TOURRE. I think what I remember discussing with your staff, 

Mr. Chairman, is the fact that the very original portfolio that 

Paulson and Goldman discussed had been selected from a universe 

of 2006 vintage subprime RMBS obligations, removing, several obligations, and those obligations were removed based on certain criteria. 

Senator LEVIN. Right, and those criteria were selected by 

Paulson? 

Mr. TOURRE. As far as I can remember, yes. 

Senator LEVIN. And half of the portfolio was selected by Paulson 

then. Is that correct? 

Mr. TOURRE. Which portfolio are you referring to, Mr. Chairman? 

Senator LEVIN. The Abacus. 

Mr. TOURRE. The portfolio for Abacus 07 AC–1 was selected by 

ACA based on suggestions—— 

Senator LEVIN. Half of those items in the portfolio were suggestions that came from Paulson. Is that correct? 

Mr. TOURRE. I do not remember the exact—— 

Senator LEVIN. You said they only used half of the suggestions. 

I am asking you—they did not use, you said—or they did use half. 

So either way, half of his suggestions were incorporated in the Abacus portfolio. Is that correct? 

Mr. TOURRE. Mr. Chairman, I did not say half. I said more than 

half the securities were kicked out by ACA. 

Senator LEVIN. Kicked out, OK. So about what percentage of the 

securities were not kicked out? 

Mr. TOURRE. A small percentage. 

Senator LEVIN. A small percentage? 

Mr. SPARKS. No, Mr. Tourre, you misspoke. 

Mr. TOURRE. Can you repeat the other question, Mr. Chairman? 


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1See Exhibit No. 152, which appears in the Appendix on page 963. 

Senator LEVIN. You said that more than half of the suggestions 

of Paulson & Company were not accepted by ACA. What percentage of their suggestions were accepted by ACA? 

Mr. TOURRE. I do not remember the exact percentage, Mr. Chairman. 

Senator LEVIN. Was it nearly half? 

Mr. TOURRE. Again, I do not remember. 

Senator LEVIN. Was it more than a few? 

Mr. TOURRE. Yes. 

Senator LEVIN. And this came to you as a reverse inquiry. Is that 

correct? Do you know what a reverse inquiry is? 

Mr. TOURRE. A reverse inquiry is a very loosely defined term. 

With respect to how I use it and how some of my colleagues use 

it, it is basically a party that comes in with a transaction idea and 

the party that basically drives a transaction. 

Senator LEVIN. And that party with the reverse inquiry is somebody who wants to sell short. Is that correct? Go short? 

Mr. TOURRE. Mr. Chairman, it depends on the circumstances. 

Senator LEVIN. Well, is that what you mean by reverse, that the 

person that comes in—is that what is meant by that term? 

Mr. TOURRE. No, Mr. Chairman. 

Senator LEVIN. All right. Did Mr. Paulson or Paulson & Company come in wanting to go short? 

Mr. TOURRE. They came in and expressed an interest in buying 

protection on—— 

Senator LEVIN. Which means going short, right? 

Mr. TOURRE. Yes. 

Senator LEVIN. And did those criteria which Paulson gave to you, 

were they plugged into your model? Did they then generate a list 

of possible reference securities for that portfolio? 

Mr. TOURRE. Yes. They were used to actually trim down the universe of RMBS. 

Senator LEVIN. Using his criteria. Now, take a look at Exhibit 

152,1 if you would, Mr. Tourre. Do you see that, Exhibit 152? 

Mr. TOURRE. Is this the email from Michael Swenson to myself? 

Senator LEVIN. It is from Michael Swenson—no. It is from you 

to Mr. Sparks. 

Mr. TOURRE. Well, the first email—— 

Senator LEVIN. No, I am talking about the original message, the 

bottom. 

Mr. TOURRE. Understood. 

Senator LEVIN. OK? Do you see where the second paragraph 

says, ‘‘At the end of the meeting, the Paulson team’’—this is you 

speaking—‘‘told us that they were happy to have met’’—and we do 

not put the name of the person in, obviously—‘‘and assuming that 

(1) could get comfortable with a sufficient number of obligations 

that Paulson is looking to buy protection on in Abacus format.’’ Do 

you see that, that he is looking to buy protection? That means to 

go short, right? 

Mr. TOURRE. Yes. 

Senator LEVIN. And those are your words, right? 

Mr. TOURRE. Yes, Mr. Chairman. 


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1See Exhibit No. 107, which appears in the Appendix on page 677. 

Senator LEVIN. All right. Then take a look at Exhibit 107,1 the 

top of page 2. This is now the question of what managers are you 

going to work with. And do you see that at the top of page 2? 

Mr. TOURRE. One moment, Mr. Chairman. 

Senator LEVIN. OK. 

Mr. TOURRE. Exhibit 107? 

Senator LEVIN. Exhibit 107, yes. 

Mr. TOURRE. I am with you, Mr. Chairman. 

Senator LEVIN. It says—well, first look on page 1, that you are 

looking for portfolio selection agents—and this is one of your criteria—who ‘‘will be flexible with regard to portfolio selection . . . 

ideally we will send them a list of [those bonds] that fit certain criteria, and the portfolio selection agent will select 100 out of the 200 

bonds’’ that you send to them. Do you see your words there? 

Mr. TOURRE. I see my words, Mr. Chairman. 

Senator LEVIN. Is that accurate? Did that reflect the facts at the 

time? 

Mr. TOURRE. This reflects the fact that we were—— 

Senator LEVIN. Was that accurate when you said it? Is that what 

you were looking for? 

Mr. TOURRE. The intention was to send a range of securities, to 

give some guidance to the portfolio selection agent. 

Senator LEVIN. And you were looking for an agent that would be 

flexible. Is that correct? That is your word? 

Mr. TOURRE. That is my word. 

Senator LEVIN. OK. Now, keep going. On page 2, by the way— 

and this is from Geoffrey Williams to you. He said, ‘‘There are more 

managers . . . than just [so-and-so]. The way I look at it,’’ he 

said—this is page 2 at the top—‘‘the easiest managers to work with 

should be used for our own axes.’’ In other words, I guess that 

means for Goldman’s own goals instead of your clients’—here is another example where Goldman is putting themselves ahead of their 

own client, by the way. 

‘‘There are more managers out there than just [so-and-so]. The 

way I look at it, the easiest managers to work with should be used 

for our own axes’’—I think which means goals or our own ambitions. ‘‘Managers that are a bit more difficult should be used for 

trades like Paulson given how axed Paulson seems to be (i.e. I’m 

betting they can give on certain terms and overall portfolio increase).’’ So you think, hey, give the less flexible folks to our customers. We will save the more flexible for ourselves.’’ 

Then you keep going. Take a look at Exhibit 112. 

Mr. TOURRE. Mr. Chairman, can I interrupt you one second? 

Senator LEVIN. Sure. 

Mr. TOURRE. With respect to your point about our own axes and 

your suggestion that they would be for—Goldman’s own sort of use, 

if you will, again—and I do not remember the specific email, but 

the way I read it today is that there were transactions for which 

the best way to risk-manage those transactions was to re-offer the 

protection we were buying from the market directly in tranche format to certain investors. 

Senator LEVIN. I understand. 


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1See Exhibit No. 109, which appears in the Appendix on page 682. 

2See Exhibit No. 118, which appears in the Appendix on page 713. 

Mr. TOURRE. And there were other—and the other types of transactions and the other way we could risk-manage our risk was by 

writing single-name CDS protection on these obligations, and what 

I meant by, our own axes was I would rather risk-manage a 

tranche short with a basket of single-name credit default swap contracts. 

Senator LEVIN. OK. 

Mr. TOURRE. So that is what I meant by this. 

Senator LEVIN. Now, take a look at—I said Exhibit 112, but I 

meant Exhibit 109.1 This is from Laura Schwartz at ACA to Gail 

Kreitman. Who is she? 

Mr. TOURRE. She is a salesperson who used to cover ACA. 

Senator LEVIN. For Goldman? 

Mr. TOURRE. Yes. 

Senator LEVIN. So now ACA is writing Goldman. ‘‘Gail, I certainly hope I didn’t come across too antagonistic on the call with 

Fabrice last week but the structure looks difficult from a debt investor perspective. I can understand Paulson’s equity perspective. 

. . .’’ Where did they get that from? 

Mr. TOURRE. I do not know, Mr. Chairman. 

Senator LEVIN. Well, but Gail Kreitman sure was told that somehow or other Paulson had an equity perspective. Then she said, 

‘‘but for us to put our name on something, we have to be sure it 

enhances our reputation.’’ 

So you do not know where ACA got the impression that Paulson 

was on the long side, right? You do not know where they got that? 

Mr. TOURRE. I do not know, Mr. Chairman, but, again—— 

Senator LEVIN. Do you know where they got that impression? 

Mr. TOURRE. No, I do not know, Mr. Chairman. 

Senator LEVIN. Now, take a look at Exhibit 108—well, we will 

skip that one. It is too long. 

Exhibit 118.2 This is the big formal memo that went to the Capital Committee from you, and a number of other people. This is 

what you said, on page 3, about the sixth line from the bottom. Do 

you see where it says, ‘‘The Reference Portfolio has been selected 

and mutually agreed upon by ACA and Goldman’’? Do you see 

that? 

Mr. TOURRE. Yes, I see that. 

Senator LEVIN. Was that true? 

Mr. TOURRE. Well, as I mentioned to your staff last week—— 

Senator LEVIN. No, not staff. I am just asking you right now. 

Was that true, that statement that you sent to your own committee? Was that accurate? 

Mr. TOURRE. It is not very accurate. It could have been more accurate, Mr. Chairman. 

Senator LEVIN. It could have been what? 

Mr. TOURRE. It could have been more accurate. 

Senator LEVIN. I am not sure it could have been, but at any rate, 

you deny that is accurate. 

Mr. TOURRE. I am saying it could have been more accurate. 

Senator LEVIN. Where was it inaccurate? 


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1See Exhibit No. 123, which appears in the Appendix on page 843. 

Mr. TOURRE. Mr. Chairman, before I answer that question, this 

was merely a copy paste from previous transactions where there 

was a portfolio manager involved. 

Senator LEVIN. Well, where is it inaccurate? 

Mr. TOURRE. Well, again, this could have been more accurate—— 

Senator LEVIN. No. I am saying where was it inaccurate? 

Mr. TOURRE. Mr. Chairman, I did not say it was completely inaccurate. 

Senator LEVIN. Was it inaccurate in the reference to Goldman? 

Mr. TOURRE. Had I been—— 

Senator LEVIN. No. Are you claiming that was inaccurate now in 

reference to Goldman? 

Mr. TOURRE. I am claiming it is inaccurate in reference to the 

fact that it does not say exactly the—— 

Senator LEVIN. Was this portfolio mutually agreed upon by ACA 

and Goldman, yes or no? 

Mr. TOURRE. It was mutually agreed by Goldman, ACA, IKB, 

and Paulson. 

Senator LEVIN. All right. So you say it was mutually agreed upon 

by ACA and Goldman, you are saying that there were others that 

were left out. 

Mr. TOURRE. Well, let me—— 

Senator LEVIN. And Paulson was left out. Is that correct? I think 

you have not answered the question the best you can, so let us go 

on. 

Take a look at Exhibit 123.1 Have you got it? 

Mr. TOURRE. Yes, Mr. Chairman. 

Senator LEVIN. Do you see near the bottom there, it is an email 

from you to Josh Birnbaum? Do you see that? 

Mr. TOURRE. On page 1 or page 2, Mr. Chairman? 

Senator LEVIN. Page 1 near the bottom. 

Mr. TOURRE. Yes, I see that email. 

Senator LEVIN. It says here ‘‘100 [percent] of the Baa2 RMBS selected by ACA/Paulson.’’ Now, you are saying here that Paulson 

was one of the two people that selected this and the other was 

ACA. Was that an accurate statement? 

Mr. TOURRE. Mr. Chairman, I was responding to a specific question from Josh Birnbaum, and—— 

Senator LEVIN. I know. Was that accurate? 

Mr. TOURRE [continuing]. With a view to actually type fast, I did 

not really—— 

Senator LEVIN. I know how fast—— 

Mr. TOURRE [continuing]. Write something accurate. What I 

should have written was that this was a portfolio selected by ACA 

with suggestions from Paulson, from Goldman Sachs, and from 

IKB. That would have been the factually correct statement. Here 

my objective was to write something quick to answer Josh, which 

was to answer a question that was more related to risk and risk 

management. 

Senator LEVIN. Right. But what you said then was that it was 

selected by ACA/Paulson, right? That is what you said at the time? 

Is that accurate—am I reading this accurately? 


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1See Exhibit No. 55c, which appears in the Appendix on page 447. 

Mr. TOURRE. That is what I wrote in this email, Mr. Chairman. 

Senator LEVIN. You now deny that it was accurate. Is that right? 

Mr. TOURRE. I am just saying—— 

Senator LEVIN. Was it accurate, yes or no? 

Mr. TOURRE. It could have been more accurate, Mr. Chairman. 

Senator LEVIN. Let me just summarize this. You knew Paulson 

was on the short side of the trade. Is that correct? 

Mr. TOURRE. Yes. 

Senator LEVIN. You knew Paulson had helped select the mortgages to be referenced. Is that correct? 

Mr. TOURRE. They made suggestions, yes. 

Senator LEVIN. And that a significant number of those suggestions were put into the document. Is that correct? 

Mr. TOURRE. I do not remember the exact number. 

Senator LEVIN. But you know that it is more than a few? 

Mr. TOURRE. Yes. 

Senator LEVIN. You did not disclose to ACA that Paulson was on 

the short side of this deal. Is that correct? 

Mr. TOURRE. I did mention to ACA that the expectation was that 

Paulson was going to buy protection on senior layers of risk in the 

transaction. 

Senator LEVIN. That they were going to be only on the short side. 

Mr. TOURRE. Yes. 

Senator LEVIN. So you did say to ACA that Paulson was going 

to be on the short side of this transaction? 

Mr. TOURRE. Yes. I do not remember the words, but I did mention that to ACA. 

Senator LEVIN. And was it reflected in the Goldman Sachs security offering to investors that Paulson had been part of the selection process? Was that represented in that document? 

Mr. TOURRE. Paulson was not disclosed in the Abacus 07 AC–1 

transaction, Mr. Chairman. 

Senator LEVIN. It was not? 

Mr. TOURRE. No, it was not. 

Senator LEVIN. Did Goldman intend to keep a long stake in that 

transaction when the deal was structured? I know it ended up with 

a piece. Was it intended that it end up with a piece of that deal? 

Mr. TOURRE. We tried to hedge our risk by selling that piece as 

well, but were not successful in doing so. 

Senator LEVIN. So it was intended to sell that piece? 

Mr. TOURRE. For prudent risk management reasons, we were trying—— 

Senator LEVIN. Oh, I am sure for all the right reasons. But it 

was intended that Goldman not have any long stake on that piece. 

Is that correct? 

Mr. TOURRE. Yes. 

Senator LEVIN. Dr. Coburn. 

Senator COBURN. I just have a couple of other questions. 

Mr. Birnbaum, if you would turn to Exhibit 55c,1 your self-review, page 3 of your 2007 review: ‘‘I have been the primary proponent of trading related equity names on the ABS desk.’’ Can you 

tell me what that means? 


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1See Exhibit No. 156, which appears in the Appendix on page 972. 

2See Exhibit No. 155, which appears in the Appendix on page 971. 

Mr. BIRNBAUM. Just let me get the exhibit first. You are on 

which page of the review? 

Senator COBURN. Page 3. 

Mr. BIRNBAUM. OK. 

Senator COBURN. You state there, ‘‘I have been the primary proponent of trading related equity names on the ABS desk.’’ In plain 

English, what does that mean? 

Mr. BIRNBAUM. That refers to trading equities as part of our 

hedging strategy. 

Senator COBURN. OK. Were you involved in or did you direct 

Goldman taking short positions on companies with exposures in the 

mortgage meltdown? 

Mr. BIRNBAUM. I do not remember the names that we used as 

part of our—specific names as part of our hedging strategy, but as 

part of our macro hedging strategy, we did use primarily put options on equities as a component of what we did. 

Senator COBURN. You bought puts? 

Mr. BIRNBAUM. We bought puts. 

Senator COBURN. OK. And you do not remember any of the 

names of the companies that you bought puts in? 

Mr. BIRNBAUM. It was a while ago. I do not remember the specifics. 

Senator COBURN. OK. Exhibit 156 1 is a report in an email addressed to you dated March 28, 2007. It is a breakdown of Goldman 

Sachs’ risk exposure to various companies. 

Mr. BIRNBAUM. OK. 

Senator COBURN. Do you ever recall receiving something like 

this? 

Mr. BIRNBAUM. I do not remember seeing this. 

Senator COBURN. But it was an email addressed to you? 

Mr. BIRNBAUM. I can confirm that, just looking at it here. 

Senator COBURN. OK. That email to me reflects that Goldman 

took a short position on Bear Stearns and Merrill Lynch, your 

former competitors. Is that what that would indicate? 

Mr. BIRNBAUM. There is a lot of information in this email. It 

looks—— 

Senator COBURN. I will wait for you to assess it. 

Mr. BIRNBAUM. I see those names on this email. 

Senator COBURN. Were you responsible for those positions since 

you were the director of that? 

Mr. BIRNBAUM. Well, I do not know if these names were as a result of my trading or someone else’s trading within the firm. 

Senator COBURN. Well, it would certainly look like it would be 

since the email is directed to you. Go to Exhibit 155, if you would.2

Mr. BIRNBAUM. There are a lot of other people in this email. 

Senator COBURN. I understand, but you are the one that took 

credit in your own self-evaluation that you are the one that is responsible for that strategy. 

Mr. BIRNBAUM. Which I think is—just to give you some background, I mean, that is a perfectly—— 


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Senator COBURN. I am not saying there is anything wrong with 

the strategy. I did not say that. 

Mr. BIRNBAUM. Exhibit 155? 

Senator COBURN. Yes. 

Mr. BIRNBAUM. OK. 

Senator COBURN. This is a document that reflects that the biggest piece of Timberwolf was purchased by a division of what was 

formerly Bear Stearns, $300 million worth. Does this document 

show that Goldman took a short position on Bear Stearns? 

Mr. BIRNBAUM. Exhibit 155? 

Senator COBURN. Yes. 

Mr. BIRNBAUM. I think Exhibit 155, which—is this an email or 

is this—what is this? 

Senator COBURN. Well, it is in front of you. 

Mr. BIRNBAUM. OK. It is not an email. I have never seen this report before. 

Senator COBURN. I did not say it was an email. I said it was a 

document. 

Mr. BIRNBAUM. OK. I have never seen this document before. 

Senator COBURN. Do you have any recollection at all of ever recommending the short on Bear Stearns or buying a put? 

Mr. BIRNBAUM. I do recall, yes. 

Senator COBURN. OK. So here is the question I have for you, and 

I am not saying it is not fair, but I want to get your assessment. 

You are looking at what you see is a change in residential backed 

mortgage securities. You are changing positions within Goldman. 

At the same time, you are selling them Timberwolf, which you are 

now seeing and you are buying stuff on the other side of, which 

was used with a fairly humorous description by some in your sales 

department, and now you are carrying that even further by shorting a company that bought your product because the thinking is it 

is a smart way to hedge because you are already betting against 

it inside on a CDO product, and they have got $300 million of it, 

and you do not think it is going to be worth much, so it might 

mean that their stock is going to decline. 

Is that an accurate assessment of the trading strategy? 

Mr. BIRNBAUM. Absolutely not. 

Senator COBURN. OK. What was the indication for the trading— why would you short Bear Stearns after they had just bought $300 

million worth of Timberwolf from you? 

Mr. BIRNBAUM. Well, keep in mind the Timberwolf transactions 

were not part of my job function. 

Senator COBURN. Were you aware of Timberwolf sales? 

Mr. BIRNBAUM. I heard the name Timberwolf. I was not—— 

Senator COBURN. You had no knowledge that Bear Stearns had 

exposure to multiple mortgage-backed securities? 

Mr. BIRNBAUM. I never had knowledge of that. 

Senator COBURN. So what did you base the idea that you would 

short a Bear Stearns for? 

Mr. BIRNBAUM. When I spoke earlier, I used the word ‘‘macro’’ 

to describe some of those hedges, and sort of inherent in that description is that I had a portfolio of several names that I felt that 

would have some exposure—— 

Senator COBURN. More downside risk than others? 


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Mr. BIRNBAUM. Well, keep in mind when you buy a put, you are 

not just betting on downside, you are also betting on uncertainty. 

And at the time there was a lot of uncertainty in the market as 

to which way the market was going to go, and you can buy insurance, buy a put—— 

Senator COBURN. I understand. 

Mr. BIRNBAUM [continuing]. And that can be a very effective 

hedge against a portfolio. You are not necessarily betting—— 

Senator COBURN. Just as selling the call can be. 

Mr. BIRNBAUM. But you are not necessarily betting the market 

is going to go down, and I agree, just like a call can be. 

Senator COBURN. OK. All right. So you do not see any connection 

between Goldman’s position in mortgage underwriting sophisticated instruments and your position looking at a macro sense of 

what you see happening there and taking and shorting your competitors or buying a put insurance against your competitors? 

Mr. BIRNBAUM. None at all. 

Senator COBURN. There is no connection? 

Mr. BIRNBAUM. No connection. 

Senator COBURN. OK. And you had never had any conversation 

within the firm about that connection when—do you deny any 

knowledge that the firm had taken a significant change in position 

in terms of mortgages and mortgage-backed securities, CDOs and 

CDS? 

Mr. BIRNBAUM. Well, I can only speak—— 

Senator COBURN. Were you aware of—— 

Mr. BIRNBAUM. I am aware of my position. 

Senator COBURN. Were you aware of the firm’s position that was 

communicated widely through a lot of emails? 

Mr. BIRNBAUM. Well, most of those emails I was not on. 

Senator COBURN. I did not ask you that. I said were you aware. 

Mr. BIRNBAUM. I was not aware of what the firm as a whole 

was—what the firm’s position on mortgages was. The only thing I 

was aware of is the firm asked me to be a good risk manager. 

Senator COBURN. Right, OK. And I think—— 

Mr. BIRNBAUM. And I was long—— 

Senator COBURN [continuing]. You probably were. But I cannot 

believe that when you execute a strategy to take advantage of 

greater knowledge within your firm to increase the return for your 

firm that you can at the same time sit there and tell you are not 

taking advantage of the knowledge from the other areas of the 

firm. You cannot have a strategy both ways. You are going to say 

we can build a strategy based on this, but we are not going to take 

any information inside the firm to make those decisions. I mean, 

that is not plausible. 

Mr. BIRNBAUM. It is plausible because that is what happened. 

Senator COBURN. In other words, without any knowledge—you 

had no knowledge that the firm took any short positions in the 

mortgage-backed security business? 

Mr. BIRNBAUM. Well, that is not what you asked me. You asked 

me—— 

Senator COBURN. I am asking you that now. 

Mr. BIRNBAUM. You asked me regarding Timberwolf. 


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1See Exhibit No. 160, which appears in the Appendix on page 983. 

Senator COBURN. I am asking you about mortgage-backed securities. Were you aware that the firm had changed its position? You 

were testifying before—you jumped in when I was asking Mr. 

Sparks—that you do change positions. I understand that. 

Mr. BIRNBAUM. Right, and, again, I do not speak for the firm. I 

speak for my position. So I was not aware of any firm-wide guidance as to a direction on the mortgage market. 

Senator COBURN. So you would not think it would be prudent for 

somebody in risk management like you to maximize a position for 

Goldman Sachs to take advantage of that information and then 

make decisions about your competitors who were long in these 

areas? 

Mr. BIRNBAUM. Sorry. Which information? 

Senator COBURN. The information of the fact that the housing 

market, the prices in the housing market, as you testified earlier, 

as an indicator, that you were seeing softness in that market, you 

were seeing a decelerating increase in prices, then you saw a flat 

price, then you saw a deceleration of price. 

Mr. BIRNBAUM. Well, I think taking publicly available information and trading a publicly traded equity is perfectly fine—— 

Senator COBURN. But that is counter to what you were promoting yourself and your own deal, that you were going to expand 

the use and leverage the use of the knowledge within the firm. All 

I am asking you is you did not use any of the knowledge anywhere 

else in the firm to advantage your ability to make a better return 

as a risk management? 

Mr. BIRNBAUM. You were asking me about a specific—— 

Senator COBURN. No. I am asking you what I just asked you. You 

did not at any time use other information within the firm of what 

was going on, the coffee talk, everything else, all the emails, the 

positions, the SEC reports, the internal management report, you 

never at any time used that to enhance your ability to make Goldman money? 

Mr. BIRNBAUM. The typical way that I would synchronize with 

other people within the firm was with a research group that might 

help me in the evaluation of some of these securities. 

Senator COBURN. Well, the research group would certainly know 

about whether or not the firm had been advised to take a different 

position in terms of collateralized debt obligations and residential 

mortgage-backed securities? 

Mr. BIRNBAUM. Well, I was not advised of that, and I am not 

sure why they would be advised of that. I am not sure we have 

even established that there was a firm-wide change in position. 

Senator COBURN. Well, we will let the record speak to that. All 

right. I will give up on that. 

Senator LEVIN. Mr. Swenson, would you look at Exhibit 160?1 Do 

you have it? 

Mr. SWENSON. Yes. 

Senator LEVIN. This is a financial summary. Take a look at page 

2 where it says ‘‘Mortgages.’’ Do you see where it says ‘‘Mortgages 

Performance.’’ Do you see that box? 

Mr. SWENSON. Yes, up top. 


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Senator LEVIN. It says there what your performance was for the 

year to date, YTD. Do you see that? 

Mr. SWENSON. Yes. 

Senator LEVIN. And then SPG. What does that stand for? Structured Products Group? 

Mr. SWENSON. That is correct. 

Senator LEVIN. And were you the co-head of that group? 

Mr. SWENSON. Yes. 

Senator LEVIN. And that group made, as I understand it, $3.7 

billion on the short side, basically, right? 

Mr. SWENSON. Yes. 

Senator LEVIN. And the first three items there, residential prime, 

residential credit, and CDO–CLO, those were mainly from the old 

inventory, I gather, and they continued to lose money. That was 

the long that had been previously dragging the company down. And 

if you look at what was lost on that side of it, residential prime, 

residential credit, CDO, when you add those three together, those 

losses come to $2.9 billion. Does that look about right to you? 

Mr. SWENSON. It looks about right. 

Senator LEVIN. So you guys made $3.7 billion that year. The previous year’s inventory, mainly, was deducted from that in order to 

come up with the total performance. But that is where that revenue number of $1.130 billion comes from, is that correct? 

Mr. SWENSON. As it is broken out on this sheet, yes. 

Senator LEVIN. Who put this sheet together? This is your sheet, 

isn’t it? Isn’t this a Goldman Sachs sheet that you helped put together? 

Mr. SWENSON. It is a sheet that I am not familiar with. 

Senator LEVIN. All right. Do those numbers look right to you? 

Mr. SWENSON. We are going back a number of years—— 

Senator LEVIN. Well, did your group have a pretty good year for 

2007? 

Mr. SWENSON. Yes, we had a pretty good year that year. 

Senator LEVIN. Did you start off that year with a value at risk 

number? 

Mr. SWENSON. The VaR was not broken out on the ABS Desk. 

It was broken out—— 

Senator LEVIN. It was broken out according to what? 

Mr. SWENSON. The business lines, the Mortgage Department 

line. 

Senator LEVIN. The mortgage line. So the Mortgage Department 

had a VaR at the beginning of the year, right? 

Mr. SWENSON. Yes. 

Senator LEVIN. Do you know what it was? 

Mr. SWENSON. No, I do not recall. 

Senator LEVIN. Do you remember what it was about? 

Mr. SWENSON. I remember what it was about, but I don’t 

know—— 

Senator LEVIN. At the beginning. 

Mr. SWENSON [continuing]. A specific number. Since we are talking about—— 

Senator LEVIN. How does 20 or 30 sound to you? 

Mr. SWENSON. I don’t know. 

Senator LEVIN. Well, it was around 20 at the beginning. 


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1See Exhibit No. 164, which appears in the Appendix on page 1010. 

Mr. SWENSON. And, Mr. Chairman, where are you getting that 

number—— 

Senator LEVIN. The Mortgage Department. 

Mr. SWENSON. Where are you getting that number, Mr. Chairman? 

Senator LEVIN. From your numbers. 

Mr. SWENSON. No, but in this book. 

Senator LEVIN. I don’t know that we have it in the book. 

[Pause.] 

Senator LEVIN. Exhibit 164.1

Mr. SWENSON. Thank you. 

Senator LEVIN. That red line there, that is your permanent VaR 

limit. 

Mr. SPARKS. Mr. Chairman, would it be helpful if I helped on 

this point, because—— 

Senator LEVIN. I don’t know that you have been very helpful on 

too many points, but give it another try. 

Mr. SPARKS. OK. With respect to risk in the overall Mortgage Department, I would have been responsible for that number—— 

Senator LEVIN. All right. 

Mr. SPARKS [continuing]. So I might have more information. 

Senator LEVIN. The VaR for the overall Mortgage Department 

started off, it looks like, in December at around 20. It went up to 

a little over 30, and that was your permanent VaR limit, is that 

right? 

Mr. SPARKS. Yes, but I would like to point out, Mr. Chairman, 

that with respect to how I managed risk in our mortgage business—— 

Senator LEVIN. I am just asking if that was your permanent 

limit. 

Mr. SPARKS. I don’t recall what my permanent limit was because 

I didn’t use VaR as a primary risk measurement or management 

tool. 

Senator LEVIN. Somebody else did, didn’t they, in the firm? 

Someone else was using VaRs as a risk measurement, weren’t 

they? 

Mr. SPARKS. That is correct. That is what the firm overall uses. 

Senator LEVIN. Right. 

Mr. SPARKS. But I wanted to be clear with respect—— 

Senator LEVIN. Your department was given a permanent limit by 

the firm, is that correct? 

Mr. SPARKS. We had limits, and until things started to vary, they 

usually weren’t an issue and—— 

Senator LEVIN. But you guys wanted to take a heck of a lot more 

risk on shorts, and that is, according to your own numbers, what 

happened, huge bets on shorts so that your VaR limit was allowed 

to go up to 100, which was at one point more than half of the whole 

risk the firm was taking, although you were only around 2 or 3 

percent of the income of that firm. 

So that red line there, that was supposed to be the prescribed 

limit. That was the limit on the risk, a very cautious, prescribed 

limit. But that other line that is blue or green—I can’t see from 


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here—but the line that looks like mountains, those were big excesses above your VaR limit. It went way up there in February, all 

the way to 100. Then you cashed in on those shorts, it came 

down—you made billions there—went up in August to over 100, 

and then gradually came down and settled by the end of the year 

at something like 80. 

So you had a permanent limit of something between 20 to 30 

that the leaders of the firm said was the right limit for the Mortgage Department, but you were allowed to go so far short that your 

risk limit and your short position pulled you up to a VaR, a value 

at risk number, that was probably unheard of, by the way, but represented more than half the risk that the firm was taking. We 

think 56 percent of the total risk of the firm was in your department, which was producing 2 percent of the revenue. Does that 

sound right to you? 

Mr. SPARKS. Chairman Levin, I think this is a very important 

point with respect to VaR and the mortgage business—— 

Senator LEVIN. But just the numbers. Do the numbers sound 

right to you? 

Mr. SPARKS. VaR, with respect to the mortgage business, had 

some fundamental flaws, including not all the products were included, especially many of the long positions. The firm continually 

worked to improve that. I mentioned that we had made mistakes 

in the past and one of those mistakes was we had not invested 

enough with respect to this to have that accurately reflect our risk. 

Senator LEVIN. OK. 

Mr. SPARKS. As the market got more volatile, that number moved 

up a lot. So when I said that was not the primary tool I used with 

respect to managing the risk in the department, that is accurate. 

That doesn’t mean I didn’t ignore it and that doesn’t mean that the 

firm—— 

Senator LEVIN. That doesn’t mean you did ignore it? 

Mr. SPARKS. No, it doesn’t mean that I didn’t ignore the VaR—— 

Senator LEVIN. Did not or did? 

Mr. SPARKS. I meant to say, I had to pay attention to the VaR 

because it affected the firm’s overall VaR, so we had two issues to 

deal with: One, a flawed measurement that we had to try and work 

with, and the second was, though, it was still a very big number 

that was creating issues with respect to the firm. 

Senator LEVIN. Right, and the senior management was using the 

VaR, is that correct? 

Mr. SPARKS. The senior management was using the VaR and the 

senior—but the senior management understood my concerns that 

that was not reflective of what our risk was. 

Senator LEVIN. All right. In any event, using that measurement 

which you were using, it started off in January 2007 somewhere 

around 20, and then your permanent limit was at 30, and that is 

what happened. That is what you were allowed to do on the short. 

That reflects the short positions that you took. That is how big a 

short position you folks took. You made billions. 

At the same time, in many cases, and we have laid out many of 

them here, where you were taking short positions, you were selling 

securities to your customers, taking short positions on a number of 


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those securities. We have laid out a number of those today in this 

morning’s hearing. 

I think there is a clear conflict of interest when that happens. 

There is a big conflict of interest question that has to do with when 

you are betting big time against a whole market. Should your clients and customers know that? That is one issue. But for heaven’s 

sake, it should be abundantly clear that when you are selling securities to clients and customers, that they should know that you are 

betting against those same securities. 

And what happened during that year is that you were making 

a lot of money, in the billions, from your short positions betting 

against the market and against securities that you were selling to 

customers. That is, I think, intolerable. There is a fundamental 

conflict of interest that needs to be addressed. We obviously have 

to address it either by legislation or by regulation, and unless Dr. 

Coburn has additional questions, I will—— 

Senator COBURN. I just want to make one remark to temper 

yours. Markets have to have people on both sides of them. My concern is where is the ethical standard on when you expose your position as a market maker and does there need to be some refinement 

in that so that people can see, transparency and trust and truth 

in a market. 

Senator LEVIN. No, I agree totally with that, and with that positive note, you will be excused and we will stand in recess for 10 

minutes. 

[Recess.] 

Senator LEVIN. We will now move to our second panel of witnesses for today’s hearing, David Viniar, an Executive Vice President and Chief Financial Officer of Goldman Sachs, and Craig 

Broderick, the Chief Risk Officer of Goldman Sachs. We appreciate 

your being with us today. 

Pursuant to the rules of this Subcommittee, which you are familiar with, I believe, all witnesses who testify before us are required 

to be sworn in. At this time, I would ask you both to please stand 

and raise your right hands. 

Do you swear that the testimony you are about to give to this 

Subcommittee will be the truth, the whole truth, and nothing but 

the truth, so help you, God? 

Mr. VINIAR. I do. 

Mr. BRODERICK. I do. 

Senator LEVIN. The timing system today will give you a red light 

in about 5 minutes and a yellow light in about 4 minutes so that 

you would have a chance to hopefully give us your oral testimony 

in 5 minutes. 

Mr. Viniar, we will have you go first, and then Mr. Broderick, 

and then we will go to questions. Thank you again for joining us. 

Mr. Viniar. 


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1The prepared statement of Mr. Viniar appears in the Appendix on page 216. 

TESTIMONY OF DAVID A. VINIAR,1 EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, THE GOLDMAN 

SACHS GROUP, INC., NEW YORK, NEW YORK 

Mr. VINIAR. Chairman Levin, Ranking Member Coburn, and 

Members of the Subcommittee, good afternoon. My name is David 

Viniar. I have been Chief Financial Officer of Goldman Sachs since 

1999. I am responsible for risk management, financial control and 

reporting, and financing our business, among other duties. I appreciate the opportunity to appear before the Subcommittee and I will 

comment here on our risk philosophy and our approach to risk 

management. 

As a global investment bank and financial intermediary, Goldman Sachs integrates advice and capital with its risk management 

capabilities to serve a broad range of largely institutional clients. 

In doing so, we often take on principal risk to help clients achieve 

their objectives. For example, we may facilitate block offerings, provide structured solutions, or extend credit. We routinely evaluate, 

price, and distribute risk across the spectrum according to the specific risk appetites of our institutional clients. 

We know that we will sometimes incur losses, but as a core part 

of our business model, we proactively manage our risk to minimize 

these losses. When we commit capital to buy or sell financial instruments, extend credit, or invest alongside our clients, we accumulate both long and short positions that give rise to liquidity, 

credit, and market risks. We deploy a range of risk management 

capabilities to price the risks of each transaction appropriately, 

keep the firm’s overall exposures within risk limits, and establish 

offsetting positions, or sell and buy positions, as necessary to control overall exposure. 

Our approach is to understand the risks we are taking, analyze 

and quantify them, and keep a firm grip on their current market 

value. We carry virtually our entire inventory of financial instruments at fair market value, with changes reflected in our daily 

P&L. Such daily marking of our positions was a key reason we decided to start reducing our mortgage risk as market conditions 

were deteriorating at the end of 2006. 

I would like to give you a sense for how we managed our risk 

during the period leading up to the crisis. Through the end of 2006, 

we were generally long in exposure to residential mortgages and 

mortgage-related products. In that December, however, we began 

to experience a pattern of daily losses in our mortgage-related 

P&L. P&L can itself be a very valuable risk metric and I personally 

read it every day. 

I called a meeting to discuss the situation with the key people 

involved in running the mortgage business. We went through our 

positions and debated views on the mortgage market in considerable detail. While we came to no definitive conclusion about how 

the overall market would develop in the future, we became collectively concerned about the higher volatility and recent price declines in our subprime mortgage-related positions. 

As a result, we decided to attempt to reduce our exposure to 

these positions. We wanted to get closer to home. We proceeded to 


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1The prepared statement of Mr. Broderick appears in the Appendix on page 221. 

sell certain positions outright and hedge our long positions in an 

attempt to achieve these results. 

As always, the clients who bought our long positions or other 

similar positions had a view that they were attractive positions to 

purchase at the price they were offered. As with our own views, 

their views sometimes proved to be correct and sometimes incorrect. 

We continued to reduce our positions in these products over the 

course of 2007. We were generally successful in reducing this exposure to the extent that, on occasion, our portfolio traded short. 

When that happened, even if these short positions were profitable, 

given the ongoing high volatility and uncertainty in the market, we 

tended to attempt to then reduce these short positions to again get 

closer to home. 

This situation reversed itself in 2008, however, when the portfolio tended to trade long, and as a result, despite the fact that our 

franchise enabled the firm to be profitable overall, we lost money 

on residential mortgage-related products in that year. While the 

tremendous volatility in the mortgage market caused periodic large 

losses on long positions and large gains on offsetting short positions, the net of which could have appeared to be a substantial gain 

or loss on any day, in aggregate, these positions had a comparatively small effect on our net revenues. 

In 2007, total net revenues from residential mortgage-related products, both longs and shorts together, were less than $500 million, approximately 1 percent of Goldman Sachs’s overall net revenues. And in 2007 and 2008 combined, our net revenues in this 

area were actually negative. 

For Goldman Sachs, weathering the mortgage market meltdown 

had nothing to do with prescience or betting on or against anything. More mundanely, it had everything to do with systematically 

marking our positions to market, paying attention to what those 

marks were telling us, and maintaining a disciplined approach to 

risk management. 

Thank you, and I am happy to take your questions. 

Senator LEVIN. Thank you very much. Mr. Broderick. 

TESTIMONY OF CRAIG W. BRODERICK,1 CHIEF RISK OFFICER, 

THE GOLDMAN SACHS GROUP, INC., NEW YORK, NEW YORK 

Mr. BRODERICK. Thank you, Chairman Levin, Ranking Member 

Coburn, and Members of the Subcommittee. Good afternoon. My 

name is Craig Broderick. I have been the Chief Risk Officer of 

Goldman Sachs since 2007 and prior to that was the Chief Credit 

Officer. I am responsible in this capacity for credit, market, operational risk, and insurance. 

In summarizing my written submissions, I will focus my remarks 

on the firm’s risk management framework to supplement David 

Viniar’s comments on the topic and look forward to addressing your 

questions in more detail. 

As noted by Mr. Viniar, the nature of our role as financial intermediary requires a willingness to take risk on behalf of our clients. 

We seek to do so only within very carefully calibrated limits which 


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are in line with our overall financial resources. Our clients expect 

us to facilitate transactions for them in all market conditions, and 

as such, the better that we understand and can manage risk, the 

more willing we are to transact with clients regardless of our views 

on markets. 

Our risk management framework has a number of core components. The central tenet is our daily discipline of marking all the 

firm’s financial assets and liabilities to current market levels. We 

do so because we believe that it is one of the most effective tools 

for assessing and managing risk, providing the best insights into 

our positions and associated exposures. Goldman Sachs, as Mr. 

Viniar noted, is one of the few financial institutions in the world 

that carries virtually all financial instruments held in its inventory 

at current market value, with any changes reflected immediately in 

our risk management systems. 

The second core component is independence. Professionals in our 

risk management and key control functions have complete independence from their counterparts in the revenue generating divisions. This uncompromised independence, which exists in practice 

as well as in concept, gives teeth to the firm’s risk management approach. 

The third is governance. The firm’s governance structure provides the protocol and responsibility for decision making and implementation on risk management issues. 

A fourth component is our use of risk systems. We have developed and employed robust technology to track a variety of risk 

metrics across all the firm’s trading businesses. 

And finally, our limit structure. The firm applies a rigorous limits framework to control our risk across multiple trades, products, 

businesses, and markets. These limits are monitored on a daily 

basis and they serve to maintain and promote constant dialogue between our traders and our risk managers, as well as the escalation 

of risk-related matters. 

Taken together, these core elements enable us to make informed 

decisions on a real-time basis about the risks we are taking and to 

rapidly attempt to make adjustments when necessary. 

We employ a variety of risk metrics and measures. In the case 

of market risk, value at risk (VaR), and Credit Spread Widening 

are frequently referenced. Both are highly useful, but both suffer 

from limitations as, in fact, do all risk metrics, which is why we 

apply multiple measures to assess the overall risk in our portfolio. 

These limitations can show up especially acutely during abnormal 

market conditions, such as characterized the 2007 through 2008 period. 

For example, VaR is highly dependent on market volatility of the 

underlying trade or product, and during 2007, volatility reached 

unprecedented levels in some products, in particular, in subprime 

mortgages. This had the effect of increasing our mortgage-related 

VaR by many multiples, despite the underlying portfolios in many 

cases actually decreasing. 

Between late 2006 and February 2007, daily VaR in the Mortgage Department increased from $13 million to $85 million. We estimate that much of this increase was the result of increases in volatility, as our underlying positions in many cases declined. AccordVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00113 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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1See Exhibit No. 161, which appears in the Appendix on page 985. 

ingly, an accurate assessment of the level and direction of risk in 

our mortgage business was and is a matter of expert judgment, 

with the ultimate validation coming only after the fact when we 

could see how the actual portfolio moved in response to market conditions. 

While we were relatively successful in flattening our risk, it involved a process of continual portfolio adjustments and interpretations. For example, during much of 2007, our VaR showed that our 

overall portfolio risk was increasing and reflecting a short position, 

whereas our Credit Spread Widening measures showed the opposite in terms of direction. During such periods, it was ultimately 

the experience of our business and risk management professionals 

and their appreciation for the nuances of each of these measures 

that helped guide the firm in assessing its exposures and maintaining risk within prudent levels. 

Particularly in light of events in the last 2 years, it is clear that 

no approach to risk management was foolproof and we have all 

learned valuable lessons from the recent experiences. However, we 

do believe the core elements that make up our risk management 

framework are broadly effective, despite the unprecedented turmoil 

in the markets. 

Thank you, and we look forward to answering any questions you 

may have. 

Senator LEVIN. Thank you very much, Mr. Broderick. 

Mr. Viniar, Goldman Sachs issued a public statement, Exhibit 

161,1 this past weekend which said that ‘‘Goldman Sachs did not 

take a large directional ‘bet’ against the U.S. housing market, and 

the firm was not consistently or significantly net ‘short the market’ 

in residential mortgage products in 2007 and 2008.’’ Our investigation focused on 2007, when the bubble burst, were you significantly 

net short in the market in residential-related products in 2007? 

Mr. VINIAR. Mr. Chairman, I would answer that by saying, 

across 2007, we were primarily, although not consistently short, 

and it was not a large short. 

Senator LEVIN. Was it a short that exceeded your permanent 

VaR? 

Mr. VINIAR. Well, limit structures at Goldman Sachs are put in 

place and occasionally we will bump up against them. In 2007, unfortunately, with the mortgage business, it was more than occasionally. And as Mr. Broderick talked about in his opening statement, 

the VaR increased quite dramatically early in the year and then 

throughout the year, largely based on the fact that the markets 

were so volatile that it was almost a little bit like salmon swimming upstream. No matter how fast we tried to reduce positions, 

the volatility increased at a faster pace, and therefore the VaR kept 

going up. 

Senator LEVIN. And did your short positions make a lot of money 

in 2007? 

Mr. VINIAR. The short positions themselves made a lot of money 

in 2007, but they offset long positions that lost a lot of money in 

2007. 


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Senator LEVIN. And those long positions had come to a significant degree from the inventory, is that correct? 

Mr. VINIAR. Some of them had come from the inventory we had 

coming into the year. Over the course of the year, in our role as 

market maker, we also bought more positions. 

Senator LEVIN. Right. But do you know what percentage of those 

positions came from the inventory which were at least a year old? 

Mr. VINIAR. I do not. 

Senator LEVIN. According to the figures which we got, net profits 

from shorts, $3.7 billion. Net losses from longs, including the inventory pieces, which had been there for some time, were $2.9 billion. 

So you would agree that you were in a net short position for most 

of the year? Would you agree to that? 

Mr. VINIAR. Yes. 

Senator LEVIN. And would you not agree that it was a significant 

position, those short positions, since they were way above your 

VaR? 

Mr. VINIAR. I would not agree that it was a significant net short 

position—— 

Senator LEVIN. No. Was it a significant short position? 

Mr. VINIAR. Yes, it was a significant short position, but it offset 

a significant long position. 

Senator LEVIN. Yes. So you were significantly positioned in 

shorts during 2007, is that accurate? 

Mr. VINIAR. Not net—— 

Senator LEVIN. I didn’t say net. I said, your short position in 

2007 was significant and consistent. Is that true? 

Mr. VINIAR. We had large short positions, but they offset large 

long positions. 

Senator LEVIN. I understand that. I am not asking you now 

about the net. I am asking you about your short positions. You had 

a significant short position, significant and consistently in 2007, is 

that true? 

Mr. VINIAR. In the mortgage market? 

Senator LEVIN. Yes. 

Mr. VINIAR. Just on that side? 

Senator LEVIN. Yes. 

Mr. VINIAR. Yes. 

Senator LEVIN. Your public statements from the firm, I have got 

to tell you, give a totally different impression. That is my statement—— 

Mr. VINIAR. Can I—— 

Senator LEVIN [continuing]. Because you parse words. You talk 

about net. Obviously, you lost money from your long positions, 

much of which came out of the inventory. But you also then add 

2008 to give yourself a hedge. You guys are good at hedging, but 

your words, when you tell the public that you did not significantly 

net short the market in residential mortgage-related products in 

2007 and 2008 is misleading, because you had a significant short 

position in residential mortgage-related positions in 2007. That is 

a fact, which I think you will agree to. 

Mr. VINIAR. But I don’t believe our words are misleading because 

we only had that significant net short because we had a significant 


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1See Exhibit No. 46, which appears in the Appendix on page 361. 

2See Exhibit No. 56, which appears in the Appendix on page 455. 

net long. If we had not had the significant net long, we would not— 

significant long, we would not have had a significant short. 

Senator LEVIN. Didn’t you make a decision in December 2006 to 

basically head in a different direction? You were much too long and 

you wanted to go short. Is that not true? 

Mr. VINIAR. No. In December 2006, we made a decision to reduce 

risk. 

Senator LEVIN. All right. 

Mr. VINIAR. That decision was not directional. It did not say that 

we should go long or go short. 

Senator LEVIN. All right. 

Mr. VINIAR. It didn’t say we shouldn’t, and it didn’t say we 

should take no risk. But it said that we should reduce risk. 

Senator LEVIN. Now, on October 4, 2007, Exhibit 46,1 you wrote 

the SEC. Page 3, at the bottom. You say that ‘‘[I]t is important to 

note that we are active traders of mortgage securities and loans 

and, as with any of the financial instruments we trade, at any 

point in time, we may choose to take a directional view of the market and will express that view through the use of mortgage securities, loans, and derivatives.’’—We may choose to take a directional 

view of the market.—‘‘Therefore although we did have a long balance sheet exposure’’—long balance sheet exposure—‘‘to sub-prime 

securities in the past three years, albeit small exposure, our net 

risk position was variously either long or short depending on our 

changing view of the market.’’ You had a changing view of the market. 

‘‘For example,’’ now this is the example of choosing to take a directional view of the market, ‘‘during most of 2007, we maintained 

a net short sub-prime position and therefore stood to benefit from 

declining prices in the mortgage market.’’ Was that true when you 

said it? 

Mr. VINIAR. Absolutely, and totally consistent with what I said 

to you before. 

Senator LEVIN. All right. 

Mr. VINIAR. We were largely short across 2007—— 

Senator LEVIN. Fine—— 

Mr. VINIAR [continuing]. Not consistently, and not large. 

Senator LEVIN. You were consistently short. As a matter of fact, 

you were very short. But you were consistently short in 2007. I 

mean, look at your own numbers. Look at your own chart, Exhibit 

56.2 Look at your own chart. 

Mr. BRODERICK. Is that the VaR chart that you were referencing 

earlier, Mr. Chairman? 

Senator LEVIN. Your own VaR chart, not the one we took—you 

are looking right at it. 

Mr. VINIAR. Exhibit 56. 

Senator LEVIN. Yes. Do you see that dark line there? What is the 

number you are looking at? 

Mr. VINIAR. Exhibit 56. 

Senator LEVIN. OK. Do you see that bottom line? That is adding 

up a bunch of lines. Do you see that, that dark red line there? 


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1See Exhibit No. 56b, which appears in the Appendix on page 456. 

Mr. VINIAR. Yes, sir. 

Senator LEVIN. OK. And that is the total, that is the net of the 

various positions. It is way below the line. Do you see that line in 

the middle there that looks like a railroad track? 

Mr. VINIAR. I do. 

Senator LEVIN. That total is consistently below zero, home, 

throughout the whole year. Is that true? 

Mr. VINIAR. It is, but I believe this is the SPG desk only. 

Senator LEVIN. That is the SPG desk. But is it any different from 

mortgages? 

Mr. VINIAR. Sure. It is only part of the Mortgage Department. 

And again, this was offsetting many of the other longs that we had. 

Senator LEVIN. We are talking here—this is net short. 

Mr. VINIAR. But this is only one department within the Mortgage 

Department. This is only one business—— 

Senator LEVIN. This is net short. This is all synthetics across the 

Mortgage Department, is that correct? 

Mr. VINIAR. I am looking at—— 

Senator LEVIN. Take a look at your own chart. 

Mr. VINIAR. I know, but I don’t know—— 

Senator LEVIN. RMBS—— 

Mr. VINIAR. I am just reading it—— 

Senator LEVIN [continuing]. Subprime notional history. Do you 

see that? 

Mr. VINIAR. This says, mortgage New York City SPG portfolio, so 

I don’t know if there are others, but I believe this is just the SPG 

portfolio. 

Senator LEVIN. All right. Take a look at Exhibit 56b.1 ‘‘The attached spreadsheet covers the single name and ABX positions of 

the entire Mortgage Department for the fiscal year 2007.’’ 

Mr. VINIAR. OK. 

Senator LEVIN. And it says, ‘‘Understood. . . . the portfolio name 

is confusing. SPG portfolio in fact covers the entire mortgage department synthetic positions.’’ OK? 

Mr. VINIAR. I see that. Yes. 

Senator LEVIN. Have you got it? That shows you—— 

Mr. VINIAR. But again, this is only the synthetic positions. It 

does not include the cash long positions that we had—— 

Senator LEVIN. It does not include any long positions. 

Mr. VINIAR. Correct. That was significant, and this offset—— 

Senator LEVIN. But this, at least for that big chunk, the synthetics, showed you net short, is that correct, all year long? 

Mr. VINIAR. In synthetics. 

Senator LEVIN. Yes. 

Mr. VINIAR. Yes. 

Senator LEVIN. OK. And overall, were you short most of the year, 

which is what you told the SEC, I believe, did you not? 

Mr. VINIAR. Yes, and it is consistent with what I told you. Overall, across the year, our portfolio was short—— 

Senator LEVIN. And did you—— 

Mr. VINIAR [continuing]. And that is why we were profitable. But 

it just was not very large. 


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1See Exhibit No. 22, which appears in the Appendix on page 276. 

Senator LEVIN. Well, large is in the eyes of the beholder. 

Mr. VINIAR. Correct. 

Senator LEVIN. Billions seem large to a lot of folks who have lost 

their homes. 

Take a look, if you would, at Exhibit 22.1 This is a presentation 

to the Board of Directors, March 26, 2007. OK? Have you got it? 

Mr. VINIAR. I do. 

Senator LEVIN. OK. Take a look at the ‘‘Time Line of Major 

Events.’’ If you look at the subprime sector—— 

Mr. VINIAR. Are you on page 4, sir? 

Senator LEVIN. Page 8. 

Mr. VINIAR. I am sorry. Got it. 

Senator LEVIN. The first and second quarter of 2006, the long position grows. So you are going long in 2006. Third and fourth quarter, you scale back purchase of loans. You reduce your CDO activity. ‘‘First quarter, Goldman Sachs reverses’’—reverses, sounds directional to me—‘‘long market position through purchases of single 

name CDSs and reductions of ABX.’’ Right? Am I reading that correctly? 

Mr. VINIAR. Yes, sir. 

Senator LEVIN. That you reversed your long market position? 

Mr. VINIAR. Yes, sir. 

Senator LEVIN. All right. That is what you told the Board. 

Mr. VINIAR. Correct. 

Senator LEVIN. Then, keep reading there, you ‘‘effectively halt 

new purchases of sub-prime loan pools through conservative bids.’’ 

In other words, you made bids that were so low that you weren’t 

going to be able to buy them. Your warehouse lending business reduced. That is now the direction that you took, according to what 

you told the Board. You reversed your long market position, pretty 

directional. 

Mr. VINIAR. I would say, sir, all consistent with what I said, 

meant to reduce our risk and—— 

Senator LEVIN. I know you are going to talk about reducing risk. 

You made billions of dollars going short, not net. You made billions 

of dollars going short, so you can talk about that as reducing risk. 

I talk about that as making a jell of a lot of money. But you can 

characterize it the way you want. 

Mr. VINIAR. But we only had the short because we had the long. 

If we didn’t have the long, we never would have put on the short. 

Senator LEVIN. You blew right by zero. 

Mr. VINIAR. Not materially so. 

Senator LEVIN. Materially. 

Mr. VINIAR. If you look across—— 

Senator LEVIN. Billions. 

Mr. VINIAR. If you look across all of—just 2007, leaving 2008 

aside, residential mortgages, the net revenues were less than $500 

million. 

Senator LEVIN. So you were able to overcome the long losses and 

still make a half-a-billion dollars, is that correct? 

Mr. VINIAR. That is correct. 


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1See Exhibit No. 55c, which appears in the Appendix on page 447. 

Senator LEVIN. All right. Now, did you hear what Mr. Birnbaum 

said about what happened in December 2006? Were you here when 

he testified? 

Mr. VINIAR. I listened to it, but I am not sure what you are referring to. 

Senator LEVIN. OK. [Exhibit 55c].1 ‘‘[P]revailing opinion within 

the department was that we should just ‘get close to home’ and 

pare down our long.’’ That is your argument about reducing risk as 

the motivator. Then he lays out here in his own words why he 

thought that you should go way beyond that, and here is what he 

said. ‘‘I concluded that we should not only get flat,’’ get your risk 

down to home, get it to zero, ‘‘but get VERY short.’’ He then began 

sharing that idea with a whole lot of folks, and then he said, ‘‘[W]e 

all agreed the plan made sense.’’ The plan he is talking about is 

to go, as he puts it, ‘‘VERY short,’’ not just flat, but ‘‘VERY short.’’ 

‘‘[W]e implemented the plan by hitting on almost every single 

named CDO protection and buying opportunity in a 2-month period. Much of the plan began working by February as the market 

dropped 25 points and our very profitable year was underway.’’ Do 

you disagree that plan was to go very short? 

Mr. VINIAR. That might have been his plan, but that was not the 

firm’s plan. 

Senator LEVIN. Well, but he also said that the plan was accepted, 

did he not? 

Mr. VINIAR. That might have been his plan within the SPG desk. 

I actually don’t know, other than what I have read, because I 

would look at the firm overall and the firm overall had what I 

would call, with hindsight, a small net short. 

Senator LEVIN. An amazing performance with a market that 

went under in mortgages. You were able, because of a huge short 

position that you took, to overcome what was a previously long position, is that correct? 

Mr. VINIAR. We were able to get it very close—as close to flat as 

we could. 

Senator LEVIN. And as a matter of fact—well, these shorts were 

way above flat. The only way you got to that kind of a profit was 

by going way above flat. Look, this is his own words. It says that 

the plan was accepted. 

Mr. VINIAR. That was his plan—— 

Senator LEVIN. I understand—— 

Mr. VINIAR [continuing]. On the SPG desk—— 

Senator LEVIN. You were just unaware that the department was 

doing that. 

Mr. VINIAR. I would not have looked at what one part of the 

mortgage business. I would have looked at what the mortgage business overall was doing. 

Senator LEVIN. OK. And it was profitable, despite the mortgage 

business going south? 

Mr. VINIAR. It was. As I said—— 

Senator LEVIN. You guys were profitable, and you were profitable 

because you had invested heavily in shorts. 


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1See Exhibit No. 41, which appears in the Appendix on page 327. 

And let me just read something else that he said. He said that 

he was ‘‘able to identify key market dislocations that led to tremendous profits.’’ And you are just saying, that was in his department. 

Mr. VINIAR. I think he was just referring to his department, not 

to the firm or the Mortgage Department overall. 

Senator LEVIN. In terms of direction, here is what you told your 

Board of Directors in September 2007. You said that—— 

Mr. VINIAR. Sir, can you point me to where you are reading so 

I can read with you? 

Senator LEVIN. Yes. Exhibit 41.1

Mr. VINIAR. Thank you. I think I see it. 

Senator LEVIN. ‘‘[B]usiness has taken proactive steps to position 

the firm strategically in the ensuing mortgage credit and liquidity 

crisis,’’ and this is all the things you did. 

Mr. VINIAR. Can you just give me a page, please? 

Senator LEVIN. Yes, page 4. 

Mr. VINIAR. Thank you. OK. I have it. 

Senator LEVIN. You ‘‘shorted synthetics.’’ You ‘‘reduced loan and 

security purchases.’’ You ‘‘shorted CDOs and RMBS.’’ You ‘‘increased long correlation position,’’ which is also a shorting operation. And you ‘‘reduced the long inventory.’’ That is what you did 

in quarter two and quarter three of 2007. That was a strategic positioning for the firm, is that correct? 

Mr. VINIAR. Yes. 

Senator LEVIN. Am I reading that correct? 

Mr. VINIAR. You are. 

Senator LEVIN. And if you look at page 5, the year to date, this 

is the mortgage business, you are still losing money on your longs, 

much of which came from your earlier inventory. You made a little 

money on real estate loans. You made money on non-mortgage 

asset backed securities. And then look at your structured products 

trading, $955 million. So altogether, your gross revenue is a billion 

dollars, and that billion dollars was because you made $955 million, is that not correct, basically in your structured products trading. Is that fair? 

Mr. VINIAR. Completely accurate. 

Senator LEVIN. OK. And this was a strategic decision which you 

told the Board about—— 

Mr. VINIAR. Correct. 

Senator LEVIN [continuing]. In March, and you also then told the 

SEC. 

Mr. VINIAR. Again, what I have told you consistently, and I will 

not—I won’t deny, we were short over most of 2007. On a net basis, 

it was not that large, which is why about 1 percent of the firm’s 

revenue came from residential mortgages. 

Senator LEVIN. Goldman did have, then, a big short, is that correct? 

Mr. VINIAR. Offsetting a big long, yes, sir. 

Senator LEVIN. And what was the amount of the short, do you 

know? 

Mr. VINIAR. It is very hard to give a number. 

Senator LEVIN. About. Was it over $3 billion? 


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1See Exhibit No. 26, which appears in the Appendix on page 306. 

Mr. VINIAR. I wouldn’t even know how to quantify it, because we 

had so many different securities—— 

Senator LEVIN. Have you tried to quantify it? 

Mr. VINIAR. No, I have not. 

Senator LEVIN. You won’t estimate that it was even over $3 billion, which that one department produced? 

Mr. VINIAR. Are you talking about revenues? 

Senator LEVIN. Yes. Short revenues. 

Mr. VINIAR. Yes. The short revenues, and I would have to find 

the page, but I know the page you were looking at before, the revenues from the short were over $3 billion. 

Senator LEVIN. All right. 

Mr. VINIAR. And they offset revenue losses—— 

Senator LEVIN. I know. 

Mr. VINIAR [continuing]. From long that were nearly as big. 

Senator LEVIN. But it was the big short which kept you in the 

black that year, wasn’t it? 

Mr. VINIAR. It was the big short offsetting the big long which 

helped very much us get through that crisis. 

Senator LEVIN. Well, if it weren’t for the big short, you would 

have been deeply in the red that year, wouldn’t you? 

Mr. VINIAR. If we had not sold any of the long positions, yes, that 

would have been true. 

Senator LEVIN. Yes. 

Mr. VINIAR. That is why we put it on, to try to offset the long 

positions. 

Senator LEVIN. Your Exhibit 26,1 where you said the big short 

position of yours, in your own words—this is your words—‘‘Tells 

you what might be happening to people who don’t have the big 

short.’’ Is that right? Did you say that? 

Mr. VINIAR. Those—that is my email. 

Senator LEVIN. And did you mean that? 

Mr. VINIAR. I meant what I meant, and this is a little bit of a 

response to a question I heard Dr. Coburn ask before about why 

we always tell people to be careful with emails, because I didn’t 

give the full thought, which is it tells you what might happen to 

people who have the big short—who don’t have the big short when 

they do have a big long. 

Senator LEVIN. Right. 

Mr. VINIAR. This came, I believe, shortly after people had announced their second quarter results. Quite a number of people had 

disclosed how big their long inventory positions were, and without 

basically balancing those positions, there would be significant 

losses, which is what proved to happen across the industry. 

Senator LEVIN. All right. So the big short saved your rear end? 

Mr. VINIAR. The offsetting—— 

Senator LEVIN. As we put it in the vernacular, the big short allowed you to have a year in the black, is that—— 

Mr. VINIAR. What I would say is the—— 

Senator LEVIN. We know what you would say, but without that 

big short, you would not have been in the black that year. You 


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would be with a whole bunch of other firms that did not go short 

the way you did, is that accurate? 

Mr. VINIAR. Without managing our risk appropriately to largely 

reduce our risk in the mortgage business, we would certainly have 

had lower revenues than we had. 

Senator LEVIN. Was your risk bias to be short? 

Mr. VINIAR. Yes, it was. 

Senator LEVIN. My time is up. Dr. Coburn. 

Senator COBURN. Just to be clear, I have a little difference with 

the Chairman on the idea of shorts. What would happen to the financial markets if there was not the ability to go short against a 

long position? 

Mr. VINIAR. I think there would be significantly less credit in the 

market because people would not want to take exposures to various 

companies, be it in mortgages, be it in credit products, be it in equities. People would have no ability to manage their risk, and so 

I think rather than reducing risk through offsetting longs with 

shorts, you just wouldn’t have the longs, and so there would be 

much less credit provided. 

Senator COBURN. And if a shareholder looked at Goldman and 

said, you all had the ability to go short, you had the research that 

said you should go short, and that you didn’t go short, could they 

hold you liable? In other words, could somebody have a basis for 

a suit against Goldman if you, through your research and through 

managing your risk, you passed up an opportunity to improve the 

shareholder value of Goldman? 

Mr. VINIAR. I think it is, from a risk management point of view, 

we actually don’t tell desks ever to go short or go long, but I think 

our shareholders could be quite disappointed in us if we didn’t use 

the right tools to manage our risk appropriately, and when we 

thought our risk was too big, to not reduce that risk, either by selling it outright or by putting on offsetting short positions. 

Senator COBURN. Senator Levin asked you a question I was 

going to go to and you answered, yes, that you had risk bias that 

was short during 2007. Explain to the Subcommittee, if you would, 

the difference between your—and I am talking Goldman’s definition of market making and proprietary trading, because that is 

what the SEC suit is about. That is what a lot of our inquiries are 

about. It is not about going short. Short is a legitimate market 

function. 

Mr. VINIAR. Right. 

Senator COBURN. But explain to us the difference between those 

two as you see it and as you lead this firm. 

Mr. VINIAR. OK. Let me try—— 

Senator COBURN. OK. 

Mr. VINIAR [continuing]. And it is a little bit complicated, so stop 

me if you want me to go in a different direction. But market making is what the great majority of what we do in our trading business is. That is, we buy things from or sell things to our customers. 

In doing that, we will accumulate inventories, long inventory and 

short inventory, and we might have a bias of what we keep and 

how long we keep it, which might tend to make us longer or shorter at any time. But most of those transactions start and end with 

our clients. 


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Now, it might be hard to track that inventory, so we might buy 

something from someone and then distribute part of it, but then 

buy something else that offsets it and buy something else that goes 

into the book, and a year later, we might still have it. And so someone might argue and say—you still have it a year later or 6 months 

later, so it sounds like proprietary trading, but it is not. It starts 

with a customer. 

I distinguish that from what I would call a purely walled-off proprietary business that generally has research coverage from other 

Wall Street firms and really does not deal with customers, but just 

goes long things, short things, offsetting positions, sometimes capital structure, purely for the account of the firm, without dealing 

with our clients. 

Senator COBURN. And that is where Mr. Birnbaum worked. He 

worked in strictly proprietary trading? 

Mr. VINIAR. No. He worked more in a market-making business—— 

Senator COBURN. That is right—— 

Mr. VINIAR. He was buying and selling things. 

Senator COBURN. That is exactly the question that I was asking 

him. Did you hear his testimony? 

Mr. VINIAR. I heard most of it. 

Senator COBURN. Does it concern you at all that his position is 

that, in his own self-evaluation, which Senator Levin referred to, 

that he was taking positions and touting himself that he was utilizing the strengths of their analysis to take positions to enhance 

your return on equity? 

Mr. VINIAR. It is a little hard for me to comment on what he 

meant in his self-evaluation, but what I would view his role as is 

market making. So he would be buying and selling things. But he 

then did have discretion within the overall limits of the firm, again, 

of what he kept, how long he kept it, would he buy more than he 

sold, would he tend to keep the long risk and sell the short risk 

or vice-versa. So it was within a market making context, but he 

had a limit as to—we had an overall firm limit as to where we 

would go. 

Senator COBURN. Well, let me ask you this, if you would. Does 

it make sense to you somebody would tout a philosophy that says, 

I am going to take advantage of the knowledge that we as a firm 

have and make more money for the firm, yet ignore the information in terms of the Mortgage Department, what they were seeing 

and how you were changing positions? Is that believable to you? 

Mr. VINIAR. I don’t know what Mr. Birnbaum did know, didn’t 

know, or why he said what he said. 

Senator COBURN. OK. All right. In what year did you all receive 

your payment from AIG? What fiscal year? The settlement on AIG, 

when we bailed them out. What fiscal year did you receive—— 

Mr. VINIAR. Are you talking about the Maiden Lane transaction? 

I believe that was 2008. 

Senator COBURN. And that was $11 billion? 

Mr. VINIAR. Well, there are several. I am just not sure which one 

you are talking about. 

Senator COBURN. Well, in total, though, you are saying it is fiscal 

year 2008, you received $11 billion—— 


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Mr. VINIAR. The number that is, if this is what you are referring 

to—— 

Senator COBURN. You give me the number. I don’t care what—— 

Mr. VINIAR. Generally talked about is $12.9 billion—— 

Senator COBURN. OK. 

Mr. VINIAR [continuing]. The number that he talked about in—— 

Senator COBURN. OK, $12.9 billion. I was trained as an accountant first, before I ever went to medical school, so you will have to 

pardon it. 

Mr. VINIAR. Me, too. 

Senator COBURN. All right. That $12.9 billion really represents 

revenue from 2006, doesn’t it, and 2007? In other words, when did 

AIG go belly-up? 

Mr. VINIAR. Can I describe to you the pieces of the $12.9 billion? 

Senator COBURN. Well, you can, and I will give you that time, 

but what I am trying to get to is an accurate representation of 

what the positions that you bought, the insurance that you 

bought—that is really what AIG sold you, correct? 

Mr. VINIAR. That was some of that $12.9 billion—— 

Senator COBURN. Yes. 

Mr. VINIAR [continuing]. But not all of it. 

Senator COBURN. OK. Well, whatever portion it was, in the year 

that it should have been paid, it wasn’t. It was paid later. So that 

would have enhanced your revenues by a certain number of billions 

of dollars, is that correct? 

Mr. VINIAR. No. 

Senator COBURN. You didn’t recognize that payoff of those insurance products to you as revenue when you got it from AIG? 

Mr. VINIAR. No, we did not, because that position is marked to 

market. They were just basically paying us the money they owed 

us. But because we mark all of our positions to market, that revenue had come in already, and just so you know, those positions, 

again, were largely offsetting positions we had sold on the other 

side. 

Senator COBURN. Well, I am not disputing. I have no problem 

with shorting. I have no problem with buying insurance, or buying 

puts, or selling calls. I have no problem with that. What I am trying to do is match revenues with expenses, and the point is this 

was an insurance product that you had marked down the real product, and when you got paid, you had to show that as either an offset to that revenue loss in what you were buying insurance for or 

you were showing income. 

Mr. VINIAR. There was very little revenue upon the payment because all of that had gone through our books already, all of the 

markdowns and markups on both sides. 

Senator COBURN. That is right. 

Mr. VINIAR. There was very little—— 

Senator COBURN. Well, but if it wasn’t collectable and AIG was 

bankrupt, there had to be a period in time when you had a material impact on your business that you had to give notice of, isn’t 

that correct? 

Mr. VINIAR. We had collateral for almost all of what they owed 

us, and what we didn’t have collateral for, we had bought CDS protection for. So although it obviously would have been a very bad 


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1See Exhibit No. 5, which appears in the Appendix on page 253. 

thing for the financial markets, for our direct exposure to AIG at 

the time, we had either collateral or CDS protection, which again 

was collateralized, for virtually the entire exposure we had. 

Senator COBURN. So you double-insured, basically? 

Mr. VINIAR. Yes, we did. 

Senator COBURN. OK. And I told you I would give you an oppor- tunity to explain the $12.9 brillion. 

Mr. VINIAR. If you want me to. 

Senator COBURN. Yes, I do. 

Mr. VINIAR. There were three pieces to the $12.9 billion. The first 

and simplest to understand is what is called securities lending. Basically, they had a portfolio of highly liquid treasuries and agencies 

that we had financed. So they had, I believe, the number was $4.8 

billion of our cash and we had $4.8 billion of their treasuries and 

agencies. They gave us the $4.8 billion of cash, but we gave them 

back the $4.8 billion of securities. So if they had not, we would 

have just sold them into the market because they were highly liquid, as I said, mostly treasuries and agencies. There was $2.5 billion which was over the course of from midSeptember, when the government put the money into AIG, until 

December, additional collateral that they owed us as markets continued to decline. So that was not a one-time payment. That came 

in over time. 

And the last roughly $5.6 billion was in settlement of Maiden 

Lane, and those were where they wanted to basically tear up the 

cash transactions. So they gave us $5.6 billion. We took most of 

that. We added to that the collateral they had already given us, 

took most of it, gave it to the counterparty on the other side, who 

added to it the collateral we had given them. They gave us back 

the bonds and we gave the bonds back to AIG. 

Senator COBURN. Exhibit 5,1 if you would turn to that, please, 

this is an email from Mr. Birnbaum to Mr. Lehman. 

Mr. VINIAR. Got it. 

Senator COBURN. In this email, the implication is that Mr. 

Birnbaum felt that we should keep these positions for ourselves. Do 

you have any heartburn with the fact that when those kind of 

statements are said, that it undercuts your position on proprietary 

trading and mortgage-related assets? 

Mr. VINIAR. Honestly, I don’t know what he was referring to 

here. This is the first time I am seeing this. 

Senator COBURN. Well, let me describe a scenario for you, and we 

will make it a matter of fiction rather than fact. 

Mr. VINIAR. OK. 

Senator COBURN. I work for you and I see a good deal, and rather than sell it to our loyal customers, I am going to keep it for us. 

Mr. VINIAR. As a market maker, his responsibility is to buy and 

sell things, buy things from customers, sell things to them. As I 

said, that doesn’t mean we won’t keep things for some period of 

time and then sell them out, but largely what we want to do is distribute risk. We keep track of things. We will call aged item inventory to make sure we don’t keep it too long. So if he kept it for 

some period of time, would it trouble me? Not necessarily. If he 


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kept it for a very long period of time, would it trouble me? Yes, it 

would, because our job is to make markets, not to hold onto the inventory. 

Senator COBURN. Your job also is to keep customers, isn’t it? 

Mr. VINIAR. Correct. 

Senator COBURN. And if you don’t have customers with which to 

make markets for, you are not going to do that—— 

Mr. VINIAR. That is correct. 

Senator COBURN [continuing]. And that is why I was going that 

direction on that. 

Mr. VINIAR. That is correct. 

Senator COBURN. You heard the testimony of Mr. Sparks and 

other managers that urged the sales force to sell Goldman’s long 

positions, and it comes back to the question I raised in my opening 

statement, about the ethics of what we are doing here. Were they 

selling those long positions for the benefit of the customer or for 

the benefit of Goldman? In other words, you had a position. Your 

plan was to get back to zero. 

Mr. VINIAR. As close as possible. 

Senator COBURN. Yes, as close as you could, and that is prudent. 

How do you control that from an ethical and character standpoint? 

How do you define the line for the people that are selling these 

products for you, whether it is your inventory or something you 

want to lessen? How do you weight off the balance, the benefit for 

Goldman versus the detriment for who is buying it? 

Mr. VINIAR. Really, in a way, the way you do that is through 

pricing, and so we may or may not like the security. Someone else 

might like it more, and they certainly might like it at a certain 

price. And so it is not a view of good or bad. It is really a view of, 

do you think the buyer, do they think that it will go up—— 

Senator COBURN. What is the value and what do I think the 

chance—— 

Mr. VINIAR. What is the value? And then if we have bought 

something and we still have it and we want to sell it and we just 

think our risk is too big, we might have to cut the price and sell 

it at 80 cents on the dollar and the other purchaser may not think 

it is a great security, but they may think it is worth more than 80 

cents. They may think it is worth 83 cents, which is still not 100 

percent, but it is a price at which they want to buy it. 

Senator COBURN. Could you answer this question for me, and 

maybe you can’t, but I would like for you to try because it concerns 

a lot of us. How is it that Goldman got 100 percent payback on this 

collateral dispute with AIG? 

Mr. VINIAR. All I can say is it was what they owed us. 

Senator COBURN. Well, but typically—we didn’t pay off the bond 

holders at GM. So how is it that Goldman got 100 percent back of 

what was owed from AIG when everybody else didn’t? 

Mr. VINIAR. I think everybody did from AIG. 

Senator COBURN. Well, how is it that you all negotiated that? 

Mr. VINIAR. I believe on the Maiden Lane transaction, we were 

sent the term sheet, which had the transaction that AIG wanted 

to do, which was to basically unwind those transactions at par, and 

we agreed to do that. 


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Senator COBURN. So there wasn’t a negotiation between the 

Treasury and Goldman on the AIG collateral? 

Mr. VINIAR. There was not. 

Senator COBURN. OK. So they made an offer and you accepted 

it? 

Mr. VINIAR. Correct. 

Senator COBURN. All right. Thank you. I am through, Mr. Chairman. 

Senator LEVIN. Senator Kaufman. 

Senator KAUFMAN. Thank you, Mr. Chairman. 

Mr. Viniar, let me just ask you a philosophical question. I am sitting here looking at the segment operating results and I see that 

in 2009—— 

Mr. VINIAR. Senator, can you tell me where you are looking so 

I can look with you? 

Senator KAUFMAN. I don’t think you need it. Because it is 

not—— 

Mr. VINIAR. Sure. 

Senator KAUFMAN. I am not going to get into the details. I am 

just asking the questions. I mean, does it concern you? I mean, 

here is Goldman Sachs, known to be a great investment banker, 

the greatest, and I look at November 2007, November 2008, December 2008, and I see earnings of about $2 billion each one of those 

years. I look down at the trading and principal investments, and 

$13 billion in earning in 2007. You lost $3 billion in 2008. And you 

have made $17 billion in 2009. Does it concern you that more and 

more of your business is over in trading and less and less is in investment banking? 

Mr. VINIAR. No, I wouldn’t say it concerns me. I would say, first 

of all, the segment revenues don’t reflect the value of our investment banking business because—— 

Senator KAUFMAN. Can you explain that? 

Mr. VINIAR. Sure. Our trading and principal investing business 

is very much of a customer facing business. Part of that, we do 

with our customers based on a relationship which has developed 

over many years of giving them advice, and just because a transaction’s revenues end up from a trade of some kind, you are making a market, doesn’t mean that a good part of that value isn’t from 

the investment banking relationship we have had for a number of 

years. So I think it understates their value. 

The second thing I would say is the trading or principal investing 

business, while it is growing, is growing largely because of the 

strength of our customer franchise, the same type of customer relationships—— 

Senator KAUFMAN. No, I understand that part. I have got it. But 

let me put it this way. Should it concern the people on this side 

of the dais that one of the major engines that has driven this country for so many years is the investment banking, the ability to have 

IPOs, the ability to fund major corporate enterprises, and the fact 

that now one of, if not the biggest investment banker in America 

is now making money trading as opposed to doing investment 

banking? 

Mr. VINIAR. I don’t think it should concern you, because again, 

it is based on, largely on making markets for our clients and helpVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00127 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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ing the capital markets operate, and I think that is actually a good 

thing for the growth of the country. 

Senator KAUFMAN. To follow up on Chairman Levin’s question, 

if you wanted to hedge your long positions, why didn’t you just sell 

the securities and cancel or sell the CDs? 

Mr. VINIAR. That is a very good question, and in some cases we 

did, and the best way to hedge your risk is always to sell the position outright. 

Senator KAUFMAN. I mean, that seems to me—I agree with Senator Coburn. Selling short is good and all the other things, and I 

have done it, but what people do to hedge risk is you reach a point 

where you decide that your long position is risky—— 

Mr. VINIAR. Right. 

Senator KAUFMAN [continuing]. And, as someone once said, 

smarter than me, the hardest thing is not the decision to buy, it 

is the decision to sell. 

Mr. VINIAR. No question. 

Senator KAUFMAN. So most people—you get into a risky position, 

you have a risk meeting, you say, I am in—I mean, all of us do 

this in our own personal investing. You say, I have got invested in 

Stock A, B, and C. I don’t like the new earnings on it. I sell it. 

Mr. VINIAR. And it is a risk-reward judgment question at the 

time. You look at what price you could sell that position. You make 

an assessment of that versus what it would cost you to put on an 

offsetting position, and understanding that putting on an offsetting 

position is never an exact hedge. 

Senator KAUFMAN. Right. 

Mr. VINIAR. And you do have additional risk. 

Senator KAUFMAN. Right. 

Mr. VINIAR. And you make the assessment of—is the price where 

you would have to sell that security versus the price you pay to put 

on the offsetting? If it is a lower price, is it enough lower that it 

is still worth it or not. And you make that judgment at the time. 

And markets at the time, if you remember, for the securities that 

were long, were quite illiquid, and so we made judgments that in 

some cases we did sell, and I think you see that over the year, we 

did sell some. But in some cases, we thought it was more prudent 

to put it on offsetting positions. 

Senator KAUFMAN. Right. But illiquid really, in this case, means 

you didn’t like the prices that things were being sold for. It is not 

that you couldn’t go into a market. I mean, illiquid to me means 

I go into the market and nobody is—like happened on certain days, 

bad dice, in our history, we just couldn’t sell it at any price. You 

are basically saying, I didn’t want to sell it because the price was 

so low—— 

Mr. VINIAR. Correct. 

Senator KAUFMAN. Right. 

Mr. VINIAR. Correct, which means—— 

Senator KAUFMAN. And I have got that. I am just trying to figure 

out, but you mark to market, right? 

Mr. VINIAR. Correct. So we would have marked it down, but 

again, that is just an assessment which sometimes proves to be 

right and sometimes proves to be wrong, of what the value of holding that security would be—— 


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Senator KAUFMAN. Right. 

Mr. VINIAR [continuing]. In the future, where we think it was 

going to go, versus what the price would be of buying an offsetting 

security. 

Senator KAUFMAN. But you can understand why some people 

would be concerned. At the same time that a number of people in 

your business, in Goldman Sachs, were saying, this market is going 

south, which I think was—I happen to be one of those not Monday 

morning quarterbacking, but just at the time, the way I felt, and 

I am not—but just looking at where the housing market was in 

terms of where it had been historically, looking at the rental market and seeing the rental market wasn’t growing, classic sign of a 

bubble, that—so there was incentive, kind of. I know you keep— 

there is an incentive here to go short. I mean, based on—especially, 

you get to 2007. 

Let me put it this way. I personally have a hard time believing 

that folks as smart as you guys didn’t see the housing market was 

having a bubble and that the idea of going short was a good decision based on prudent managers looking at a market that was 

clearly falling apart. 

Mr. VINIAR. What I would say, again, as I have said repeatedly, 

is over the course of 2007, we were, for the most part, somewhat 

short—— 

Senator KAUFMAN. Yes. 

Mr. VINIAR [continuing]. And that was a decision. We wanted to 

be more on the short side than the long side. 

Senator KAUFMAN. Right. 

Mr. VINIAR. But it was not large, and we didn’t know where the 

market was going—— 

Senator KAUFMAN. No one ever knows where the market is 

going. I am just saying, at that particular point in time—— 

Mr. VINIAR. The other thing to remember back to 2007, it is hard 

to remember back then, but there was a very strong point of view, 

which didn’t turn out to be correct, but it was very strong, that the 

decline was isolated to the subprime mortgage market. Again, that 

turned out not to be correct and different people had different 

views, but that was a fairly commonly held view through much of 

2007, that the decline was just subprime mortgages. The rest of the 

mortgage market actually had not declined very much. It did later 

in the year. And if you remember, the equity markets actually 

peaked in October 2007. 

Senator KAUFMAN. Yes. No, I agree with that. 

Mr. VINIAR. For most of that year, there was a lot of bullishness 

still in the market—— 

Senator KAUFMAN. Right. 

Mr. VINIAR [continuing]. Other than the subprime mortgage market. 

Senator KAUFMAN. Right. But you could have sold the long, dealt 

with it that way, without going short. And the reason I think we 

all keep coming back to this is because it really is hard for me to 

see—I mean, there is a clear conflict of interest, right, when you 

have a client out there in a position that you put him in and you 

are at the same time selling that position short. I am not saying 

it is bad. I am just saying it is a conflict of interest, isn’t it? 


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Mr. VINIAR. Not necessarily. 

Senator KAUFMAN. No, I am not saying necessarily. I am just 

saying, in general, if you are selling a client something long, you 

are saying to the client—it is still time to buy RMBSs and we are 

selling them to you. And at the same time, you are going short. I 

think that just causes concern. I am not saying it is bad. I am not 

saying it is illegal. I am not saying anything else. I am just saying 

it just seems to me that it is a tough conflict of interest that you 

probably have to deal with every day, and that is—— 

Mr. VINIAR. I actually don’t view it as a conflict because we 

change—when we sell someone a security, their investment horizon 

is generally a fairly long time. 

Senator KAUFMAN. Right. 

Mr. VINIAR. We make decisions on a bias on where we want our 

risk to be, that could be a very short-term decision. It could change 

in the next day. 

Senator KAUFMAN. Right. 

Mr. VINIAR. And so what we do when we sell someone a security 

is we make sure we fully disclose to them what they are buying, 

what the risks are, and then they make their investment decisions 

over whatever time—— 

Senator KAUFMAN. But you were selling these mortgage-backed 

securities during this whole period. I am not talking about just buy 

and hold. I am talking about the day after you sold something 

short, you then were selling something long. 

Mr. VINIAR. I am not sure I—— 

Senator KAUFMAN. I mean, to clients, not for your own account. 

Mr. VINIAR. I am not sure I know, individual securities, what we 

bought, what we sold. 

Senator KAUFMAN. So you just stopped selling these mortgagebacked securities when you started to go short? 

Mr. VINIAR. No. We were still selling things, but again, as I said 

to Dr. Coburn, that just depends on the prices you sell it—— 

Senator KAUFMAN. I have got it—— 

Mr. VINIAR [continuing]. And if somebody thinks it is a good investment. 

Senator KAUFMAN. I am not saying there is anything wrong. I 

am just saying, just to me, if I am selling things short and the 

same day or the next day I am selling a client a long, that just 

seems to me there is a conflict in there. Whether it is resolved or 

not, or how it is resolved, but it just seems to me that is a tough 

call in terms of what is your—which we got into in the earlier 

panel. What is my responsibility to my client? 

And I know you used—and everyone does—this kind of, well, 

they are all big boys and they all are investing long and they know 

what they are doing. But that, to me, doesn’t—and while I think 

that is true in many cases, that still doesn’t rule out the fact that 

you are doing one thing for yourself at the same time you are doing 

something to one of your clients. 

Mr. VINIAR. I don’t view it that way—— 

Senator KAUFMAN. OK. 

Mr. VINIAR [continuing]. Because our positions change quite 

often. 

Senator KAUFMAN. We can just agree to disagree. 


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Mr. VINIAR. OK. 

Senator KAUFMAN. Have you heard about the Lehman Brothers 

use of so-called Repo 105s? 

Mr. VINIAR. I have heard about it, yes. I have read about it. 

Senator KAUFMAN. And what is your understanding of these 

transactions? 

Mr. VINIAR. Only from what I read in the newspaper—— 

Senator KAUFMAN. Right. 

Mr. VINIAR [continuing]. That they treated things as sells that 

were going to come back on the balance sheet. I don’t know the details—— 

Senator KAUFMAN. Right. And why would they be doing that? 

Mr. VINIAR. I don’t—— 

Senator KAUFMAN. You don’t know. OK. I think the best way to 

explain it, there was Lehman structures repo agreements to mask 

its true net leverage ratio through an accounting device known as 

Repo 105s, whereby it raised cash and repo transactions by selling 

assets that were 105 percent or more of the cash received, allowing 

it to treat them as a sale rather than financing. As explained by 

the New York Times Deal Book, that meant there were a few days, 

and by the fourth quarter of 2007, that meant end-of-the-quarter, 

Lehman could shuffle off tens of billions of dollars in assets to appear more financially healthy than it really was. What do you 

think about that? Not from Lehman Brothers, what do you think 

about the concept as reported by Deal Book? 

Mr. VINIAR. I think as far as Lehman Brothers, it is a better 

question for them—— 

Senator KAUFMAN. OK. Suppose there was a firm out there, and 

we are not talking about Lehman Brothers—or let me put it this 

way. Would Goldman Sachs ever do something like this? 

Mr. VINIAR. No. We did none of those transactions. 

Senator KAUFMAN. So you can say here that Goldman Sachs 

never engaged in a transaction near a quarter’s end to improve its 

balance sheet? 

Mr. VINIAR. We never engaged in Repo 105 transactions. 

Senator KAUFMAN. No. I am asking—— 

Mr. VINIAR. Anything we did near quarter end, if we took something off our balance sheet, it was because we sold it. 

Senator KAUFMAN. But I am just saying, you never—so, therefore, you never engaged in a transaction near the quarter’s end to 

improve its balance sheet for investor reporting purposes? 

Mr. VINIAR. We would do transactions at quarter end where we 

would sell things. 

Senator KAUFMAN. Right. 

Mr. VINIAR. Then we had risk. We couldn’t buy them back. We 

would do other transactions in other quarters where we would buy 

things. 

Senator KAUFMAN. And do you know how many transactions that 

you did at the end of the quarter that at the beginning of the next 

quarter you bought them back again or sold them again? 

Mr. VINIAR. I am sure we had transactions that we sold and 

bought back and then sold again. 

Senator KAUFMAN. No, but I mean—— 

Mr. VINIAR. I am sure we had both. 


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Senator KAUFMAN [continuing]. In order to make the quarterly 

report—— 

Mr. VINIAR. Everything was disclosed. Everything we did, we disclosed. End of quarter, we disclosed quarterly average. We disclosed all of those numbers. So anyone can see what we have at 

any point in time. 

Senator KAUFMAN. So essentially you never moved things on or 

off the balance sheet—— 

Mr. VINIAR. In order to dress up our balance sheet? No. 

Senator KAUFMAN. OK. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator Kaufman. Senator Ensign. 

Senator ENSIGN. Thank you, Mr. Chairman. 

Just how well do you understand all of the various financial instruments that Goldman Sachs was offering, the CDOs, CDSs, all 

of those things? 

Mr. VINIAR. I am far from an expert in all of the individual 

transactions. 

Senator ENSIGN. But you understand basically how they work? 

Mr. VINIAR. At the highest levels. You had the experts here this 

morning. 

Senator ENSIGN. OK. Do you feel at all that—we asked this question of the panel this morning—whether Goldman Sachs was partially responsible, largely responsible, or had no responsibility in 

the financial collapse of the United States? 

Mr. VINIAR. I think Goldman Sachs is a major player in the 

world financial markets. The financial markets, I believe, got overlevered. I think lending standards declined. 

Senator ENSIGN. Do you feel that Goldman Sachs has any responsibility, not blame—— 

Mr. VINIAR. Yes, I—— 

Senator ENSIGN [continuing]. I am talking about blame in the financial collapse of the United States. 

Mr. VINIAR. I believe that we share responsibility because we are 

a major player in those markets and we participated in those—— 

Senator ENSIGN. I appreciate you taking the responsibility, because this morning’s panel would not. 

Mr. VINIAR. No, I believe—— 

Senator ENSIGN. I want to follow along the lines of questioning 

I asked this morning. And this gets to the rating agencies and 

what they were doing. Do you understanding the modeling that 

they were taking these, not necessarily exact modeling, but do you 

understand that they were taking, for instance, these BBB 

tranches, repackaging, and then re-rating them as AAAs? 

Mr. VINIAR. No. I know nothing about—— 

Senator ENSIGN. Are you aware of anybody at Goldman Sachs 

who was talking? Were you aware of your folks talking to the credit rating agencies to try to convince them and basically kind of sell 

them, here is why it shouldn’t be a BBB, here is why it should be 

a AAA? 

Mr. VINIAR. I know that the transactions were rated. I wouldn’t 

know who had those conversations, what they said. My only conversation with the rating agencies concerned the ratings of Goldman Sachs itself. 


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Senator ENSIGN. And so you had no knowledge of anybody at 

Goldman Sachs doing that type of, basically, lobbying with the 

credit rating agencies? 

Mr. VINIAR. I did not. 

Senator ENSIGN. Are you familiar with who Steve Eisman is? 

Mr. VINIAR. Yes. 

Senator ENSIGN. Or have you ever perused through the book, 

‘‘The Big Short,’’ by Michael Lewis? 

Mr. VINIAR. I have not. 

Senator ENSIGN. Are you familiar with it? 

Mr. VINIAR. I am familiar with it—— 

Senator ENSIGN. I just want to—— 

Mr. VINIAR. I have not read any of it. 

Senator ENSIGN. Because I think this goes to one of the—when 

you said you had responsibility, I am glad you said that Goldman 

Sachs actually does have some responsibility. This is kind of an explanation of some of what was happening in the financial markets. 

According to Steve Eisman, Goldman Sachs and Deutsche Bank, on 

the fate of the BBB tranche of subprime mortgage-backed bonds 

without fully understanding why those firms were so eager to accept them. He didn’t know at the time. Later, he figured, at least 

he thinks he figured it out. 

The credit default swaps filtered through the CDOs were used to 

replicate bonds backed by actual home loans. ‘‘There weren’t 

enough Americans,’’ and I am quoting here, so excuse the language, 

‘‘there weren’t enough Americans with shi**y credit ratings taking 

out loans to satisfy investors’ appetite for the end product. Wall 

Street needed his bets in order to synthesize more of them. ‘They 

weren’t satisfied getting lots of unqualified borrowers to borrow 

money to buy a house they couldn’t afford,’ said Eisman. They were 

creating them out of whole cloth, 100 times over. That is why the 

losses in the financial system are so much greater than the 

subprime loans.’’ 

The premise that, or at least what his analysis was of the reason 

that it became—even though the subprime market itself was bad, 

the collapse of that market wouldn’t have been nearly as bad for 

the entire rest of the economy if it wasn’t for a lot of the synthetic 

instruments that were created by firms like Goldman Sachs and 

others. Would you agree with that statement? 

Mr. VINIAR. I don’t know what he meant or anything, but—— 

Senator ENSIGN. The statement that I made, would you agree 

with that statement? 

Mr. VINIAR. Just the math is, anytime you have something that 

declines in value that is levered, it adds to more losses. So that 

would be the case for anything that declines in value if it has leverage to it. 

Senator ENSIGN. We are dealing with financial regulatory reform 

right now, and obviously it is a hot political debate up here. From 

the inside, what would you do as far as the changes in regulation, 

not that addresses out there in Main Street, but just address Wall 

Street. What would some of your big recommendations be to the 

U.S. Congress? 

Mr. VINIAR. Well, some of the things, and I am an internal guy. 

I mean, I worried about Goldman Sachs and its finances, and I—— 


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1See Exhibit No. 164, which appears in the Appendix on page 1010. 

Senator ENSIGN. But at the same time, you said you took responsibility, Goldman Sachs. 

Mr. VINIAR. Absolutely. 

Senator ENSIGN. You don’t want to be part of the next financial 

collapse. 

Mr. VINIAR. Correct. 

Senator ENSIGN. Being an insider, help us with at least your advice. We don’t have to take it, but we can at least evaluate it, what 

we are doing right now. Because the one thing I do know is the 

Congress doesn’t have enough expertise to draft this law right now. 

Mr. VINIAR. What I would say is that a couple of places that I 

think are important to focus on, I think that if you look around financial institutions, the thing that tends to cause more problems 

than anything are liquidity problems within the institutions, and 

I think more stringent liquidity requirements for financial institutions would be important. 

And the second thing, I think it is pretty clear that we need 

higher capital charges for less-liquid assets, because I think holding less-liquid assets was one of the things that got firms in trouble. They didn’t have enough capital against them. So those would 

be two things that I would tell you should be part of any regulation. 

Senator ENSIGN. What about the relationship between the credit 

rating agencies and those of you on Wall Street as far as how cozy 

it seems to have been, because you guys pay their bills and—— 

Mr. VINIAR. I don’t have a view on that. 

Senator ENSIGN. OK. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator Ensign. 

Mr. Broderick, the Subcommittee staff prepared a chart on VaR.1

[Exhibit 164]. And between December 2006 and 2007, the VaR, the 

measure of risk, was almost continuously over the Mortgage Department’s permanent limit. Do you remember that? 

Mr. BRODERICK. Yes, I do. 

Senator LEVIN. And it peaks at or near 100 VaR, above the limit. 

Is that something that you approved? 

Mr. BRODERICK. It is something that the firm-wide risk committee approved on an exception basis, on an ongoing basis, yes. 

Senator LEVIN. Well, all year, they were over your permanent 

limit. They were hugely over it. At one point, they had the majority 

of your risk tied up just in that one department, did they not? Were 

they at 56 percent of your VaR at one point? 

Mr. BRODERICK. I would have to look at the figures precisely, 

but—— 

Senator LEVIN. Well, approximately. Were they at a huge percentage of your total firm VaR at one point? 

Mr. BRODERICK. They were a large percent, but Mr. Chairman, 

let me just make one point, which is that the numbers may well 

not include the effect diversification, which is to say when you add 

the individual product by product areas, you get a number that is 

in excess of the total firm-wide VaR because firm-wide VaR gives 

effect to diversification. So that would tend to understate the—or, 

rather, overstate the impact of mortgage VaR specifically. But the 


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1See Exhibit No. 35, which appears in the Appendix on page 320. 

2See Exhibit No. 48, which appears in the Appendix on page 376. 

general point you are making is entirely right, which is this was 

a large percent of the firm’s VaR, certainly much larger than it had 

been historically. 

Senator LEVIN. And the short positions that they were taking 

during that year were the major contribution to that, is that correct? 

Mr. BRODERICK. To the mortgage VaR, yes. 

Senator LEVIN. To the high mortgage VaR, is that what you said? 

Mr. BRODERICK. Yes, that is correct. 

Senator LEVIN. The Mortgage Department’s contribution to that 

firm-wide VaR is shown over here. Take a look at Exhibit 35,1 if 

you would. 

Mr. BRODERICK. OK. 

Senator LEVIN. Do you see it? 

Mr. BRODERICK. Yes. 

Senator LEVIN. OK. The percentage of contribution to the firmwide VaR was shown in that exhibit at 53.8 percent for mortgage 

structured products, is that correct? 

Mr. BRODERICK. Yes. I believe that is the—I am not positive 

about this, but I think this relates to the entire mortgage group at 

the time this report was presented. 

Senator LEVIN. Well, this report was a Goldman report, right? 

Mr. BRODERICK. Yes. 

Senator LEVIN. It says, mortgage structured products, 53.8 percent of the firm-wide VaR. 

Mr. BRODERICK. Right. 

Senator LEVIN. And that, you agreed already, was a result of 

their significant short position, is that correct? 

Mr. BRODERICK. The mortgage VaR was being driven primarily 

by the short positions at this time, yes. 

Senator LEVIN. All right. Now, if you look at Exhibit 48,2 this is 

a presentation which I believe you gave to the Goldman Tax Department in October 2007. Does that look familiar to you? 

Mr. BRODERICK. Yes, it does. 

Senator LEVIN. OK. Take a look at page 2, the fourth full paragraph. I am going to read it to you. ‘‘So what happened to us? A 

quick word on our own market and credit risk performance in this 

regard. In market risk - you saw in our 2nd and 3rd qtr results 

that we made money despite our inherently long cash positions. - 

because starting early in ’07 our mortgage trading desk started 

putting on big short positions,’’—big short positions—‘‘mostly using 

the ABX index, which is a family of indicies designed to replicate 

cash bonds. And did so in enough quantity that we were net short, 

and made money (substantial $$ in the 3rd quarter) as the 

subprime market weakened. (This remains our position today)’’ 

Was that accurate when you wrote it? 

Mr. BRODERICK. Yes, it was accurate. 

Senator LEVIN. OK. I think that is a pretty good description of 

what happened. 

Now let me go back to you, Mr. Viniar. I do have a problem with 

taking a short position on a security that you are selling to your 


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customer. You can say, and I am sure it is true, that positions 

change all the time. That is your answer about the conflict of interest. You are selling a security—you are holding out a security to 

a customer, and at the same time have decided and are in a short 

position, and you are going to take the opposite position from your 

own customer. 

Now, you can say that your position might change. I am talking 

about at the time you are selling that security to that customer. Do 

you think that a customer has a right to believe that you want that 

security to succeed? 

Mr. VINIAR. I think that a customer has a right to believe that 

we—it is not a question of succeeding or not succeeding—— 

Senator LEVIN. Yes, that is my question. You can say it is not 

the question. I am saying, from a customer’s perspective, when you 

hold out securities to sell to a customer, do you think that a customer has a right to believe that you, Goldman Sachs, would like 

to see that security succeed? 

Mr. VINIAR. I am not sure what succeed actually means, because 

when customers—— 

Senator LEVIN. That it would be a good security for them to invest in. 

Mr. VINIAR. That customer thinks that the—— 

Senator LEVIN. No, not the customer thinks—— 

Mr. VINIAR [continuing]. Value of the security will go up. 

Senator LEVIN. No. 

Mr. VINIAR. I don’t think—— 

Senator LEVIN. I am asking, does that customer have a right to 

believe that you, Goldman Sachs, when you are selling something, 

believe that that is a solid security? 

Mr. VINIAR. Does that customer have a right to believe that—— 

Senator LEVIN. To assume—— 

Mr. VINIAR [continuing]. We think the value will go up—— 

Senator LEVIN. No. 

Mr. VINIAR [continuing]. In that security? 

Senator LEVIN. No. 

Mr. VINIAR. Because that is—— 

Senator LEVIN. No. I am asking you whether or not—you put 

your name on that security. You have got Goldman Sachs. You are 

selling it. 

Mr. VINIAR. Yes. 

Senator LEVIN. Do you think that a customer has a right to assume that you would like to see that security succeed? That is my 

question. Look, put yourself in the customer’s mind. Do you think 

that the customer has a right to assume that when you put your 

imprimatur on a security, that you, Goldman Sachs, would like to 

see that security pay off? 

Mr. VINIAR. I think when we sell securities to customers, we 

don’t necessarily have a view that they are going to go up or down 

in value—— 

Senator LEVIN. I am not asking you that. 

Mr. VINIAR. So I am not sure what succeed—I am sorry, Senator. 

I am not trying to not answer your question. 

Senator LEVIN. That you—— 

Mr. VINIAR. I am not sure what you mean by succeed. 


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1See Exhibit No. 99a, which appears in the Appendix on page 614. 

Senator LEVIN. That you are holding out something to them because you think this would be something good, that it is good, it 

is secure. It is not insecure, it is secure. 

Mr. VINIAR. When we sell to them—— 

Senator LEVIN. I am going to keep using that word, because I 

want you to understand what is in the customers’ minds, that you 

don’t think it is junk. You don’t think it is crap. You don’t think 

it is shi**y. 

Mr. VINIAR. Well, it depends on how you mean that. We 

might—— 

Senator LEVIN. How I mean it? These are your employees who 

believe it. 

Mr. VINIAR. Can I explain? If we sell something to a client, a customer, let us just say we have owned it and we sell it to them at 

20 cents on the dollar. They buy it at 20 cents. It doesn’t mean we 

think it is a terrific piece of paper, but they think it is worth more 

than 20 cents. Clearly, we think—— 

Senator LEVIN. If your employee thinks that it is crap, that it is 

a shi**y deal, do you think that Goldman Sachs ought to be selling 

that to customers, and when you were on the short side betting 

against it? I think it is a very clear conflict of interest and I think 

we have got to deal with it. Now, you don’t, apparently. 

Mr. VINIAR. I do not necessarily think that is—— 

Senator LEVIN. And when you heard that your employees in 

these emails and looking at these deals said, ‘‘God, what a shi**y 

deal,’’ ‘‘God, what a piece of crap,’’ when you hear your own employees or read about those in emails, do you feel anything? 

Mr. VINIAR. I think that is very unfortunate to have on email. 

[Laughter]. 

Senator LEVIN. On email? 

Mr. VINIAR. Please don’t take that the wrong way. 

Senator LEVIN. How about feeling that way? 

Mr. VINIAR. I think it is very unfortunate for anyone to have said 

that in any form. 

Senator LEVIN. How about to believe that and sell it? 

Mr. VINIAR. I think that is unfortunate, as well. 

Senator LEVIN. No, that is what you should have started with. 

Mr. VINIAR. You are correct. It is. 

Senator LEVIN. We are going to stand adjourned for 10 minutes 

because we have a vote on. 

[Recess.] 

Senator COBURN [presiding]. Our hearing will resume. Senator 

Levin will be back and I will yield back to him when he comes. 

Mr. Viniar, I am reading a risk factor sheet on the Gray Wolf 

prospectus and I would just like for you—this is Exhibit 99a.1 It 

is page 23. It is probably standard boilerplate, but I want to read 

it to you and get your reaction in light of Monday morning quarterbacking, all right? And I am all the way down to the next-to-last 

paragraph. 

‘‘The obligations of the Collateral Manager to the issuer are not 

exclusive. The Collateral Manager and its affiliates may have other 

clients—’’ 


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1See Exhibit No. 63, which appears in the Appendix on page 477. 

Mr. VINIAR. Excuse me, Dr. Coburn. I am sorry. Which page of 

this again? 

Senator COBURN. It is page 23. 

Mr. VINIAR. Thank you. 

Senator COBURN. ‘‘The Collateral Manager and its affiliates may 

have other clients, including certain holders of any class of notes, 

which may invest, directly or indirectly, in the same or similar securities or financial instruments as those in which the issuer invests or that would be appropriate for the inclusion in the issuer’s 

holdings.’’ 

And then the final paragraph, ‘‘The Collateral Manager may 

make investment decisions for other clients and for affiliates that 

may be different from those made by the Collateral Manager on behalf of the issuer.’’ 

Are you telling people by that disclaimer that you may sell them 

something long and then go short against it? 

Mr. VINIAR. I mean—— 

Senator COBURN. What is the purpose of that disclaimer? 

Mr. VINIAR. I am just not familiar with this document or this disclaimer. 

Senator COBURN. It is pretty well covered in almost everything 

you all have written, that same disclaimer. What does it say to 

you? You are an accountant, not a lawyer, and neither am I, but 

what does that say to you? Because you are telling people in this 

prospectus that you may sell to other clients or affiliates, which 

means your own business, that you may take a position opposite 

of that, correct? 

Mr. VINIAR. That is what it says. 

Senator COBURN. That is what it says. OK. I just wanted to clarify that. 

Now, I want to go back to something I asked the young man on 

panel one, which was associated with is there a policy at Goldman 

about directing conversations through corporate email and limiting 

those to things that should not be put in email? Is there a policy? 

Mr. VINIAR. There is no policy that I am aware of. 

Senator COBURN. All right. Thank you. 

Mr. Broderick, I want to spend some time with you, if I may. 

Would you go to Exhibit 63, please.1 I will just read it, if you have 

found it. This is from Patrick Welch to you, Mike Dinias, Robert 

Berry, Lee Hemphill, Wildermuth, and I guess that is Rapfogel. 

‘‘Craig, I realize this may be too late, but two comments: Just fyi 

not for the memo, my understanding is that the desk is no longer 

buying subprime. (We are low balling on bids.)’’ Why would this be 

excluded from the memo? 

Mr. BRODERICK. I don’t think that it implies that it was excluded 

from the memo. He just is referencing the fact that his comments 

may be too late for inclusion in the memo, but it doesn’t actually 

say whether it was in the memo or not. 

Senator COBURN. OK, but the point is the desk was no longer 

buying subprime, and you knew that. 


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Mr. BRODERICK. It says the desk is bidding lower than it would 

otherwise do with the effect of not certainly being aggressive as 

they were. 

Senator COBURN. OK. Which desk does that email refer to? Who 

are they talking about? 

Mr. BRODERICK. It does not specify, but it was one of the desks 

within the mortgage—— 

Senator COBURN. One of the desks that would buy subprime 

mortgages, correct? 

Mr. BRODERICK. Yes. 

Senator COBURN. And who is Patrick Welch? 

Mr. BRODERICK. He is a gentleman in our credit function. 

Senator COBURN. Does he work within the mortgage—— 

Mr. BRODERICK. No. He works in the—— 

Senator COBURN. He works within the risk management—— 

Mr. BRODERICK. He works within the risk management group. 

Senator COBURN. OK. Who do you think they were lowballing on 

bids, clients or customers? 

Mr. BRODERICK. These would have been clients from whom we 

buy mortgage product, subprime—— 

Senator COBURN. And then packaged and—OK. 

Mr. BRODERICK. Right. But lowballing in this case is not a bidding less than fair or anything—— 

Senator COBURN. No. It is just saying you are going low so it is 

not as attractive for them to bring them to you and they will bring 

them to somebody else. 

Mr. BRODERICK. And they will bring them to someone else. 

Senator COBURN. Understand. I have no criticism for that and I 

am not making any judgment on it. 

What happened, in your opinion, in the March time frame for 

your company to make the determination to no longer buy 

subprime? You are a risk manager. You are involved in that 

thought and decision making and research. What happened? 

Mr. BRODERICK. This was entirely consistent with the strategy 

that—with the direction provided by David Viniar and other senior 

managers of the firm that we be less long in our mortgage business 

generally. 

Senator COBURN. OK. But as a risk manager, what are the inciting events for them to do that? You are sitting there looking at it 

as a risk manager. What caused them to make that turn? Was it, 

as testified in the first panel, we started seeing a deceleration and 

an increase in housing prices, or we started seeing subprimes not 

performing? What was it that led to that conclusion within your 

firm? 

Mr. BRODERICK. Well, the meeting itself was chaired, and in fact 

initiated, by Mr. Viniar, so—— 

Senator COBURN. He was seeing daily losses, I know from his testimony—— 

Mr. BRODERICK. I mean, that is the feedback that we had, as 

well, which was that this was a business that had long been, a 

small but relatively stable part of the Goldman portfolio of businesses. We went into it willingly on the basis of low risk and comparatively low return. We thought we understood the risks pretty 

well. And therefore, when we started seeing, as Mr. Viniar has 


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talked about in his opening remarks, when we started seeing profit 

volatility in excess of that which we would normally expect to see, 

it just raised in our mind the question that maybe we didn’t thoroughly understand what was going on in the market and therefore 

maybe we should start getting shorter, and—— 

Senator COBURN. Can you give me, and for the benefit of those 

listening, can you give me another scenario in the past 5 years 

where Goldman has seen the same kind of thing happen in some 

other product that they handled, where you are looking like you 

are going to have to mark to market and you are seeing this decline? Can either of you give another example so that people can 

see that this is not a single event, that it is a multiple event? 

Mr. VINIAR. Sure. The same thing happened with leveraged loans 

in 2008. We were long in many leveraged loans, unfortunately, and 

the market clearly started to decline. We were marking things to 

market. We were marking them down and we sold them. We sold 

some at prices that people who bought them that continued to go 

down, and we sold some at distressed prices and since then they 

have recovered and they have made money on them. But we just 

felt our risk was just too big and our instructions were that we 

should reduce our risk, because that market was in very—ended up 

in severe distress. 

Senator COBURN. Now, there are some significant risk factors 

going on in commercial real estate. Do you all have big holdings 

in commercial real estate mortgages? 

Mr. VINIAR. They are not that big anymore. We have either 

marked them—— 

Senator COBURN. You have gotten close to home on that? 

Mr. VINIAR. Not as close as we would have liked, but a lot closer 

than we were. 

Senator COBURN. OK. And were there collateralized debt obligations on these, and were there mortgage-backed securities on these, 

as well? 

Mr. BRODERICK. Yes, there were. 

Senator COBURN. Was it to the same extent that you had involvement in those as you had in the residential mortgage? 

Mr. BRODERICK. I don’t know precisely what the numbers are, 

but we were active in—— 

Senator COBURN. In both markets? 

Mr. BRODERICK. We were active in both markets. 

Senator COBURN. OK. Thank you. 

Mr. BRODERICK. Multi-small sector CDOs were very often included commercial mortgage-backed securities. 

Senator COBURN. Mr. Broderick, do you think, or do feel any of 

the CDOs or the Abacus transaction had any reputational risk for 

Goldman? 

Mr. BRODERICK. Do I think that Abacus had any reputational 

risk for Goldman? With the benefit of hindsight, one version certainly did. 

Senator COBURN. The last—— 

Mr. BRODERICK. The ACA 2007, yes. 

Senator COBURN. All right. How about any of the CDOs? 

Mr. BRODERICK. We structured these products very carefully. We 

structured them with the best of intent. They accurately, I think, 


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reflected in terms of disclosure and so forth, the underlying assets 

in the portfolios. They were purchased by sophisticated investors 

who had a great deal of detail on the underlying securities that 

went into them, the underlying assets that went into them. I think 

they performed in a manner consistent with that which the market 

itself performed. 

Senator COBURN. OK. Earlier, Senator Ensign asked the first 

panel about whether or not they thought the motivational system 

of payment based on year-end bonuses, production, etc., led to a 

less than ethical—or compromised an ethical position. I would just 

like for you to comment for a minute, what is the ethical creed of 

Goldman Sachs? How is it manifested? How does the Board look 

at ethics? Do they have an Ethics Department? Is there an Ethics 

Department that actually manifests those standards among the 

Goldman employees, and if not, why not? 

Mr. VINIAR. You asked a lot of questions there, Senator, but we 

care very much about ethics at Goldman Sachs and we don’t believe in any way, shape, or form that our compensation is not consistent with people having good ethical standards. In fact, just the 

opposite, and I think some people on our panel said that this morning. 

When we look at people’s reviews, our year-end review—you 

looked at just a self-evaluation, but if you looked at the evaluation 

of our people, what we call a 360-degree review that everybody at 

Goldman Sachs has, it is not just commercial production. There are 

questions in there that are asked to people in their department, 

outside their department, senior and junior, about leadership, culture, values, diversity, their ethical standards, etc. And if people do 

not do well there, something would happen between their compensation being reduced and them no longer being at Goldman 

Sachs. So we pay a lot of attention to that and we care very deeply 

about it. 

Senator COBURN. Is there a Board process that leads on that? 

What are the standards? If I go to work for Goldman Sachs, what 

am I going to hear about ethics when I am hired? 

Mr. VINIAR. You will get the Goldman Sachs Business Principles, 

which everybody gets, which are 14 business principles that we live 

by. You will have training. You will have orientation. You will have 

many different venues in which we will talk about what is expected 

of you, and that will not just happen when you join Goldman 

Sachs. That will happen when you get promoted. If you are a managing director, there will be training where that is discussed. So it 

happens throughout your career at Goldman Sachs. 

Senator COBURN. Looking backwards at Abacus, would you feel 

that the system worked for Abacus? Do you think there is any ethical question that can be raised on Abacus? Could a non-biased person look at the facts and raise an ethical question about that deal? 

Mr. VINIAR. I am not sure I am non-biased. 

Senator COBURN. Well, I am not saying you are. You should be 

biased for Goldman. I understand it. But could a non-biased look 

at the facts as you see them and say there is a question of unethical behavior here? 

Mr. VINIAR. I don’t believe so. 

Senator COBURN. You don’t think so? 


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Mr. VINIAR. I don’t believe so. 

Senator COBURN. Do you think it was ethical for Goldman to release all the personal emails of Mr. Tourre? 

Mr. VINIAR. I have no view. I don’t think it was unethical. 

Senator COBURN. You don’t think it is unethical? 

Mr. VINIAR. No. 

Senator COBURN. OK. Did you release any of the other personal 

emails on any of the other people who have testified before this 

Subcommittee? 

Mr. VINIAR. I don’t know. 

Senator COBURN. I haven’t seen them. 

I will yield to the Chairman, because I am fine. I am doing well. 

Mr. VINIAR. Chairman Levin, can I just address the answer to 

the last question you asked before you left—— 

Senator LEVIN [presiding]. Sure. 

Mr. VINIAR [continuing]. Because I want to just make clear what 

I said to you at the end, which is that I think you were 100 percent 

correct in what you said to me, how I should have phrased that, 

that I should have started with, yes, I feel bad that anyone would 

have thought that at all, not just whether they wrote it or put it 

on email. So I just want to clarify that and repeat it again, because 

once again, you were 100 percent correct. 

Senator LEVIN. I would have hoped you would have said you 

were appalled as your first reaction. I would have just hoped that 

you would have said, as someone who holds yourself out to customers, that it was appalling when you heard about that. 

The only other question that I have for you, and this goes to 

something which my friend, Dr. Coburn, said about short sales, 

there is a place for short sales. I happen to agree with that. My 

problem comes particularly where you are selling a security to 

someone, particularly when it is described as your employees described it, and we have gone into that as to their description of 

some of those sales, and at the same time, you are betting against 

it. You are going short. That does seem to me to be a very clear 

conflict, where it is your intention to hold a short position on a security where you are selling it to a customer. That is not a temporary position, and I know positions change. I understand that. 

The second thing which I am troubled by in this area the big picture is that I have difficulty when a firm such as yours, has a strategic position to basically invest against the market, to bet against 

the market, and to be selling securities that are long in the same 

market. I have a problem with that, but that is a hard issue to resolve. 

But if it comes to specific securities, particularly described as 

your employees describe some of these that they were selling, going 

short and intending to keep a short position, to bet against the securities that you are selling, does, to me, create a conflict unless 

you disclose to your customer that you are, in fact, taking a short 

position, not temporarily, not as a market maker, but that is your 

proprietary position. 

But there is another area where I think there has been a real 

difficulty displayed today and that is when I went into the subject 

with the first panel about a customer saying on the phone to you, 

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1See Exhibit No. 58, which appears in the Appendix on page 466. 

tomer says, how can you get comfortable with that deal given the 

fact that New Century, which was known as a very dubious supplier of these mortgages, it has all the New Century collateral? 

Now, in that case, there was a big problem because your people 

were asked a question, a direct question. How can you get comfortable? The answer to that question is, you weren’t comfortable 

because you were going short. Instead, they kept trying to sell that 

security. That seems to me to be misleading, as well. 

Senator COBURN. Can I jump in here? 

Senator LEVIN. Yes. 

Senator COBURN. I have a couple of questions for you. We have 

a proposed fix-it bill for financial regulation, and based on what 

you have heard and seen, do you have an opinion on whether that 

will solve some of the problems that led to the financial situation 

that this country has faced over the last 21⁄2 years? 

Mr. VINIAR. We, as a firm, are generally supportive of financial 

regulation and I think there are some things in the bill that will 

fix some of the problems, but I don’t think it addresses some of the 

other problems. 

Senator COBURN. Do you think that the Federal Government 

ought to fix the problems with Fannie Mae and Freddie Mac? 

Mr. VINIAR. I don’t know enough to answer that. 

Senator COBURN. They have got about a trillion dollars worth of 

taxpayer money right now, all of it at risk, and one of the leading 

causes for over-speculation in the housing market, and you don’t 

have an opinion on it? I mean, I don’t want to get you in trouble 

with whoever your friends are around here, but the point is, we 

need to fix the real problems, not the symptoms, and you don’t 

have an opinion on whether we ought to address the issues with 

Fannie Mae and Freddie Mac? 

Mr. VINIAR. Not really. 

Senator COBURN. OK. Thank you. 

Senator LEVIN. I have one more question. The firm claims that 

your clients come first, and we have seen many, too many instances today where that has not been the case, where you put 

Goldman’s interest ahead of your clients, selling securities that you 

had real doubts about, betting against those same securities, taking a short position which your client wanted but you said, we will 

save that for ourselves. 

Your first business principle, according to your Exhibit 58,1 is, 

‘‘Our clients’ interests always come first,’’ and they don’t. There is 

a conflict of interest in many cases where you put your own interests first. You are selling stuff out of your inventory which you call 

cats and dogs and you call bad lemons. So the conflict of interest 

issue and the fact that you don’t always put your client first, you 

put your own firm’s proprietary interests first in many cases, kind 

of goes to the heart of the conflict. 

It is similar to the conflict which exists with those credit rating 

agencies. We can kind of talk about examples of the conflict, but 

at the heart of it is the problem that they are paid to give credit 

ratings by the people whose securities they are rating, and that 

means there is pressure on them to put AAA ratings on them. We 


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went into that at our third hearing. And there is an inherent conflict of interest there, as well. 

So that is the area that I am most interested in in terms of the 

legislation, to strengthen it in the conflicts of interest area, where 

I think there is room to be strengthened. I now want to yield to 

Senator Pryor before we excuse this panel. 

Senator PRYOR. Thank you, Mr. Chairman, and I would like to 

really follow up with where you left off, and that is on the conflict 

of interest question. I guess really the question for Goldman Sachs 

is, are there times in which you recognize a conflict? 

Mr. VINIAR. I am not sure what you mean by recognize a conflict. 

Senator PRYOR. Well, I think for most Americans, when they understand that you create a market and then you also are playing 

in that market and you have clients that you are enticing into that 

market, it seems to me that is an area that is rife for conflicts of 

interest, because you want the market to be successful. You are 

charging fees. You may be advising clients. But your interests may 

be different than the clients’ interest because you may be in a different position, like the previous panel said. So do you recognize 

that as a conflict of interest? 

Mr. VINIAR. I am not sure I am answering your question, but we 

try to resolve conflicts all the time at Goldman Sachs. We, for example, could have two clients who want to buy the same company 

and they will both ask us to represent them. That is a conflict. We 

will have to resolve it. We could have a seller and a buyer who ask 

us. That is a conflict. We could have a situation where there is a 

company—a client who wants to buy something and our merchant 

bank wants to buy it, as well. We will have to decide principal 

versus franchise, and almost every time we will choose the franchise over the principal. 

So we wrestle with these all the time. We try our best to resolve 

them and make the right judgment, putting our clients first. 

Senator PRYOR. But when it comes to doing something like selling CDOs, do you see any conflict there, or do you just see that as 

a function of the market? 

Mr. VINIAR. We generally try to create products that our customers want to buy and sell them to them at prices that they think 

are attractive and that they think will be profitable for them. 

Senator PRYOR. So, in other words, in the CDO market, you 

didn’t see any conflicts there? 

Mr. VINIAR. Not that I am aware of. 

Senator PRYOR. OK. We haven’t really talked a whole lot about 

credit rating agency reform. I know Senator Levin just mentioned 

the fact that I think the credit rating agencies, they played a role 

in all this, as well. I have actually had a bill here in the Senate 

to reform them. But regardless of that, do you think that there are 

reforms that should be made with the credit rating business? 

Mr. VINIAR. My interaction with credit rating agencies is basically limited to when they rate Goldman Sachs, and I think that 

process works pretty well. So I am just not close enough to the rest 

of it. 

Senator PRYOR. And, in general terms, what is Goldman Sachs’ 

relationship with credit rating agencies? 


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Mr. VINIAR. We have a multi-faceted relationship. We have, of 

course, the relationship where they rate us. 

Senator PRYOR. Right. 

Mr. VINIAR. So they rate Goldman Sachs. They will rate securities, as we have talked about this morning, that we create and 

structure. And they also rate securities of our clients. So we will 

work with our clients to help individual corporations get ratings on 

the securities. Sometimes, clients who have not been rated before 

need help and advice in going to rating agencies and so we will 

help them and advise them, as well. So it is multi-faceted. 

Senator PRYOR. And as part of your multi-faceted relationship 

with them, are there circumstances in which you pay them fees? 

Mr. VINIAR. Well, I know we pay them for sure when they rate 

our own securities, so if Goldman Sachs issues debt, we have to 

pay a fee for the rating on that. And, Craig, I believe there are 

some other circumstances where, if they are rating a security we 

create, sometimes it comes out of the transaction. Sometimes we as 

structurer will pay them. 

Senator PRYOR. And does that present any conflicts of interest in 

your mind? 

Mr. VINIAR. I am not sure. 

Senator PRYOR. Tell me what you mean, you are not sure. 

Mr. VINIAR. There is an argument you are making that if the 

issuer of securities is paying the rating agencies, then there could 

be a conflict, as opposed to the purchaser of securities. So there is 

an argument on both sides of that. 

Senator PRYOR. Mr. Broderick, did you want to comment on any 

potential conflicts of interest with the credit rating agencies? 

Mr. BRODERICK. No. I think Mr. Viniar addressed it exactly as 

I would have. 

Senator PRYOR. Let me ask, if I may, and I am not sure which 

one, but I will go ahead and ask this to Mr. Broderick. What is 

Goldman Sachs’ policy on employees shorting asset-backed securities, CDOs, CDLs, and credit default swaps in which Goldman 

Sachs acted as a market maker or owned for its own account? Do 

you have a policy about that? 

Mr. BRODERICK. We have very rigorous compliance policies which 

address the securities trading activities of all of our employees. I 

don’t know the details of it specifically as relates to the instruments that you specifically noted, but our compliance group has access to all the securities trading activities of our employees and 

monitor it carefully and ensure compliance with these strict policies that I mentioned. 

Senator PRYOR. And when you have compliance, are you talking 

about compliance with SEC and other rules and regulations, or are 

you talking about compliance with your own company policy? 

Mr. BRODERICK. Both. 

Senator PRYOR. OK. And you are not aware if you have any company policy about how you treat shorts when you are a market 

maker? 

Mr. BRODERICK. Not beyond what I articulated initially. Mr. 

Viniar, I don’t know if you have any more detail. 

Mr. VINIAR. I don’t know, Senator. 

Senator PRYOR. OK. Mr. Chairman, thank you. That is all I have. 


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1The prepared statement of Mr. Blankfein appears in the Appendix on page 225. 

Senator LEVIN. Thank you, Senator Pryor. Senator Coburn. 

Senator COBURN. I just had two follow-up questions. You are 

generally supportive of the Dodd bill, was your testimony. Are you 

supportive of reinstallation of Glass-Steagall? 

Mr. VINIAR. I think it would be very difficult to reinstate GlassSteagall. 

Senator COBURN. Very difficult to what? 

Mr. VINIAR. To reinstate Glass-Steagall. 

Senator COBURN. All right. Are you supportive of something similar to or the Volcker Rule? 

Mr. VINIAR. I think there are issues with the Volcker Rule. I 

think there are issues with what it would do to the competitiveness 

of the U.S. financial institutions, because I suspect nothing like 

that will be instituted anywhere outside the United States, and so 

I think you will find U.S. financial institutions—— 

Senator COBURN. The export of the derivatives market outside of 

the United States? 

Mr. VINIAR. I also think you will find non-U.S. financial institutions able to be stronger than U.S. financial institutions. 

Senator COBURN. All right. Thank you. 

Senator LEVIN. Thank you both. You are both excused. 

[Pause.] 

Senator LEVIN. We now will call our final witness for today’s 

hearing, Lloyd Blankfein, the Chairman and Chief Executive Officer of Goldman Sachs. Mr. Blankfein, we appreciate your being 

with us today. 

Pursuant to Rule 6, all witnesses who testify before the Subcommittee are required to be sworn, so we would ask you to stand 

and raise your right hand. 

Do you solemnly swear that the testimony you are about to give 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Mr. BLANKFEIN. Yes, I do. Thank you. 

Senator LEVIN. Thank you very much. I don’t know if you have 

heard the earlier testimony or not, but we use a timing system 

which will give you a red light in 5 minutes. The light will turn 

yellow after 4 minutes so that you can try to give us your testimony, if possible, in 5 minutes. 

TESTIMONY OF LLOYD C. BLANKFEIN,1 CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, THE GOLDMAN SACHS GROUP, INC., 

NEW YORK, NEW YORK 

Mr. BLANKFEIN. Thank you, Chairman Levin, Ranking Member 

Coburn, and Members of the Subcommittee, thank you for the invitation to appear before you today as you examine some of the 

causes and consequences of the financial crisis. 

Today, the financial system is fragile, but it is largely stable. 

This stability is the result of decisive and necessary government action during the fall of 2008. Like other financial institutions, Goldman Sachs received an investment from the government as a part 

of its various efforts to fortify our markets and the economy during 

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tude of our entire firm. We held the government’s investment for 

approximately 8 months and repaid it in full, along with a 23 percent annualized return for taxpayers. 

Until recently, most Americans had never heard of Goldman 

Sachs or weren’t sure what it did. We don’t have banking branches. 

We provide very few mortgages and don’t issue credit cards or 

loans to consumers. Instead, we generally work with companies, 

governments, pension funds, mutual funds, and other investing institutions. These clients usually come to Goldman Sachs for one or 

more of the following reasons: They want financial advice; they 

need financing; they want to buy or sell a stock, bond, or other financial instrument; or they want help in managing and growing 

their financial assets. 

The nearly 35,000 people who work at Goldman Sachs, the majority of whom work in the United States, are hard working, diligent, and thoughtful. Through them, we help governments raise 

capital to fund schools and roads. We advise companies and provide 

them funds to invest in their growth. We work with pension funds, 

labor unions, and university endowments to help build and secure 

their assets for generations to come. And we connect buyers and 

sellers in the securities markets, contributing to the liquidity and 

vitality of our financial system. These functions are important to 

economic growth and job creation. 

I recognize, however, that many Americans are skeptical about 

the contribution of investment banking to our economy and understandably angry about how Wall Street contributed to the financial 

crisis. As a firm, we are trying to deal with the implications of the 

crisis for ourselves and for the system. What we and other banks, 

rating agencies, and regulators failed to do was sound the alarm 

that there was too much lending and too much leverage in the system, that credit had become too cheap. 

One consequence of the growth of the housing market was that 

instruments that pooled mortgages and their risk became overly 

complex. That complexity and the fact that some instruments 

couldn’t be easily bought or sold compounded the effects of the crisis. While derivatives are an important tool to help companies and 

financial institutions manage their risk, we need more transparency for the public and regulators as well as safeguards in the 

system for their use. 

That is why Goldman Sachs, in supporting regulatory reform, 

has made it clear that it supports clearinghouses for eligible derivatives and higher capital requirements for non-standard instruments. 

As you know, 10 days ago, the SEC announced a civil action 

against Goldman Sachs in connection with a specific transaction. It 

was one of the worst days of my professional life, as I know it was 

for every person at our firm. We believe deeply in a culture that 

prizes teamwork, depends on honesty, and rewards saying no as 

much as saying yes. We have been a client-centered firm for 140 

years, and if our clients believe that we don’t deserve their trust, 

we cannot survive. 

While we strongly disagree with the SEC’s complaint, I also recognize how such a complicated transaction may look to many people. To them, it is confirmation of how out of control they believe 


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Wall Street has become, no matter how sophisticated the parties or 

what disclosures were made. We have to do a better job of striking 

the balance between what an informed client believes is important 

to his or her investing goals and what the public believes is overly 

complex and risky. 

Finally, Mr. Chairman, the Subcommittee is focused on the more 

specific issues revolving around the mortgage securitization market. I think it is important to consider these issues in the context 

of risk management. We believe that strong, conservative risk management is fundamental and helps define Goldman Sachs. Our risk 

management processes did not and could not provide for absolute 

clarity. They highlighted uncertainty about evolving conditions in 

the housing market. That uncertainty dictated our decision to attempt to reduce the firm’s overall risk. 

Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market. The fact is, we were 

not consistently or significantly net short the market in residential 

mortgage-related products in 2007 and 2008. Our performance in 

our residential market-related business confirms this. During the 

2 years of the financial crisis, while profitable overall, Goldman 

Sachs lost approximately $1.2 billion from our activities in the residential housing market. We didn’t have a massive short against 

the housing market and we certainly did not bet against our clients. Rather, we believe that we managed our risk as our shareholders and our regulators would expect. 

Mr. Chairman, thank you for the opportunity to address these 

issues. I look forward to your questions. 

Senator LEVIN. Thank you very much, Mr. Blankfein. 

We have heard in earlier panels today example after example 

where Goldman was selling securities to people and not telling 

them that they were taking and intended to maintain a short position against those same securities. I am deeply troubled by that, 

and it is made worse when your own employees believe that those 

securities are junk or a piece of crap or a shi**y deal, words that 

those emails show your employees believed about a number of 

those deals. 

Billion-dollar Timberwolf: A synthetic CDO-squared—CDOs get 

squared now—a senior executive called it a ‘‘shi**y’’ transaction, 

but the Goldman sales force was told that it was a priority item 

for 2 straight months. Goldman sold $600 million in Timberwolf securities to clients while at the same timeholding a short position, 

in other words, betting against it. The CDO went to junk status in 

about 7 months. Your investors lost big time, but Goldman won on 

that deal; you profited on that deal. 

In the $500 million Long Beach RMBS deal, Goldman shorted it 

at the same time that it was selling it to clients. The securities defaulted within a few years with a 65 percent delinquency rate. The 

bad news, in your own words, was that your clients lost money, but 

the good news is that Goldman Sachs made money on that deal. 

The next one, the $700 million Fremont deal. This was a RMBS 

of subprime loans from a notoriously bad lender. Your folks knew 

it. One of your clients talks to your sales force about it, and your 

sales force among themselves call it ‘‘crap loans.’’ They go out and 

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ing those items, they are shorting the deal. So you short them so 

that Goldman makes money when this security fails, which it did 

in 10 months. 

On the $300 million Anderson synthetic CDO, the CDO is stuffed 

with New Century loans. These are known to be shoddy loans. I 

think it was one or two on the list of bad loan producers. A client 

of yours asked, how did Goldman Sachs get comfortable with this 

deal? In other words, pointing out that it was New Century. Goldman Sachs didn’t respond and did not say, we are not comfortable, 

we are shorting it. We are betting against this deal. Asked a direct 

question, how can you guys get comfortable with a deal involving 

those loans, and instead of responding honestly, we have got problems, too, we are not taking any chances on this deal, we may be 

selling it, but we are also betting against it, that is not what happened. Instead, the client was told that Goldman was an equity 

holder, which it was at the same time, but that was a half-truth 

because it was also betting against that same security. That CDO 

failed within 7 months. Your clients lost. Goldman profited. The $2 billion Hudson synthetic CDO: Goldman Sachs was the sole protection buyer on this CDO with a $2 billion short. In other 

words, they were betting against it. A Goldman sales person described it as junk, not to the buyer, of course, but inside. The CDO 

imploded within 2 years. Your clients lost. Goldman profited. 

Now, there is such a fundamental conflict, it seems to me, when 

Goldman is selling securities which—particularly when its own 

people believe they are bad items, described in the way these 

emails show that they were described and what your own sales 

people believed about them—to go out and sell these securities to 

people and then bet against those same securities, it seems to me, 

is a fundamental conflict of interest and raises a real ethical issue. 

I would like to ask you whether or not you believe that Goldman, 

in fact, treated those clients properly. As you say, if clients believe 

we don’t deserve their trust, you are not going to survive. Those 

are the ringing words you give us in your opening statement. Given 

that kind of a history here, going heavily short in a market, which 

you did—you made a strategic decision to do that—but then on 

these specific examples to be betting against the very securities 

which you are selling to your clients, and internally your own people believe that these are crappy securities, how do you expect to 

deserve the trust of your clients, and is there not an inherent conflict here? 

Mr. BLANKFEIN. Well, Senator, there is a lot in your question and 

I am sure we are going to spend a lot of time on different parts 

of it. Our clients’ trust is not only important to us, it is essential 

to us. It is why we are as successful a firm as we are and have 

been for 140 years. We are one of the largest client franchises in 

market making in these kinds of activities we are talking about 

now, and our client base is a critical client base for us and they 

know our activities and they understand what market making is. 

Senator LEVIN. Do you think they know that you think something is a piece of crap when you sell it to them and then bet 

against it? Do you think they know that? 

Mr. BLANKFEIN. Again, I don’t know who the ‘‘they’’ is and—— 

Senator LEVIN. We went through it today. 


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Mr. BLANKFEIN. No, I know. I know, Senator, and there were individual emails that were picked out and some people thought 

something. But I will tell you—— 

Senator LEVIN. I am just asking you a question. Do you think if 

your people think something is a piece of crap and go out and sell 

that, and then your company bets against it, do you think that deserves your trust? 

Mr. BLANKFEIN. Senator, I want to make one thing clear. When 

you say we sell something and then our customer bets against 

it—— 

Senator LEVIN. No. You bet against it. 

Mr. BLANKFEIN [continuing]. We bet against it, we are principals. 

The act of selling something is what gives us the opposite position 

of what the client has. If the client asks us for a bid and we buy 

it from them, the next minute, we own it. They don’t. If they ask 

to buy it from us, the next minute, they own it and we don’t. We 

could cover that risk. But the nature of the principal business and 

market making is that we are the other side of what our clients 

want to do. 

Senator LEVIN. When you sell something to a client, they think, 

presumably, you are rid of it. It is no longer in your inventory. 

Mr. BLANKFEIN. Not necessarily. 

Senator LEVIN. Not necessarily, but they have at least a right to 

believe that you want that security to work for them. That is a belief which I would think most customers would have. In example 

after example, it is not just that you sold something, which obviously meant someone was buying it. There is a seller and a buyer. 

That is not what we are talking about. We are talking about betting against the very thing that you are selling, betting against it, 

going short against it without disclosing that to that client. 

Do you think people would buy securities from you if you said, 

we want you to know this. We are going to sell you this, but we 

are going out and buying insurance against this security succeeding. We are taking a short position. We are getting this thing 

out of our inventory. We are betting against this very thing we are 

selling to you. That is a totally different thing from selling a security and no longer having an interest in it. 

Is there not a conflict when you sell something to somebody and 

then are determined to bet against that same security and you 

don’t disclose that to the person you are selling it to? Do you see 

a problem? 

Mr. BLANKFEIN. In the context of market making, that is not a 

conflict. What clients are buying, or customers are buying, is they 

are buying an exposure. The thing that we are selling to them is 

supposed to give them the risk they want. They are not coming to 

us to represent what our views are. They probably—the institutional clients we have wouldn’t care what our views are. They 

shouldn’t care. We do other things at the firm. We are advisors. We 

manage their money. There are parts of the business where we are 

fiduciaries. 

Senator LEVIN. Yes, and that is the part that is very confusing 

to folks, they think you—— 

Mr. BLANKFEIN. I know. 

Senator LEVIN. They think you are fiduciaries, and then—— 


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Mr. BLANKFEIN. Not in the market making context. 

Senator LEVIN. Yes, but they are not told that not only are you 

not a fiduciary, you are betting against the very security that you 

are selling to them. You don’t disclose that. That is worse than not 

being a fiduciary. 

Mr. BLANKFEIN. Senator Levin. 

Senator LEVIN. That is being in a conflict of interest situation. 

Mr. BLANKFEIN. I don’t think our clients care or they should care 

what our positions are—— 

Senator LEVIN. That you are betting against the security you are 

selling to them? They don’t care? 

Mr. BLANKFEIN. You say betting against—— 

Senator LEVIN. Yes. You are betting. You are going short against 

the very security. You are holding a short position against the very 

security. I read you over and over and over again, you are selling 

securities, many of which are described as crap by your own sales 

force internally. 

Putting that aside just for a moment—we will come back to that. 

That makes it worse. But there is an inherent conflict when you 

don’t disclose to your client that this security you are buying from 

us has obviously a short side, but we are the people who are keeping the short on this one. We are betting against this security succeeding, and you don’t think that is relevant to a client? 

Mr. BLANKFEIN. We live in different contexts and this is a professional—this is a market—— 

Senator LEVIN. I am just calling it in an inhuman context. 

Mr. BLANKFEIN. In a human context, the markets work on transparency with respect to what the item is. It doesn’t carry representations just of what a position a seller has. Just think of buying 

from a stock exchange or a futures market. You are not even supposed to know who is on the other side. You could have the biggest 

mutual fund in the world selling all its position in something. They 

could hate it. You would never know that if you were the buyer of 

a stock, who was selling it or why they were selling it. Liquidity 

in the market demands transparency, that the thing is supposed to 

do what it is supposed to do. 

The people who are coming to us for risk in the housing market 

wanted to have a security that gave them exposure to the housing 

market and that is what they got. The unfortunate thing, and it 

is unfortunate but it doesn’t—is that the housing market went 

south very quickly after some of the securities—not all of them, because some of them were done early—but they went south, and so 

people lost money in it. But the security itself delivered the specific 

exposure that the client wanted to have. 

Senator LEVIN. You don’t believe it is relevant to a customer of 

yours that you are selling a security to that you are betting against 

that same security. You just don’t think it is relevant and needs 

to be disclosed. Is that the bottom line? 

Mr. BLANKFEIN. Yes, and the people who are selling it in our 

firm wouldn’t even know what the firm’s position is and—— 

Senator LEVIN. Oh, yes, they did. 

Mr. BLANKFEIN. Senator, we have 35,000 people and thousands 

of traders making markets throughout our firm. They might have 

an idea, but they might not have an idea. 


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Senator LEVIN. Oh. Now you are saying they might know. 

Mr. BLANKFEIN. And the next day, it might be different. 

Senator LEVIN. They have an idea, more than an idea in these 

cases. But putting that aside, what do you think about selling securities which your own people think are crap? Does that bother you? 

Mr. BLANKFEIN. I think they would—again, as a hypothetical—— 

Senator LEVIN. No, this is real. 

Mr. BLANKFEIN. Well, then I don’t—— 

Senator LEVIN. We heard it today. This is a shi**y deal. This is 

crap. 

Mr. BLANKFEIN. Well, Senator—— 

Senator LEVIN. Four or five examples. What is your reaction to 

that? 

Mr. BLANKFEIN. I think there are a lot of opinions about how a 

security will perform against the market it is in. 

Senator LEVIN. How about the sales person? 

Mr. BLANKFEIN. I think that the investors that we are dealing 

with, on the long side or on the short side, know what they want 

to acquire and probably if they asked a sales person his or her 

opinion, that sales person owes a duty of honesty. But otherwise, 

the sales person is representing what that security is and what the 

position in that security will accomplish. 

And as far as whether something is a weak security or going bad, 

we are selling securities all the time that are weak, that we ourselves don’t like. It is just a function of the price in the market. 

I bet some of those securities, and I don’t know specifically, which 

are the subject of those comments can be bought today for a willing 

buyer and a seller at cents on the dollar. As long as people know— 

I think there are people who are making rational decisions today 

to buy securities for pennies on the dollar because they think it will 

go up, and the sellers of those securities are happy to get the pennies because they think they will go down. 

Senator LEVIN. I understand that. We are talking where you 

were the seller of the security and you, Goldman Sachs—believe it 

is a piece of crap, where you—— 

Mr. BLANKFEIN. We were sellers—— 

Senator LEVIN [continuing]. Where you, as part of the deal—I am 

talking about this. I am not talking about where you are selling securities out of your inventory. I understand that. People come to 

you, you buy securities. I am talking about where the deal is that 

you are selling as you in the short position and intending to keep 

that position. That is the deal, and whether there is not an obligation then to disclose to the people you are selling to in that deal— 

Goldman, we may be selling it to you, but we believe that this 

thing is going the other direction. We are taking the short position. 

You don’t see any conflict in that? 

Mr. BLANKFEIN. I think in those transactions in which we 

underwrote, I believe, and I am not looking at specific—in fact, my 

understanding is that is disclosed, that we can have a short or a 

long position in those securities. 

Senator LEVIN. And where you take a short position, do you 

think that should be disclosed? Where you are betting against that 

same security you are selling—yes or no, do you think that ought 

to be disclosed or not? 


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Mr. BLANKFEIN. Senator, you keep using the word ‘‘betting 

against’’—— 

Senator LEVIN. Yes. You are taking the short position and you 

are staying. You intend to keep it. That is a bet against that security—— 

Mr. BLANKFEIN. If somebody bought—— 

Senator LEVIN [continuing]. Succeeding. 

Mr. BLANKFEIN. As a market maker—— 

Senator LEVIN. No, just try my question. 

Mr. BLANKFEIN. I have to be able to—— 

Senator LEVIN. No, just try my question. In a deal where you are 

selling securities and you are intending to keep the short side of 

that deal, which is what happened here in a lot of these deals, do 

you think you have an obligation to tell the person that you are 

selling that security to in that deal that you are keeping the short 

position in that deal? 

Mr. BLANKFEIN. That we are not going to cover it in the market? 

Senator LEVIN. That is—— 

Mr. BLANKFEIN. Well, no—— 

Senator LEVIN. That you intend to keep that short position. Not 

forever. It is your intention to keep that short position. 

Mr. BLANKFEIN. No, I don’t think we would have to tell them. I 

don’t even know that we would know ourselves what we were going 

to do. Even if we intended—— 

Senator LEVIN. I said, where you intend to keep a short position. 

Mr. BLANKFEIN. I don’t think we would—I don’t think we would 

disclose that, and I don’t know—again, intention for a market 

maker is a very—— 

Senator LEVIN. How about you are investing in these securities. 

This isn’t a market making deal. This is where you have a decision 

to bet against, to take the short side of a security that you are selling, and you don’t think that there is any moral obligation here? 

Put aside the legal obligation. You don’t think there is an obligation to tell the person that you are selling this to that you are betting against that security by maintaining a short position in it? It 

is a very straightforward question. 

Mr. BLANKFEIN. I don’t think so. I am trying to answer it. Or, 

for that matter, if a client came to us and asked us to buy something from him and we intended to hold the long position, I don’t 

think we have an obligation of telling him that our intention is to 

hold it. In half of every—— 

Senator LEVIN. That is not the opposite side from that client. 

That is the same side. 

Mr. BLANKFEIN. No, it is not. It is the opposite side. 

Senator LEVIN. No. You said a client comes to you and wants to 

sell you something. You decide whether to buy it or not. 

Mr. BLANKFEIN. Every transaction, Senator, and this is—and I 

think it is important, and again, I am not trying to be resistant but 

to make sure your terminology—when as a market maker, we are 

buying from sellers and selling to buyers—— 

Senator LEVIN. But I am saying where you are not selling to anyone else, you are selling to somebody and you are taking the opposite position. You are betting. You are going out and getting a 

default swap, however it is done. You are betting against the very 


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security that you are selling to that person. You don’t see any problem? You don’t see that you have to disclose, when you have put 

together a deal and you go looking for people to buy those securities, it just adds insult to injury when your people think it is a pile 

of junk. But the underlying injury is that you have determined that 

you are going to keep the opposite position from the security that 

you are selling to someone. You just don’t see any obligation to disclose that. That is what seems to be coming through here. 

Mr. BLANKFEIN. I don’t believe there is a disclosure obligation, 

but as a market maker, I am not sure how a market would work 

if it was premised on the assumption that the other side of the 

market cared what your opinion was about the position they were 

taking. 

Senator LEVIN. Do they have a belief that you, at least when you 

are going out peddling securities, that you want that security to 

succeed? Don’t they have that right to assume that if you are going 

out selling securities, that you have a belief that is something 

which would be good for that client? 

Mr. BLANKFEIN. I think we have to have a belief, and we do have 

a belief that if somebody wants an exposure to housing—— 

Senator LEVIN. They don’t want—you are out there selling it to 

them. You are out there selling these securities. This isn’t someone 

walking in the door. 

Mr. BLANKFEIN. Again, I want—— 

Senator LEVIN. You are picking up the phone. You are calling all 

these people. You don’t tell them that you think it is a piece of 

junk. You don’t tell them that this is a security which incorporates 

or which in some way references a whole lot of bad stuff in your 

own inventory—bad lemons, they were called. Over and over again, 

we have emails. You are out there looking around for buyers of 

stuff, whether it is junk or not junk, where you are betting against 

what you are selling. You are intending to keep the opposite side. 

This isn’t where you are just selling something from your inventory. This is where you are betting against the very product you 

are selling, and you are just not troubled by it. That is the bottom 

line. There is no trouble in your mind—— 

Mr. BLANKFEIN. Senator, I am sorry. I can’t endorse your characterization. 

Senator LEVIN. It is a question, not a characterization. I am saying, you are not troubled. 

Mr. BLANKFEIN. I am not troubled by the fact that we market 

make as principal and that we are the opposite—when somebody 

sells, they sell to us, or when they buy, they buy from us. 

Senator LEVIN. And where you are betting, keeping a betting interest against the security. It is not just they are buying from you. 

That is not my issue. They are buying something from you where 

you solicit them to buy and then you are betting against. You are 

keeping the short side. You are going out and getting a default 

swap. Or you are selling the ABX. Whatever it is, you are taking 

a position against the very security that you are selling and you 

are not troubled. 

Mr. BLANKFEIN. Senator, as I—again—— 

Senator LEVIN. And you want people to trust you. 

Mr. BLANKFEIN. Senator, I think people—— 


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Senator LEVIN. Why would people—— 

Mr. BLANKFEIN [continuing]. Do trust us. 

Senator LEVIN. I wouldn’t trust you. If you came to me and wanted to sell me securities and you didn’t tell me that you have a bet 

against that same security—— 

Mr. BLANKFEIN. Senator—— 

Senator LEVIN. You don’t think that affects my thinking? 

Mr. BLANKFEIN. Senator, we could do a public issue of an oil 

company tomorrow, an IPO of an oil company that goes out and 

searches for oil. It is not—when we sell that company, and as an 

underwriter, we make sure there is due diligence because our obligations of an underwriter are disclosure and due diligence and that 

is very well established. But we can tell our investors, if they want 

an exposure to an oil company and they understand the risks and 

we do a good job in diligence and we do all the disclosures that are 

required by ourselves and all the regulators, we can sell that security and we will not necessarily disclose and won’t even know—and 

the buyer won’t care—we could be negative on the equity market 

and negative on the oil market. It still won’t matter—— 

Senator LEVIN. Speaking about that security—— 

Mr. BLANKFEIN [continuing]. To that buyer of the security. 

Senator LEVIN. Mr. Blankfein, stick to the point. I am talking 

about that security that you are selling out there. You go out and 

sell that security, oil security, I don’t care what kind it is—— 

Mr. BLANKFEIN. Right. 

Senator LEVIN [continuing]. And that you are betting against 

that same security you are out selling. I have just got to keep repeating this. I am not talking about generally in the market. I am 

saying you have got a short bet against that security. You don’t 

think the client would care? 

Mr. BLANKFEIN. I don’t—Senator, I can’t speak to what people 

would care. I would say that the obligations of a market maker are 

to make sure your clients are suitable and to make sure they understand it. But we are a part of a market process. We do hundreds 

of thousands, if not millions of transactions a day as a market 

maker. 

Senator LEVIN. This is much more than a market maker. You are 

keeping a proprietary interest in a position that is exactly the opposite of what you are selling. 

Mr. BLANKFEIN. I think—— 

Senator LEVIN. We are going around and around on this and I 

don’t think we are going to get an answer from you, basically—— 

Mr. BLANKFEIN. Sorry. 

Senator LEVIN [continuing]. That you have any concern about 

that kind of a situation. 

Senator McCain. 

Senator MCCAIN. Thank you for being here, Mr. Blankfein. 

Would you agree that the financial crisis that brought on the greatest recession since the Great Depression was due to a collapse of 

the housing market? 

Mr. BLANKFEIN. I think it was a number of factors. I don’t know 

whether that was the initial factor, but that certainly was a major, 

major episode in the collapse. 


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Senator MCCAIN. And your involvement in the housing market 

is not in the direct mortgage business? 

Mr. BLANKFEIN. Correct. 

Senator MCCAIN. And you received $10 billion as part of TARP? 

Mr. BLANKFEIN. An investment was made in Goldman Sachs, 

yes. 

Senator MCCAIN. And why did you think you needed that money? 

Mr. BLANKFEIN. I think we were part of a group of banks that 

were brought in, and at the same time had an investment made 

in by the government in order to stabilize what was a—maybe it 

is too strong a word, maybe not—a panic of sorts that caused a lack 

of confidence in—— 

Senator MCCAIN. But you didn’t make any direct home loan 

mortgages. 

Mr. BLANKFEIN. De minimis. 

Senator MCCAIN. But since it was the housing market that collapsed, you needed $10 billion, and you recovered rather nicely, I 

guess. I guess you declared earnings for 2009 of some $13 billion, 

is that correct? Roughly? 

Mr. BLANKFEIN. I don’t know the exact number, but that would 

be in the ballpark. 

Senator MCCAIN. And your bonus was? 

Mr. BLANKFEIN. About $9 million. 

Senator MCCAIN. About $9 million. And you are doing pretty well 

this year, too, according to your earnings and your stock price. You 

are doing pretty well this year? 

Mr. BLANKFEIN. Financially, yes. 

Senator MCCAIN. How do you think the community banks are 

doing, Mr. Blankfein? I think they are doing pretty poorly. They 

are being closed all the time. They are the ones that make the 

loans for the mortgages. Do you think they are doing OK, the community banks? 

Mr. BLANKFEIN. I think there is a—the recession—well, whether 

or not the recession has ended, and I think most people believe it 

has ended, the consequences of it still grinds on and is creating a 

substantial hardship. 

Senator MCCAIN. But Goldman is doing pretty well. 

Mr. BLANKFEIN. Yes. 

Senator MCCAIN. And one of the reasons, obviously, why Gold- man is doing pretty well, before they got the $10 billion of TARP 

money, of taxpayers’ money, there was a November 2007 email 

from you that stated, ‘‘Of course we didn’t dodge the mortgage 

mess. We lost money, then made more than we lost because of 

shorts.’’ That is a quote from your email that you wrote. How much 

did you make more than you lost because of shorts? 

Mr. BLANKFEIN. In this market, in residential housing, we made, 

for the entire year of 2007, less than $500 million of revenue, and 

in the succeeding year of the housing crisis, 2008, we lost $1.7 billion. We did not make big money. What I was referring to in my 

email was that—and this was on the back of a message that was 

looking at a part of our business and saying they made a lot of 

money on shorts when I knew that we had a lot of longs and a lot 

of shorts that netted to a very small position, as our goal during 

this period was just to manage our risk down. 


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Senator MCCAIN. Mr. Blankfein, there is a lot of animosity out 

there. I am sure you have seen that. We find in my State, for example, 48 percent of the homes are still underwater. In other 

words, they are worth less, as you know, than the payments that 

are being made. And the community banks continue to struggle 

and have great difficulties. You received $10 billion in TARP 

money and the community banks are the ones that are going 

under. Maybe you could—do you think that, in the minds of a lot 

of Americans, that there is a real contradiction there? 

You are doing fine. You are paid millions of dollars in bonuses. 

Perhaps you earned them. I am not qualified to say that. Meanwhile, community banks, the ones who were the direct lenders in 

the housing market, who had direct involvement, the ones that— 

not you, but that the homeowners relied on are the ones that are 

struggling and still having enormous difficulty, including my home 

State of Arizona. Do you see? Do you understand why people might 

think there is a dichotomy there, Mr. Blankfein, or even unfairness 

there? And I understand that life isn’t fair, but a lot of Americans 

don’t quite understand what went on there. They don’t understand 

what hit them. 

Mr. BLANKFEIN. Absolutely. I think community banks play a very 

important role. They are not necessarily—again, not knowing—I 

am not speaking in general or specifically—maybe some helped author their own situation by over-lending or making imprudent judgments. But I am sure for many, they just conducted their social 

purpose and lent out money against housing, that people who owe 

them the money can’t pay it back, and the housing that they would 

have as collateral goes down in value, they may very well be victims of the recession and I can understand—and I share your concern for the situation. 

Senator MCCAIN. And I know you are not a charitable organization. I know why you are in business. But has Goldman Sachs done 

anything to try to help these community banks and these homeowners who are struggling to make their mortgage payments? 

Mr. BLANKFEIN. Senator, we have—— 

Senator MCCAIN. I mean, you did get $10 billion of the taxpayers’ 

money. 

Mr. BLANKFEIN. Yes, we did, and I mentioned in my opening 

statement the disposition of that, the return, and the return with 

a high rate of return for the taxpayer, but we understand our obligations don’t end there. We have always been a philanthropic organization. We don’t tend to—again, we sometimes are invisible, but 

I would say in the last year, 2009, we allocated, and I don’t mean 

just accrued, we delivered a billion dollars of the firm’s funds to 

philanthropy, including $500 million to a program to support small 

businesses by giving education to small businesses through the medium and delivery mechanism of community colleges and with a 

view to providing finance for some of the graduates of the programs 

that we have for those small businessmen in order to make them 

bigger businessmen and to involve our people with it. 

Are any of these things enough? Not for the suffering existing in 

the world, but again, we are trying to do our part. We think in the 

main conduct of our business, we are also doing important things 


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for the capital markets, but we do take account of communities and 

institutions that we normally don’t reach as Goldman Sachs. 

Senator MCCAIN. What about community banks? Any involvement with them? 

Mr. BLANKFEIN. We may help find—I just don’t know. 

Senator MCCAIN. Explain, perhaps for the benefit of the Subcommittee and for the record, what is a synthetic CDO? 

Mr. BLANKFEIN. A CDO—— 

Senator MCCAIN. A synthetic CDO. 

Mr. BLANKFEIN. I was going to build to it. 

Senator MCCAIN. Sorry. 

Mr. BLANKFEIN. A CDO is a pool of assets, in this case, mortgage 

assets, so mortgages that are pooled together and then can be 

sliced in a way that will yield a particular credit exposure. The reason why one would want to pool mortgages is it gives diversification so that you can pool mortgages not just from one community, 

but distribute it over the whole country. The reason why one would 

want to slice it is so you could pick your place on the credit spectrum and say, I would like the more senior mortgages. I would like 

the more junior risks. 

In a synthetic, you don’t pool the actual mortgages per se. You 

pool reference securities that are indexed to specific pools of mortgages. 

Senator MCCAIN. In other words, in a synthetic CDO, you don’t 

really have any ownership. You are just betting on the fortunes of 

that CDO, is that correct? 

Mr. BLANKFEIN. Yes. You are doing it in a way to get a specific 

risk in a specific place at a specific level of the spectrum without 

necessarily having to assemble the particular securities, and so you 

can do it more quickly and you can do it more precisely. 

Senator MCCAIN. How does that differ from going out to Caesar’s 

Palace to the sports book and making a wager on the outcome of 

an athletic event? 

Mr. BLANKFEIN. Well, I think the people who are participating in 

the synthetic CDO market are specifically trying to take particular 

risks with respect to the housing market, short or long, and presumably they want to take that to either initiate that exposure or 

to use that exposure to help hedge themselves or to adjust their 

risk profile, in the case of somebody who already has accumulated 

risk. 

Senator MCCAIN. It has been alleged in the case of the Abacus—— 

Mr. BLANKFEIN. Abacus. 

Senator MCCAIN [continuing]. Transaction that the credit rating 

agency was not informed that a hedge fund client was taking a 

short position. Is that true? 

Mr. BLANKFEIN. I think the specific complaint was a lack of disclosure that a short—someone who was taking the short side of the 

position had an influence on the selection agent and that should 

have been disclosed. 

Senator MCCAIN. Should it have been disclosed? 

Mr. BLANKFEIN. We don’t think so, no, and that is in dispute. 

Senator MCCAIN. The credit rating agency, the one that—— 


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Mr. BLANKFEIN. Again, it is complicated, because in the alternative, and again, this is a case, and in the alternative—and there 

is also some—and again, this is a litigation and obviously one side 

thinks one thing and another side thinks another—there is also a 

belief on our side that the selection agent did know, so—— 

Senator MCCAIN. Let us assume that the agency didn’t know. Is 

that—well, you would know whether you informed the rating agency or not, wouldn’t you? 

Mr. BLANKFEIN. I personally would not. The person, and he was 

here testifying, asserted that he believed the other side of the 

transaction did know and therein lies a factual dispute. 

Senator MCCAIN. The rating agency would know whether they 

were told or not. 

Mr. BLANKFEIN. I am sorry, are we talking about the selection 

agent? 

Senator MCCAIN. The rating agency—the hedge fund—so there is 

a difference of opinion between the hedge fund client and Goldman? 

Mr. BLANKFEIN. I don’t think there is a difference of opinion between the hedge fund client and Goldman. 

Senator MCCAIN. Well, the rating agency rates the CDO, right? 

Mr. BLANKFEIN. A rating agency, yes, rates a CDO. 

Senator MCCAIN. And it is alleged that the rating agency was not 

told that a hedge fund client was taking a short position. 

Mr. BLANKFEIN. Senator, this may be a different point. This is 

not the subject of the legal proceeding, to the best of my knowledge. 

Senator MCCAIN. Well, a lot of these things are fairly complicated, Mr. Blankfein, and a lot of Americans don’t understand 

what happened, but they do understand that they are still hurting 

very badly, many of them across this country, and they believe that 

your handling and other financial institutions handling of the housing market and these complicated transactions were a direct contributor to the meltdown that America experienced and they 

haven’t recovered. You have done pretty well. I don’t think that is 

the vision that most Americans have of how this Nation and its 

economy should function. 

I thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator McCain. 

Senator Kaufman. 

Senator KAUFMAN. Good afternoon. 

Mr. BLANKFEIN. Good afternoon. 

Senator KAUFMAN. In your testimony, you say that Goldman has 

been ‘‘a client-centered firm for 140 years.’’ Clients come to the firm 

because, you say, ‘‘one, they want financial advice; two, they need 

financing; three, they want to buy or sell a stock, bond, or other 

financial instrument; or four, they want the help in managing and 

growing their financial assets.’’ 

Mr. BLANKFEIN. Yes, sir. 

Senator KAUFMAN. Is it fair to say in the last 30 years that Goldman has focused more and more of its resources and gained more 

and more of its revenue from trading in its own account without 

the need for clients? 

Mr. BLANKFEIN. We have focused more and more in trading as 

a principal—— 


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Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. But that is the way the client business has evolved, sir. 

Senator KAUFMAN. Right. But it has evolved away from the classic investment banking and gotten more and more to trading? 

Mr. BLANKFEIN. Well, I would say that, increasingly, and this is 

a change in the sociology of the business that took place over the 

last 15 or 20 years, I am not sure it was precipitated by the fall 

of Glass-Steagall or it caused Glass-Steagall to fall as U.S. institutions had to become more competitive with global institutions, but 

somewhere along the line, clients used to ask you for advice—if you 

were an investment bank and then went to other institutions and 

asked them for financing—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. And to take principal risk. 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN. Somewhere along the line, they stopped asking 

necessarily to do things for them, but to do things with them, in 

other words, to be the other side. And today in the world, and this 

evolved over a long period of time, to be effective for your clients, 

you not only had to give them advice, but you had to have the financial wherewithal, in other words, the balance sheet to be able 

to accomplish their objectives, not just advise them on their objectives. 

And so Goldman Sachs, 12 or 13 years ago, actually had to reverse many years of being a private partnership and become a public partnership, public company, so we could, frankly, survive in the 

evolving world of needing to be a principal to accomplish our clients’ objectives. 

Senator KAUFMAN. But also, it was very profitable. I mean, Goldman Sachs has clearly been one of the most profitable institutions 

on the face of this earth. So also, I mean, it wasn’t just kind of the 

move of society. It was also a way, when you sat down and you had 

your meetings and everything else, you said, look, this is the way 

to go. And I am not saying that from a negative. 

Mr. BLANKFEIN. I know, Senator, and I know you are not saying 

it negative, but just for the history of it—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN [continuing]. It was a very observed decision by 

the world of what Goldman Sachs was doing, done very reluctantly—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. Not so much to—and the real rationale for it was not because to make incremental profits. It was 

done in order for us to survive as a leading financial institution. 

Had we not done it, had we not grown, if we were not effective for 

our clients in order to allow them to accomplish those objectives, 

I don’t think—Goldman Sachs would be around, but it wouldn’t be 

an important company today. 

Senator KAUFMAN. OK. We will just agree that—I think that you 

were one of the leaders in doing this. I mean, I am not saying it 

from a negative standpoint—— 

Mr. BLANKFEIN. We were the last of the firms to do this. 


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Senator KAUFMAN. Yes. And does proprietary trading activity 

ever run counter to the interest of your clients, do you think? Do 

you ever feel like it is a conflict of interest? I just think it is a conflict of interest, because one of the things that bothers me most 

about our society today is it is like when you say someone has a 

conflict of interest, it is like—— 

Mr. BLANKFEIN. No, I understand. 

Senator KAUFMAN [continuing]. You are accusing them of being 

crooked. I am not saying that. I am saying, but it seems to me 

that—does proprietary trading activity ever run counter to the interest of your clients, or present a conflict of interest, let me put 

it that way? 

Mr. BLANKFEIN. The fact that we are a principal—in other words, 

when you say proprietary, it means a business that is totally separate from our client business—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. In which no client is engaged. 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN. No, I don’t think so. We keep those—when we 

do proprietary trading, it is separate. 

Senator KAUFMAN. Oh, no, I know it is separate. I am not saying 

that—— 

Mr. BLANKFEIN. Separate, and separate people—— 

Senator KAUFMAN. No. I know it is separate people. But your 

firm—I am not saying anybody is doing anything wrong—— 

Mr. BLANKFEIN. No, I know you are not—— 

Senator KAUFMAN. I am saying that Jones over in Department 

A is talking to Smith over in Department B. But if Jones is doing 

one thing and Smith is doing something else, there is potential for 

a conflict of interest. Now, you say, I resolve that conflict of interest by saying, Jones, you can’t talk to Smith. But when you are 

doing out of one firm these kind of transactions, there is a conflict 

of interest. Whether you handle it well, whether you have a wall 

down through the middle of Goldman Sachs or not, it just seems 

to me that it is just—when you are trading for your own account, 

the potential for conflict of interest, as opposed to your clients, is 

just great. 

Mr. BLANKFEIN. I think there are a lot—I think in our principal 

activities, which is more than our proprietary activities—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN. For example, I think there is always that potential we have to manage. I think David Viniar said we always have 

to manage conflicts—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. Because necessarily, if you are a 

principal—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. You are on the other side. I think 

our proprietary businesses actually have much less, although the 

perception of it—obviously, if you are asking the question, the perception of conflicts, but we keep those very separate. 

Senator KAUFMAN. Right. And all I am trying to do is get at the 

fact that this is a business where there is conflict of interest where 

there didn’t used to be. I mean, when you were 100 percent behind 


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your clients, you weren’t involved in much proprietary trading for 

your own account. You could just worry about your client. But inherent in this is risk of conflict. How you deal with it, I am not 

saying, but just the fact the conflict exists. 

Now, to go back to what Chairman Levin does, just to go through 

it one more time, in the first half of 2007, Goldman Sachs sold long 

positions in CDOs to its clients, right? 

Mr. BLANKFEIN. Two-thousand-seven—— 

Senator KAUFMAN. The first half of 2007. 

Mr. BLANKFEIN. We sold—we reduced our risk, which since the 

risk largely started out as long, it means we sold some of our long 

positions and put on other short positions. 

Senator KAUFMAN. Right. So you sold positions, and while— 

CDOs that Goldman itself had created and marketed while simultaneously taking short positions in the CDOs in order to limit your 

risk. 

Mr. BLANKFEIN. I am sorry. You said that quickly. 

Senator KAUFMAN. You were selling CDOs at the same time you 

were taking short positions on the same CDOs. There is a thing 

called the Hudson Mezzanine 2006–1, supposedly where specifically 

you were selling CDOs in the marketplace and at the same time, 

for your own account, you were selling the same CDOs short. 

Mr. BLANKFEIN. Yes. I don’t have any knowledge of that—— 

Senator KAUFMAN. But you believe that could happen? 

Mr. BLANKFEIN. I believe that we can have—that some people 

can own—look, on the first day, somebody could buy a CDO from 

us—— 

Senator KAUFMAN. Right, and then you could sell it short. 

Mr. BLANKFEIN. And, yes, we could. On the first day, we could 

sell more—if people came to us for a market the day after we sold 

our whole inventory and wanted to buy it, we would short—— 

Senator KAUFMAN. No, but I think in this case, I mean, just to 

get back to specifics, you were selling CDOs as part of a marketing 

plan, you had bundled together these mortgages and you were selling them as CDOs and you were doing that on a regular basis 

through 2006, 2007. And then at some point, as Mr. Viniar pointed 

out, you decided that—in this whole area that you had risk and 

therefore you started selling CDOs short in order to solve this risk. 

Mr. BLANKFEIN. Yes. I can’t answer—I am not—I know that we 

reduced our risk as per the instruction. The risk started out long. 

I just don’t know to what extent, how much was it selling length, 

which was some of it, for sure, selling certain securities, shorting 

certain securities, but I can’t tell you, because some of it was, I 

think, the new ABX index, also. I just don’t know. 

Senator KAUFMAN. Well—— 

Mr. BLANKFEIN. But I know the—— 

Senator KAUFMAN. But you don’t think—I mean, we established 

with Senator Levin, you don’t think there is anything wrong with 

that. 

Mr. BLANKFEIN. I don’t. 

Senator KAUFMAN. No. 

Mr. BLANKFEIN. But I am also, to the extent you are asking me 

about whether we were long or short a specific security and in 

what proportion, I just don’t know. 


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Senator KAUFMAN. But you don’t rule out the possibility that 

could have happened? 

Mr. BLANKFEIN. I can’t rule it out. I just don’t know. 

Senator KAUFMAN. So to get back to—and I am not going to ask 

you 20 times. I am just going to ask you once. Does that have the 

appearance of a conflict of interest? 

Mr. BLANKFEIN. That we were short—— 

Senator KAUFMAN. That you were selling CDOs—trust me, according to this Mezzanine, you were doing it. Hudson Mezzanine 

2006–1, you basically packaged CDOs, sold them, and then at some 

point, I think, based on what Mr. Viniar said, you were concerned 

about this and you decided to short, in other words, in order to offset it, the risk, to cut back your risk. And I am just saying, don’t 

you think that has the appearance of a conflict? 

Mr. BLANKFEIN. Again, I don’t know. If we have pools of securities in our inventory—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. And we are trying to reduce our 

risk—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. We are going to be selling those—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN. Some combination of selling those, selling indexes, or selling other—— 

Senator KAUFMAN. No, but we talked about this with the last 

panel. You weren’t here, but the last panel, we talked about this, 

and we decided that you did not want to sell those. We said, look, 

what most people do who aren’t as sophisticated as Goldman 

Sachs, if they are in a position where you have a lot of stock or 

CDOs or bonds that you now think may be risky, you don’t short 

something. People do short things, and there is nothing wrong with 

shorting things. 

Mr. BLANKFEIN. Sure. 

Senator KAUFMAN. But most people cut back on their long, right? 

I mean, if they have 500 shares of stock they are starting to get 

concerned about, maybe they sell 100 shares. But the previous 

panel said that it was illiquid, that you didn’t want to do that because of that. So what you did is you went out and Goldman Sachs 

actually sold short. 

Mr. BLANKFEIN. May I speak generally—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN [continuing]. Not knowing about the specific security? The best way of reducing your risk is to sell what you have. 

Senator KAUFMAN. That is what I just said. 

Mr. BLANKFEIN. Sometimes, as you said, you can’t because it is 

illiquid. 

Senator KAUFMAN. Or you don’t want to because of the liquid—— 

Mr. BLANKFEIN. Or sometimes it is unattractive. But sometimes 

what people are doing is, gee, I am short something in this part 

of the capital structure—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. What I will do is I will sell something similar to it—— 

Senator KAUFMAN. Right. 


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Mr. BLANKFEIN [continuing]. But a little lower in quality—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. Because I think that will underperform against what I have. 

Senator KAUFMAN. No, I have got it. That is—— 

Mr. BLANKFEIN. But that is what they are doing. 

Senator KAUFMAN. No, but that is not—I am talking about where 

you are actually out selling it, and this is what the concern is. I 

mean, in every other business—I think this is what the Chairman 

is getting at—in every other business for most Americans, if you 

were coming to me and saying—buy this car from me, and at the 

same time these are good cars, these things are great, but I just 

sold mine because I know it is a clunker—that is what the concern 

is, and let me tell you why this is so important and why your oil 

analogy really doesn’t work. 

Because what is really at the heart of this is at what point did 

Goldman Sachs decide the housing market is going south and we 

want to get out of it? That is really at the heart. This isn’t like you 

were carrying this oil deal that you talked about there. This is specifically we are now in 2007 and people were starting to see this 

market is bad, and guess what, Goldman Sachs sells a lot of stuff 

short, and guess what, they make a lot of money on it, but it is 

just a business deal. Do you see where the concern is? 

Mr. BLANKFEIN. Yes. 

Senator KAUFMAN. It is like, at what point do—it is like the old 

Watergate thing. What did you know and when did you know it? 

Mr. BLANKFEIN. Senator—— 

Senator KAUFMAN. I mean, the key thing to this thing is, if you 

were still selling securities, mortgage-backed securities, RMBSs, 

residential mortgage-backed securities, after you really had decided 

that this was a down market and were evidenced by selling short, 

I think that is what people are wondering about. 

Mr. BLANKFEIN. No, Senator, I realize that, and we are very 

much informed and we wouldn’t be here but for the fact that there 

was such a collapse in the housing market. To go back to that oil 

analogy that I gave you, if we were sitting here and we had underwritten a new security like that, what we described to you instead 

of housing, and after we put it in the market, 3 months later—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. We were short that security in connection with our market making—— 

Senator KAUFMAN. That is OK because you are not continuing to 

sell those securities at the same time and you may be in a legitimate position. 

Mr. BLANKFEIN. But it was the same security that we had underwritten—— 

Senator KAUFMAN. No, I understand that, but—— 

Mr. BLANKFEIN [continuing]. Three months earlier. 

Senator KAUFMAN [continuing]. You had underwritten it, but the 

world has changed. I don’t think people have a problem with you 

actually selling—I sell a series of securities, and then later on I 

see—let us say I sold out every one of them, and then 6 months 

later, I sell them short. I don’t think anybody has a problem with 

that. That is it. Things happen. You sold it at the best time you 


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knew what was going on. There is nothing inherently wrong with 

that. 

What is inherently wrong is if you start selling securities, a series of securities, and then at some point you decide, these are really bombs. I mean, we heard earlier about the fact that you were 

selling Washington Mutual, Long Beach securities, 90 percent of 

which were stated income loans. Ninety percent were stated income 

loans, home equity loans were stated income loans, and they all 

went bad. So, I mean, at some point somebody looks up and says— 

I just found out. We have been selling Long Beach securities. They 

are in our originator things and they have got all these stated income loans. We had better get out of this business. That is where 

the concern is. At what point did you know that? 

And here is the thing. Can I ask you really a—— 

Mr. BLANKFEIN. May I ask—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN. You asked me what we knew—— 

Senator KAUFMAN. Yes. What did you know when? 

Mr. BLANKFEIN. We did not know what subsequently occurred—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN [continuing]. In the housing market. 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN. We did not know. By the way, we didn’t behave 

like we knew it. In other words, there are emails going around 

where this one was nervous and this one really—and we are talking about relatively junior people in managing positions on 

desks—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. And then there are other emails 

where people were excited and thought the market would rebound. 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN. We did not know that the housing market was 

going to happen like that. 

Senator KAUFMAN. At what point—I guess this is the—— 

Mr. BLANKFEIN. And by the way, our positions reflect that, because had we known—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. We would have been massively 

short the market instead of just getting short—— 

Senator KAUFMAN. Can you tell me—I guess this is the real 

question—— 

Mr. BLANKFEIN [continuing]. About equal to what our longs were, 

and maybe a bit more. 

Senator KAUFMAN. We have heard from everybody, and I think 

it is totally credible until you ask the question, at what point—can 

you remember—I think it would be a pretty important day—that 

you decided to pull together the management of Goldman Sachs 

and say, what? This housing market is a bad place to be in. When 

was that day? 

Mr. BLANKFEIN. I never did. 

Senator KAUFMAN. You mean, right up until the end, nobody— 

you didn’t have as corporate policy that we should reduce our holdings in mortgage-backed securities and—— 


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Mr. BLANKFEIN. Oh, no—— 

Senator KAUFMAN [continuing]. We should stop selling mortgagebacked securities. These things are just literally—the whole market 

is coming apart. I mean, there had to be a time. I mean, it wasn’t 

last week. 

Mr. BLANKFEIN. I don’t know that we—again, we are dealing 

with the same information. I think tomorrow—if tomorrow—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. Tomorrow, I think there needs to be 

a—I think it would serve the public interest for a securities market 

in housing—again, learning from the mistakes—— 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN [continuing]. Revealed, in other words, if you assume with me that we learned from all the mistakes, I think 

securitizing home mortgages is not inherently a bad activity. 

Senator KAUFMAN. No. I mean, at which point did you decide 

that this specific, that Goldman Sachs had to do everything it could 

to get out of this business, reduce your—— 

Mr. BLANKFEIN. We never decided to get out of the business. 

Senator KAUFMAN. Well, how about the second quarter of 2007. 

You shut down your CDO warehouses. You took significant mark 

to market losses. You reduced loan purchase and reduced 

counterparty exposure. That sounds to me like you wanted to get 

out of that business. 

Mr. BLANKFEIN. Again, to the best of my knowledge—again, and 

I am not close to that decision. There were other people. I don’t 

know that a decision was made to leave that business as opposed 

to reduce the risks of the business—— 

Senator KAUFMAN. Shut down CDO warehouses? That wasn’t an 

indication you wanted to get out of that business? 

Mr. BLANKFEIN. When you tell me, get out of the business, Senator, I don’t know if—I don’t know what that means. 

Senator KAUFMAN. But you can see why people were concerned 

about what went on in the second quarter of 2007, what was going 

on at this time. At what point did it reach a point where you are 

saying, I just can’t sell this stuff anymore. It is just not right to 

continue to originate these loans. I mean, I just find it incredibly 

hard to believe. I mean, there is this illusion in this country, I 

guess, about how smart people are on Wall Street, and the people 

on Wall Street, and I know people going to Wall Street are really 

smart. And it is just hard for me to believe, and it is hard for the 

American people to believe that people this smart really never kind 

of decided that this thing was going south in a big way. 

Mr. BLANKFEIN. Senator, I heard your earlier remarks, as well. 

I think we are not that smart at—and maybe there were people 

who knew—and, by the way, even the people who with hindsight 

knew it, I think they thought it and then they turned out to be 

right. 

Senator KAUFMAN. Right. 

Mr. BLANKFEIN. I could tell you from my own self—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN [continuing]. At 20 percent down in the housing 

market, I didn’t know whether it would go down 30 percent or rebound up 10 percent. 


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Senator KAUFMAN. Well, even now is a different story. I believe—— 

Mr. BLANKFEIN. But now—— 

Senator KAUFMAN. Because everybody—the problem is—the reason this is a problem is because one of the defenses you use is that 

these are all big boys, that we are dealing with the big boys and 

therefore, caveat emptor really doesn’t apply. So big boys knew. 

And I am just saying, at what point—right now, big boys know that 

the housing market is a bad deal. You can get into the housing 

market now, but you are going to ask for one heck of a lot better 

documentation on what you are getting. You are going to ask for 

higher returns. You are going to ask for all kinds of things because 

you know that this is a very risky business. 

But the real question is that we have talked to Washington Mutual. We went through what they went through. They were just 

pushing stuff out the door as fast as they could get it. It didn’t matter, stated income loans. We talked to the regulators. The regulators just basically—the head of Office of Thrift Supervision said 

he had no idea that Washington Mutual, 90 percent of their equity 

loans were stated income loans and 53 percent of the Option ARMs 

and so on. He had no idea of that, which he had previously said 

stated income loans are an anathema to the business. 

Then we go to the rating agencies. In 2003 to 2005, they were 

still saying, there is no problem—there is a problem. They were 

saying, there is a problem here. And you ask them, well, why in 

the thousands of RMBSs that they rated during 2006 and 2007 

they rated 50 percent of them AAA and they are all now junk. 

So nobody knew? People were still doing things long after they 

knew there was a problem. 

Mr. BLANKFEIN. Senator, there were a lot of business judgments, 

and maybe—I wish I had known, but if you just look at all the big 

Wall Street firms that lost tens of billions of dollars even after this 

period, in 2008—— 

Senator KAUFMAN. Sure. 

Mr. BLANKFEIN [continuing]. Holding on to these securities. I did 

not know. All we know is the discipline of mark to market and reducing our risk when the markets are nervous and when P&Ls are 

moving. 

Senator KAUFMAN. Let me just finish with this thought. This is 

the worst thing to happen to this country economically since the 

Great Depression. Millions of people were put out of work. Millions 

of people lost their homes. Millions of people are really hurting. 

And I think what really bothers people the most, at least the people I talk to, is not, the bailouts, although that bothers people a 

lot. I think what bothers them a lot is the incredible compensation. 

That bothers them, the bonuses to people that during 2006, 2007 

made horrible decisions but still received gigantic performance bonuses, especially from CEOs and executives who said this should 

be based on performance, and the performance was lousy and still 

they made billions of dollars. 

But I think what really kind of gets them the most is here we 

are after this terrible travail and there is only one section of our 

entire economy that has to worry what it is going to do with billions of dollars for bonuses. That is the part. The fact that—and 


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it may be totally a chance. It may be totally something beyond our 

control. But the idea that Wall Street came out of this thing just 

fine, thank you, is just something that just grates on people. And 

I think they think that you didn’t just come out fine because it was 

luck. They think that you guys just really gamed this thing real, 

real well. Not that you caused the whole thing, although I would 

say you were a big part of the cause, but just that you came out 

of this thing fine. I think that is what disturbs them. So I think 

that is basically the point I was making. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator Kaufman. Dr. 

Coburn. 

Senator COBURN. Thank you, Mr. Blankfein, for being here. I 

have to disagree a little bit with Senator Kaufman. I think 90 percent of the problems associated with the meltdown in our mortgage 

system and the financial crisis sits on the lap of Congress. I have 

been adamant in my view on that because you can’t record the last 

time we had an oversight hearing until the problems came up. We 

don’t do oversight in advance to see whether things are working. 

Having said that, I have a few questions for you, Mr. Blankfein. 

The activities that you and your employees have been called here 

today to testify about, is it your understanding that your competitors were engaged in similar activities? 

Mr. BLANKFEIN. Yes, and to a greater extent than us in most 

cases. 

Senator COBURN. Some of them aren’t here anymore, are they? 

Mr. BLANKFEIN. That is correct. 

Senator COBURN. All right. Did you at any time have concerns— 

legal, ethical, or reputational—about any of the activities undertaken by Goldman employees about which we have heard today? 

Mr. BLANKFEIN. I did not. 

Senator COBURN. So you have not heard anything today—— 

Mr. BLANKFEIN. Oh, I am sorry—— 

Senator COBURN [continuing]. That has concerned you about actions or statements by Goldman or former Goldman employees? 

Mr. BLANKFEIN. I think as I heard it, everything sounds correct. 

But when you say concerns, I mean, I am in the business—in my 

role, I will look deeply into everything that has surfaced here. 

What is going on in this hearing today is, of course, fact finding 

for you, but it is fact finding for everyone. So I heard nothing today 

that makes me think anything went wrong, but I won’t—you raised 

transactions that I never heard of before and I will have people 

look deeply into them. 

Senator COBURN. Thank you. On Sunday, September 21, you 

made the following public statement about Goldman Sachs—— 

Mr. BLANKFEIN. I am sorry, what date? 

Senator COBURN. Sunday, September 21, 2008, about Goldman 

Sachs becoming a bank holding company. ‘‘While accelerated by 

market sentiment, our decision to be regulated by the Federal Reserve is based on recognition that such regulation provides its 

members with full prudential supervision and access to permanent 

liquidity and funding. We believe that Goldman Sachs under Federal Reserve supervision will be regarded as an even more secure 


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institution with an exceptionally clean balance sheet and a greater 

diversity of funding sources.’’ 

Prior to September 2008, did you or anyone at Goldman Sachs 

have plans to convert the firm to a bank holding company? 

Mr. BLANKFEIN. Prior to September 21? 

Senator COBURN. Yes. 

Mr. BLANKFEIN. We had—yes. We didn’t resolve to do it, but it 

was something that we were very much looking at. 

Senator COBURN. Was this something that was discussed at a 

Board meeting? 

Mr. BLANKFEIN. Yes, it was. 

Senator COBURN. All right. And there are records of that Board 

meeting? 

Mr. BLANKFEIN. There must be. I haven’t reviewed the records. 

Senator COBURN. Would you have your staff provide that to us? 

Mr. BLANKFEIN. Sure. 

Senator COBURN. If you would, please. 

Mr. BLANKFEIN. It was decided at that Board meeting not to do 

it. 

Senator COBURN. Looking back today, would you rather be an investment bank? 

Mr. BLANKFEIN. You mean outside—— 

Senator COBURN. And not—— 

Mr. BLANKFEIN. You mean not a bank holding—— 

Senator COBURN [continuing]. Rather not be under the Federal 

Reserve today? 

Mr. BLANKFEIN. I am not sure how realistic—we will have to 

wait and see how the legislation unfolds. I am really not sure, and 

I will say it this way, how realistic that will be. The reason why 

we were looking at it at the time was it was hard to—we originally 

started with a whole regime for investment banks and then postBear Stearns and certainly post-Lehman, I think there was, at that 

point, it was clear there was not going to be a whole regime for—— 

Senator COBURN. For the classical investment bank. 

Mr. BLANKFEIN [continuing]. For the classical investment bank 

at that point, because there weren’t that many. 

Senator COBURN. I think in your September 21, 2008 statement, 

you talked about access to permanent liquidity and a greater diversity of funding sources. Were you, in fact, referring to Goldman 

Sachs would be able to obtain access to the discount window at the 

Federal Reserve? 

Mr. BLANKFEIN. I am not sure. I think possibly. I am just not 

sure. 

Senator COBURN. Well, that would make sense to you? 

Mr. BLANKFEIN. It would make sense to me, but I am just not 

sure. I know there were a lot of facilities that were in place already, and I am not sure—I am just not sure. 

Senator COBURN. Let me ask a follow-up question. Prior to September 22, 2008, is it accurate to say that Goldman Sachs had temporary access to the discount window? 

Mr. BLANKFEIN. There are people, other people, even people here 

who might know that answer better than me. I know that we had 

access to certain funding facilities. I am not sure it was the discount window per se. I don’t think so, but I am not sure. 


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Senator COBURN. Well, that would be something that I would be 

interested in having—— 

Mr. BLANKFEIN. Yes, sir. 

Senator COBURN [continuing]. Whether you did or didn’t. Have 

you since becoming a bank holding company accessed the discount 

window? 

Mr. BLANKFEIN. To the best of my belief, other than to test it 

shortly after we became it, just to see if it would work, I would say 

no. But as you will notice, I am looking for confirmation from my 

CFO—— 

Senator COBURN. I understand. That is fair. 

Mr. BLANKFEIN [continuing]. And I feel much better having gotten it. No. 

Senator COBURN. Let me ask you a few questions about the bill 

that is being proposed. Your Executive Vice President and Chief Financial Officer said you embrace it. You are generally supportive 

of the Dodd bill. You have been fairly high profile in your support 

for it. Do you still maintain that support for this bill? Do you think 

it solves the problems that caused the problems that we got into? 

Mr. BLANKFEIN. I think execution—well, first of all, some aspects 

of the bill, I think, have morphed over the last—maybe even over 

the last few days. I am not sure—— 

Senator COBURN. I don’t think so. The vote was turned down. 

Mr. BLANKFEIN. I see. 

Senator COBURN. I don’t think we have gotten there. 

Mr. BLANKFEIN. Right. I am generally supportive, and to be sure, 

there are details of it that I think I am less sure of. But I think, 

on the whole, financial reform is essential and I will say that last 

week in New York, I listened to a speech by Barack Obama at Wall 

Street and one of the points he made resonated with me because 

I had said it myself. He said that the biggest beneficiaries of reform will be Wall Street itself, because proper reform will make the 

markets safer, and then I will add my own piece, the biggest risks 

that financial institutions have are with each other. And so to the 

extent that is all made safer, I think America will be a big beneficiary, but specifically we will, as well. 

Senator COBURN. What do you think will happen to loan origination from the community banks and smaller regional banks if they 

are required to maintain 5 percent of every mortgage that they 

write? What do you think is going to happen to mortgage volume? 

Let us say the housing industry comes back. Do you think the 

small banks are going to be writing mortgages anymore in the future? 

Mr. BLANKFEIN. I am not—I think I should give a qualification 

to my—there are parts of that bill that we will—that affect us and 

that we have particular expertise and experience in, and that is 

really what I was addressing. There are other big parts of that bill 

that are just remote from our experience. How it affects community 

banks, how it affects mortgage originators, since we are only in 

that business in a de minimis way, and how it affects consumer 

banks, consumer legislation being a major part of it, is really remote from our experience because we don’t engage in those activities. So I should give you that qualification. 


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Senator COBURN. Do you have any thoughts on the fact that this 

bill doesn’t address underlying core problems like Fannie Mae and 

Freddie Mac? 

Mr. BLANKFEIN. I think—— 

Senator COBURN. I mean, you would agree that there was an incentive to make loans through the implicit guarantee of the Federal Government to people were less qualified than what we had 

seen prior to the onset of Fannie Mae and Freddie Mac. 

Mr. BLANKFEIN. I can’t speak to the qualifications or standards 

of Fannie Mae or Freddie Mac. I can say that they were an instrument of policy to attract more money into home ownership, which 

is—I am not suggesting that is—but that is what they accomplished. 

Senator COBURN. But you would agree with an implicit Federal 

guarantee on a mortgage, that would make it more available to 

more people, because the cost of capital would go down—— 

Mr. BLANKFEIN. Yes. 

Senator COBURN [continuing]. Because of an implicit Federal 

guarantee behind it. 

Mr. BLANKFEIN. I would say there are two, and there may be a 

lot more, but coming to mind, there are two big policy facts that 

tend to draw more money into housing, at least two, one of which 

is that through the government-sponsored entities, money—the 

government implicitly—those entities were able to draw in money 

because they were perceived to be quasi-government credits. That 

is one. And the other is, of course, the fact that the tax code allows 

you to deduct mortgage interest. And so those two things would 

cause—would favor more money, all other things being equal, to 

flow into those sectors. 

Senator COBURN. Have you personally spoken with anybody at 

Treasury about the regulatory reform effort? 

Mr. BLANKFEIN. Since the beginning? 

Senator COBURN. Have you had—— 

Mr. BLANKFEIN. I might have. 

Senator COBURN. Let me rephrase the question. Have you in the 

last 6 to 9 months had conversations with people at Treasury about 

the regulatory reform effort? 

Mr. BLANKFEIN. I might have, but they were—they would be at 

a very general and high level, not specific, frankly, along the lines 

in which I am—the same way I am talking about it to you, at the 

same—— 

Senator COBURN. OK. That is fair. Do you know who you talked 

to? 

Mr. BLANKFEIN. I call, as part of what I do in my role, I try to 

see senior people in Treasury and at the White House and, frankly, 

in the legislature and introduce myself, offer to discuss things on 

their mind and offer them things, if they are interested in hearing 

it that are on my mind. But they are generally—but I wasn’t involved in any kind of roll-up-your-sleeve effort on specific points. 

Senator COBURN. Let me change course for a minute. I just really 

want to pick your brain and your judgment. 

Mr. BLANKFEIN. Sure. 

Senator COBURN. Systemic risk and the fact that it was there 

created the necessary program for us to eliminate that systemic 


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risk. The option in the Dodd bill is to tax you so that we can have 

a fund, and I have real problems with how that fund is managed, 

but the idea is, is so that the government doesn’t ever loan it 

again, i.e., the taxpayer, but, in fact, the taxpayer will, because if 

you are taxed, it is going to cost more to the people you do business 

with. 

So what are the other ways to handle systemic risk, in your opinion, that are different than creating a taxpayer-funded fund again 

that would limit this country’s exposure to significant systemic 

risk, knowing that as we lessen that risk, we probably also lessen 

some of our competitive capability worldwide in terms of financial 

and capital markets? 

Mr. BLANKFEIN. Well, I think for sure we need the apparatus— 

it could very well be the apparatus proposed—for systemic risk regulation and observing systems and people who can look across all 

the different institutions and potential sources of systemic risk. I 

think that is very important. 

Second, and I think possibly the most important thing that is 

being discussed, is to recognize that despite every good intention, 

despite trying to see around every corner, you just will miss stuff, 

and to make sure that the system is better able to absorb the consequence of missing something. And so making financial institutions, including institutions like ourselves, have appropriate levels 

of capital and liquidity, which by and large means more of both—— 

Senator COBURN. Which means we would limit your leverage 

ratio to 10 to 12? 

Mr. BLANKFEIN. You might limit our leverage ratio. You might 

have us have certain kinds of contingent securities that cause people to have to give us money at times we need it. There are a number of proposals out to do it, but in general, the system would be 

made safer if financial institutions had more capital. There is, of 

course, a cost for this, because to the extent that you have more 

capital and lower leverage, loans will be more expensive. There will 

be less credit granted, but that is a tradeoff that after the experience of the last few years policy makers may well be interested in 

making, and it is a question of degree that—— 

Senator COBURN. Well, it is about a $10 trillion cost of what we 

have absorbed already, so—— 

Mr. BLANKFEIN. Right. 

Senator COBURN [continuing]. That may be cheap in comparison 

to what we have swallowed. 

Mr. BLANKFEIN. And I think at least a third level, after you try 

to avoid all the problems and after you try to have more capital to 

absorb the problems, you have to have a resolution authority to 

make sure if No. 1 and No. 2 don’t work, that an individual institution that was poorly run or undercapitalized doesn’t bring down the 

system, and so no institution should be too big to fail or have to 

burden the public with the cost of its failure or being saved. 

Senator COBURN. Which brings to mind, do you think that the 

FDIC presently has the capable staff that would be able to come 

in and run Goldman Sachs if you got into trouble? 

Mr. BLANKFEIN. My answer—— 

Senator COBURN. The answer to that is absolutely no. Nobody is 

going to believe they have the capability to do that. But that is 


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what we are setting up in this bill. We are going to give them 

broad power to come in. They will pick winners and losers. They 

will make the decisions. They have none of the expertise to do that, 

but that is who we are going to put this with. 

Mr. BLANKFEIN. I can’t answer your question. My experience 

with the FDIC, while limited, because as we started out in the beginning of this conversation, we have only been a bank for a short 

period of time, has been—makes me respect them to quite a great 

degree, but it has been in connection with their existing functions. 

Senator COBURN. Yes, but their existing function is they take 

over and immediately sell the assets and they don’t run things, correct? And this bill is going to have them running things, a big difference. There is no question they do a good job when they close 

and sell the assets and open it up—close it on Friday and open it 

on Monday. But there are experienced people in the banking business that are making the decisions on that, not FDIC—— 

Mr. BLANKFEIN. Yes. 

Senator COBURN [continuing]. And they have nobody near the capability of people inside Goldman to take over Goldman and run 

it, yet that is what we are writing into the bill. And you think that 

is a wise position? 

Mr. BLANKFEIN. I am not sure of the interaction of that. Senator, 

one thing I would say—— 

Senator COBURN. Well, no, the interaction is we are going to give 

a Federal bureaucracy the ability—who has never had any experience—to come in and run a company like Goldman Sachs, one of 

the most sophisticated financial institutions the world has ever 

known, they have no experience, no knowledge with how to do that, 

and we are going to write law and then they are going to write regulations that they are going to be able to do that, if you become 

too big to fail or you become a systemic risk for the rest of the financial institution. Do you all embrace that? 

I mean, that is totally different than anything we have heard 

from Goldman Sachs’ business philosophy here today and what we 

have studied. 

Mr. BLANKFEIN. Again, I don’t know how that interacts and I 

don’t know the rules and I don’t know how they will be applied in 

the details of the regulations, and the devil, of course, is always in 

the details—— 

Senator COBURN. But yet you all embrace the bill? 

Mr. BLANKFEIN. I said we support the direction of the bill, but 

with respect to this, I think it is very important for Goldman Sachs 

and I think it is very important for taxpayers, but let me come 

back and say this first—it is important for Goldman Sachs that we 

take away the notion that this is a very big burden on us if people 

think we are too big to fail. We don’t think we are too big to fail. 

We don’t want to be too big to fail. But a lot of the negativity that 

is associated with us is because people think we are getting the 

benefit of being too big to fail, and I don’t think it is good for the 

country or for us to be in that place. 

Senator COBURN. Well, you would agree that $700 billion got allocated of taxpayer money to solve systemic risk problems, of which 

you were the beneficiary both directly and indirectly of a portion 

of that. 


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Mr. BLANKFEIN. Yes. 

Senator COBURN. So somebody thought you were too big to fail. 

Mr. BLANKFEIN. Certainly at that time—the answer is, yes. At 

that time, even a small institution might have been too big to fail, 

just because of the fragility. There was so much tinder—— 

Senator COBURN. That is a legitimate point. 

Mr. BLANKFEIN. So I would think—— 

Senator COBURN. What about the idea of taking the six largest 

banks that do similar things to you and make them into 60 with 

specialization in this over here, and this over here—— 

Mr. BLANKFEIN. I thought about that—— 

Senator COBURN [continuing]. Where we divide up systemic risk 

so we don’t have systemic risk? 

Mr. BLANKFEIN. I thought of that. I don’t think that would be a 

good idea, and I am speaking, Senator, from a position of not being 

really one of those big banks. In other words, our balance sheet of 

something over $800 billion, I think is about a third or 40 percent 

of where the big banks are. So even though we are a big investment bank, because we don’t do all those—we are not—— 

Senator COBURN. You don’t do the commercial side, and you don’t 

do—— 

Mr. BLANKFEIN. We are not as big as those and don’t have the 

balance sheet. But notwithstanding that we are one of the smaller 

ones, I would say there is a lot of—obviously, if someone is going 

to get to that position of failing, the fact that they are big makes 

it worse. But the fact that banks are bigger and more diverse and 

more activities in more places in the world probably makes them 

safer. 

And second, when you think of the big financing purposes in the 

world and what the United States needs to maintain its competitiveness, having financial institutions too small to conduct financing and a competitive basis as the rest of the world, I think will 

be a competitive disadvantage to the United States. 

Senator COBURN. OK. I have one final question. You are the 

leader of Goldman Sachs. There is no question about that, right? 

Mr. BLANKFEIN. Yes, sir. 

Senator COBURN. All right. And you set the tone? 

Mr. BLANKFEIN. I do, sir. 

Senator COBURN. I have asked a lot of questions about ethics 

today throughout the period. I have a question for you. Why did 

Goldman Sachs decide to release the personal emails of Mr. Tourre 

and not everybody else in this hearing? It had no investigative purpose. We didn’t expose any of that. We had deleted all of it. We 

weren’t exposing it. Was that a right decision? And, is it fair to 

your employee? Is that a political ploy or a defense ploy, or why 

would you do that to one of your own employees? 

Mr. BLANKFEIN. I wasn’t close to the decision, but can I give 

you—I wasn’t specific about that, but I think what we have been— 

we wanted to get, and I wasn’t thinking about that because we also 

put—we also provided some information from emails with respect 

to the business and these—there were elements here that were— 

spoke badly of the firm and we just wanted to come abreast of all 

the issues about which were bad to the firm. There was nothing in 

anything, to my understanding, about Mr. Tourre’s subsequent 


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emails that weren’t evidenced by the emails that had already been 

out. And so I didn’t think we were adding anything to distress—— 

Senator COBURN. Well, this Subcommittee had never released 

any of that information on him, anything that would get into his 

personal life or his personal thoughts. To me, I go back to the original question. The tone set by that, if I worked for Goldman Sachs, 

I would be real worried that somebody has made a decision that 

he is going to be a whipping boy. He is the guy that is getting hung 

out to dry, because nobody else had their personal emails released. 

You all made a very distinct, discriminatory decision that one of 

your employees is going to be made to look bad, because we didn’t 

release those emails. 

Mr. BLANKFEIN. Senator, I don’t know what it was, but there 

were emails that were extant and—again, this is all to the best of 

my knowledge—— 

Senator COBURN. I understand that. And maybe you weren’t involved in it—— 

Mr. BLANKFEIN [continuing]. And I think what we wanted to do 

with respect to some of the issues was to just get information—get 

it out so that we could deal with it, because at this point, and I 

think you are aware that the press was just very—and maybe the 

press—I don’t know where they came from, but I don’t think we 

added, to the best of my knowledge, but I don’t know, I don’t think 

we added to the state of knowledge about those emails which our 

employee addressed, and I think needed to address. 

Senator COBURN. Thank you. I have gone over my time, Mr. 

Chairman. I apologize. Mr. Blankfein, thank you for your cooperation. 

Senator LEVIN. Thank you. Senator McCaskill. 

Senator MCCASKILL. Thank you, Mr. Chairman, and thank you, 

Mr. Blankfein for being here today. 

Mr. BLANKFEIN. Thank you, Senator. 

Senator MCCASKILL. I want to start by saying that in many 

ways, the focus on just your firm is tremendously unfair. The activities that are being talked about, and I am sure we could compile the same kind of documents, the same kind of emails from all 

of your competitors on Wall Street. I mean, the conduct that we are 

looking at was not exclusive to Goldman Sachs and I think it is important to acknowledge that on the record. In fairness, there probably ought to be another four or five CEOs sitting up there with 

you, as we discussed—— 

Mr. BLANKFEIN. I would welcome the company. 

Senator MCCASKILL. I am sure you would. 

And I know it seems like we are harping, but it is because so 

many of the cultural realities of what you all do is jarring to most 

Americans. This notion of selling a product that you are betting 

against is hard for people to understand that just have a basic 

sense of right and wrong and common sense. And we spent a lot 

of time going over that today. I want to talk about several details 

as it relates to that. 

One is that it is clear to me that you all had—there was kind 

of an orphan document in the documents that we got, and one of 

the orphan documents we got was from a woman named Manisha 

Nanik to a person named Loren Morris. And what it was was a 


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1See Exhibit No. 77, which appears in the Appendix on page 504. 

summary of an analysis of mortgages that you all were going to 

slice and dice and do all the tranches. And it is a fairly detailed 

finding, and it is important, the date on this document is March 

13, 2007. This is Exhibit 77.1

This document says that 7 percent of the mortgages that the 

Goldman employee looked at had material occupancy misrepresentations, where borrowers took anywhere from 4 to 14 loans at a 

time and defaulted on all. You risk in the loan performance and 

difficulty foreclosing on the second liens would be potentially unsecured. 

Another 20 percent of the pool had material compliance issues. 

They are mainly missing final HUDs. We cannot put these loans 

back. We will need to consider option of our service or fixing the 

errors via refinance, refund, or disclosure. 

Mr. BLANKFEIN. I am sorry. Could you give me the number 

again? 

Senator MCCASKILL. It is Exhibit 77. 

Mr. BLANKFEIN. I am sorry. I apologize. 

Senator MCCASKILL. She goes on to say, approximately 10 percent of the pool is flagged as potential REO or potential unsecured 

or second lien. 

Another 5 percent of the pool was originally fraudulently based 

on the DD results. Main findings, possible ID theft, broker misrepresentation, straw buyer, falsification of information origination 

documents. And then she says, there is a reputation headline risk, 

as well. 

Now, I am not sure if these—you did issue a bunch of New Century mortgages at or around that time in a CDO, in one of these 

instruments. I can’t say that these are the ones that you issued, 

but what it tells me is you had internal analysis on these mortgages. 

Mr. BLANKFEIN. Senator, I don’t know whether—I am reading 

the words. I don’t know who these people are. It sounds like, just 

looking at it, it sounds like somebody is complaining and asking— 

recommending that we not do some of these things, from what I 

can see on this page. 

Senator MCCASKILL. Well, I think it is plain on its face that this 

is a Goldman Sachs employee that has analyzed a group of mortgages that you all were considering packaging up—— 

Mr. BLANKFEIN. But I don’t know—— 

Senator MCCASKILL [continuing]. Either for somebody to bet on 

or bet against. 

Mr. BLANKFEIN. But I don’t know whether any of this was—I 

don’t know who these people are and I don’t know whether any of 

this was done. 

Senator MCCASKILL. Well, here is what I—— 

Mr. BLANKFEIN. Are you saying that we did these? 

Senator MCCASKILL. This is your document. This came from 

you—— 

Mr. BLANKFEIN. No, I know it is a document—— 

Senator MCCASKILL. It is a Goldman Sachs document. 


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I don’t know whether you did these or not. The point I am trying 

to make is it shows that an analysis was going on on the mortgages 

that went into your instruments internally. 

Mr. BLANKFEIN. There better have been. I think we are supposed 

to analyze and do due diligence with respect to securities and instruments that are created. 

Senator MCCASKILL. OK. Well, if that is the case, then when you 

issued all the documents that you did when you did all the—what 

is the name of the company that had all of the problems—Long 

Beach Mortgage. When you did all the Long Beach Mortgage, do 

you think you did this same analysis on all the Long Beach mortgages? 

Mr. BLANKFEIN. I don’t know specifically about Long Beach. I 

know we have, in all our businesses, due diligence processes that 

are appropriate for the business. So I would say as a matter of 

process, I would assume appropriate due diligence was done on it, 

based on our standards and our protocols. 

Senator MCCASKILL. Well, in May 2006, you were the co-lead underwriter with WaMu to securitize about 532 in subprime second 

lien fixed rate mortgages originated by Long Beach. Now, keep in 

mind that this is the same Long Beach that had to buy back hundreds of millions of dollars of mortgages because of problems. At 

one point in time a few years earlier, they had been shut down because of problems. And I guess I would like to request, on behalf 

of the Subcommittee, that we see the analysis, first of all, that we 

figure out what mortgages these were that were analyzed, where 

you found fraud and you found 5 percent fraud, 7 percent material 

occupancy misrepresentation, 20 percent material compliance issues. I think it would be important for us to see those documents 

on the instruments you created for folks to take a side on. 

Mr. BLANKFEIN. OK. I am not sure whether an instrument was 

created out of this, but I get the point and will look for it. 

Senator MCCASKILL. Yes. I mean, I think the point is that it is 

hard for us to believe that if you all were doing the due diligence 

that you have stated a couple of times in your testimony, now we 

know that these things were full of this kind of stuff. We know 

that. And you obviously knew it on one instance because we have 

a document from somebody in your employ that 38 percent of the 

loans are out of tolerance. I recommend putting back 26 percent of 

the pool, if possible. 

It doesn’t make me comfortable that you all, after doing the due 

diligence, actually disclosed as much as you maybe should have disclosed about some of the problematic paper that you were packaging up for investors, and so I would like to follow that trail and 

get the same kind of documents on the instruments that you did 

put out in the market, both in 2006, 2007—— 

Mr. BLANKFEIN. Sure. 

Senator MCCASKILL. OK. Let me ask you this. And by the way, 

in May 2006, right about when you did that, Office of Thrift Supervision just did a scoop at Long Beach and found all kinds of problems with their mortgages, almost at the exact time you were putting your instrument out. So that is why I question what kind of 

due diligence was actually going on and how much due diligence 


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1See Exhibit No. 130, which appears in the Appendix on page 853. 

you were actually using in telling the buying public what was in 

these various transactions. 

In your testimony, you expressed regret that Goldman missed 

the signs of a system where credit was too easy, and you have said 

nobody could know when the housing market would crash or how 

bad it would crash. Looking back, do you think that you all did 

enough to look at what were in these instruments and how strong 

they were on their face? Do you think you exposed the kind of problems that these loans, the vast majority of these loans, represented? 

Mr. BLANKFEIN. Given that things didn’t work out well, in hindsight, I wish we had done more. I think we thought at the time, 

and again, I don’t have contemporaneous knowledge of it and I am 

not an expert on that area, I believe we believed we were doing appropriate due diligence and appropriate disclosure. Things went 

much further and got much worse than people realized. I don’t 

know that we would have—I wish we had done—I don’t know what 

due diligence would have picked that up, but I wish we had done 

more to get there. 

Senator MCCASKILL. Would more disclosure, in fact, harm your 

business model? 

Mr. BLANKFEIN. I don’t—— 

Senator MCCASKILL. If you truly are just the house, if you truly 

are just trying to manage transactions on both sides of a proposition? 

Mr. BLANKFEIN. I don’t think so. 

Senator MCCASKILL. And it is interesting to me that the investment banks that have created all these exotic instruments, that 

there has not been more effort to push for more disclosure, that it 

appears that we are dragging you along kicking and screaming. Is 

that an unfair characterization? 

Mr. BLANKFEIN. I don’t know. I am not sure what—— 

Senator MCCASKILL. There is no question that sometime in early 

2007, you realized that there was a lot of—you had a lot of residual 

positions, equity residual positions on these CDOs and that you 

wanted those books cleaned up as quickly as possible. 

Mr. BLANKFEIN. I am thinking in terms of risk. I am not sure 

they were equity residual—I am not sure. I don’t know that I had 

formed a view of equity residual positions, per se. 

Senator MCCASKILL. Well, in Exhibit 130,1 there is an email 

from you to Tom Montag, and the email reads as follows. ‘‘Tom, you 

refer to losses stemming from residual positions in old deals. Could/ 

should we have cleaned up these books before and are we doing 

enough right now to sell off cats and dogs in other books throughout the division.’’ That was in February 2007. 

Mr. BLANKFEIN. I got to the page. 

Senator MCCASKILL. That would seem to be indicating that in 

early 2007, before you all had, in fact, marketed more of these synthetic CDOs, that you were basically saying, let us clean up the residual positions we have, the cats and dogs, and push them to traders. 


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Mr. BLANKFEIN. Senator, I don’t remember typing this, but I 

could tell you clearly how I used those words and what I meant. 

I hope I have this right, but when I use the expression ‘‘cats and 

dogs,’’ I mean miscellaneous stuff. I hope everybody thinks of it 

that way. That is how I use the words. 

Senator MCCASKILL. OK. 

Mr. BLANKFEIN. And I am referring—this is just my normal rant 

about aged inventory, just as a matter of risk management. When 

somebody tells me they are losing money on old stuff, my reaction 

is, why do you—part of the discipline of our business is to manage 

risk and sell inventory, and so here, I am not even thinking about 

the particular asset class he is talking about. I am saying, could/ 

should we have cleaned up these books—in other words, I am 

yelling at him—before, and are we doing enough right now to sell 

off cats and dogs in other books throughout the division? 

I am basically saying that you are head of the division. You are 

supposed to be managing an aged inventory—we have something 

called aged inventory, which is just as a matter of discipline, let 

us not accumulate residuals, parts of other deals. Sometimes we 

have little pieces left over, but those little pieces, if you don’t pay— 

they are not big enough to pay attention to, but in the aggregate 

can hurt you. So I am saying, I am just being—— 

Senator MCCASKILL. Well, I will just tell you, I won’t take the 

time to read through the whole email chain, but it is clear if you 

read through the whole email chain, this whole email chain was 

about risk in the whole loan trading business, and it is clear that 

what was going on here is there was a lot of internal noise about 

the fact that you had long positions, equity positions in a lot of this 

stuff as you guys were moving—I think we have beaten this horse 

until it is almost dead—into some major short positions throughout 

2007. 

As the Chairman said, in earlier questioning of other witnesses, 

as you all keep talking about your net for 2007, no one has been 

able to delineate specifically how much of the long position that 

you were suffering in 2007 is this really old stuff as opposed to any 

notion that you guys were actually participating in long purchases 

through 2007. 

Mr. BLANKFEIN. Senator, it wouldn’t matter to me one bit. If we 

had risk on our book, it wouldn’t matter to me whether it was 

there for a long time or a short time. Risk is risk—— 

Senator MCCASKILL. Right. 

Mr. BLANKFEIN [continuing]. And I would want them—if we 

would ask people to manage their risk down, they would manage 

their risk down. 

By the way, I found on the front page—I am sure I didn’t look 

at this whole document—the fellow who wrote to me said, most of 

the risk is in old residual positions from deals done over the last 

few years, and that is what I was responding to. 

Senator MCCASKILL. OK. 

Mr. BLANKFEIN. In other words, a person—it is undisciplined to 

hold stuff because it is small for years. It just is probably because 

it was too small to pay attention to, and that is not the way you 

are supposed to be. 


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Senator MCCASKILL. Well, I am not sure when you look at all the 

documents that the older long positions you had would be considered small by most people’s standards, but maybe it would within 

the context of your organization. 

Mr. BLANKFEIN. Well, I am referring to most of the risk is in old 

residual positions. Anyway, that is what—— 

Senator MCCASKILL. And I guess what I am trying to get at is 

the point we have been trying to make, and this is where I think— 

this notion that you guys are market makers and you also are 

sometimes taking positions outside of your just market making, 

that is what is hard for many of us to kind of get our arms around. 

I guess, I have been talking sports analogies today because I 

think there is a lot about this that relates to gambling on a sporting event, because the synthetic CDOs didn’t represent anything 

but gambling. It was folks taking one side or the other. It wasn’t 

real mortgages in there. It was just stuff saying, take a bet, just 

like you bet on a football game. 

Is there anything that you would not create a market for if a client came to you to create a market? I understand that some people 

are trying to create a derivative market now in how movies are 

going to do. 

Mr. BLANKFEIN. I haven’t heard about or been involved in it. And 

I am sure there is, but if there is somebody who has—and if somebody whose business depends on—would be able to do their business better if they were able to hedge or eliminate a financial risk 

and they came to us and asked us to eliminate that risk and it was 

legitimate, proper, and honest and susceptible to being understood, 

I think we would—they would come to us and ask to do it. 

Senator MCCASKILL. But didn’t Mr. Paulson just want to make 

money because he thought the market was going to tank? He didn’t 

have a—he just was looking for a place to score on a bet, wasn’t 

he? 

Mr. BLANKFEIN. I can’t say what Mr. Paulson is thinking, but 

there is nothing wrong—speculating—if he was, which I don’t know 

what he was thinking, if he was just a speculator, there are people 

who speculate in corn and speculate in all sorts of commodities—— 

Senator MCCASKILL. I understand. 

Mr. BLANKFEIN [continuing]. That allow the professional users of 

those markets to complete their hedges. That is a socially acceptable—— 

Senator MCCASKILL. Mr. Blankfein, there is a big difference between finding the opposite side of a certainty in a commodity hedge 

for a farmer that needs certainty or an airline company that needs 

to figure out what jet fuel is going to cost and two sides of a deal 

that are both just betting. There is nothing in a synthetic CDO 

that is essential to certainty to anybody’s business other than 

somebody just deciding they want to take one side of a deal and 

the other side of a deal. That is what a synthetic CDO is. 

Mr. BLANKFEIN. Every futures contract on oil or anything consists of you could characterize it as a bet, but not the underlying 

commodity. Some of these things just don’t even settle in physical 

form, but they provide the liquidity and the opportunity for people 

who want to hedge themselves to get in and take that position. 

Senator MCCASKILL. And we can’t take this too far. 


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Mr. BLANKFEIN. Oh, for sure. 

Senator MCCASKILL. I mean, you don’t think that there is a point 

where we make up stuff to bet on and you guys are securitizing it 

and tranching it, and especially the situation in this instance. 

Mr. BLANKFEIN. Let me be clear—— 

Senator MCCASKILL. You put one side of the bet in the room with 

the people who are picking the product, which is, I think, bizarre. 

I guess your representatives this morning acted like it wasn’t any 

big deal—— 

Mr. BLANKFEIN. I am sorry, that what wasn’t a big deal? 

Senator MCCASKILL. That the person who came to you that wanted to bet against the deal, you put them in the room with the people who were going to pick the stuff in the deal. In other words, 

you didn’t put both sides in there. You put one side of the bet in 

with the people who were picking the product that was going to be 

gambled on. That seems weird. 

You know what it reminds me of? It reminds me of this notion— 

I think most Americans think it would be really wrong for one of 

the football players to be able to be in the room with the bookie 

trying to influence what the line was going to be, and then they 

turn around and bet on the game they are playing in. 

Mr. BLANKFEIN. Well, Senator—— 

Senator MCCASKILL. That is what this feels like. It feels like that 

you guys are betting on the game you are playing in and that 

maybe it is not a level playing field. 

Mr. BLANKFEIN. Senator, on these transactions, and I feel it—I 

know there is an inherent distaste for the short side of things as 

opposed to the long side of things. But for every transaction, there 

is a buyer and a seller and there is nothing immoral about somebody structuring a position—and by the way, some of the people 

who are taking the short position may just be wanting to restructure their portfolios, as well. 

Senator MCCASKILL. I understand that. But you understand 

that—— 

Mr. BLANKFEIN. I do. 

Senator MCCASKILL [continuing]. It feels like you guys were 

pushing a product that you were betting against at the same time 

you were letting somebody who wanted one side of the deal in the 

room with the people who were picking the product, not the other 

side of the deal. None of that seems like even-steven. None of that 

seems like you are an honest bookie who is trying to manage risk 

on both sides and just get it down to the vig. 

Mr. BLANKFEIN. In that transaction, ACA, the selection agent, I 

think, was the buyer itself of something like 80 or 90 percent of 

the transaction. The biggest buyer, the biggest long in that whole 

transaction was ACA itself. I think it took a position of a total deal 

of around $1.1 billion. I think it took over $900 million of the transaction itself. So the biggest buyer of that transaction was very well 

represented. It was the selection agent itself. 

Senator MCCASKILL. Well, that also seems weird. I mean, it 

seems like to me that if you—and it is hard for me to believe that 

the selection agent was excited about that deal if they really knew 

the person who was helping them pick all the deals wanted to bet 

against it. 


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Mr. BLANKFEIN. The selection agent had engaged in a lot of these 

portfolios and was one of the biggest portfolio managers in that 

asset class. When we talk about investors and deals, it sounds like 

this is a broad distribution. There were only three professional investors engaged in the whole transaction. This was—in effect, there 

was no transaction—this was not a transaction that had to be 

done. This was a transaction that only worked if the longs and the 

shorts agreed on what the portfolio was. And I realize that is not 

intuitive, but those professional investors wanted those exposures. 

Senator MCCASKILL. And I am not sure that, frankly, it is a 

thing of value that most Americans would be comfortable that we 

would be backing up and providing taxpayer bailouts to companies 

that were engaging in that, especially if you weren’t actually really 

dealing with a commodity or dealing with a product at the base of 

the transaction, that you were making up securitizations for people 

to, in fact, take positions on only for that reasons. It seems like 

hamsters in a cage trying to get to compensation as opposed to societal value that investment banks in this country, I think, have 

represented for many years. 

I really appreciate you being here today. I hope you stay at the 

table with us as we work on this legislation. I think, clearly, this 

hearing has shown in the work this Subcommittee has done, and 

the staff has done amazing work here, that we have conflict of interest issues, we have disclosure issues, and we have transparency 

issues, and we need to get all of those fixed to make sure we don’t 

have a repeat of this debacle. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator McCaskill. Senator Pryor. 

Senator PRYOR. Thank you, Mr. Chairman. 

I would like to start, if I can, with the topic of asking you about 

credit rating agencies. In retrospect, how accurate were the credit 

rating agencies in rating the various tranches of CDOs? 

Mr. BLANKFEIN. In retrospect, they were inaccurate. 

Senator PRYOR. And so, these got rated as AAA, and I know they 

were downgraded later, but why do you think that they missed the 

rating so bad? 

Mr. BLANKFEIN. I think they never anticipated that the market 

could fall as much as the market fell. Again, this is not contemporaneous knowledge. This is not anything in depth; I know about 

the—I mean, I read articles, too, but it just—and that is where I 

get some of this from. But it just seems that they never contemplated—they never worked into their models the kind of move 

that occurred in the market, and I think that is why they didn’t 

work. 

Senator PRYOR. From your standpoint, what ability, if any, do investment banks have to influence a rating by a credit rating agency? Can you kind of, as lawyers say, forum shop and try to find a 

better rating with a different agency? 

Mr. BLANKFEIN. I don’t know. The first panel that you had today 

included people who execute deals in connection with obtaining ratings. In my entire career at Goldman Sachs, I never dealt directly 

with a rating agency other than with the rating of Goldman Sachs. 

Senator PRYOR. OK. 


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Mr. BLANKFEIN. And I have been very—and I am not sure that 

I have been able to influence them. 

Senator PRYOR. OK. That is fair enough. Let me ask a question 

I am not sure anyone has asked you on a topic that no one has 

touched on yet, and that is the use of off balance sheet limited and 

special investment partnerships. I have a concern about those 

and—— 

Mr. BLANKFEIN. SIVs? 

Senator PRYOR. What is that? 

Mr. BLANKFEIN. Go ahead. I am sorry. 

Senator PRYOR. The off balance sheet limited and special investment partnerships. Why would your company ever want to use an 

off balance sheet investment vehicle? Why would you all ever do 

that? What is the motivation to move it off balance sheet? 

Mr. BLANKFEIN. I am not sure that we do. 

Senator PRYOR. But Goldman does that, right? 

Mr. BLANKFEIN. I am not sure. I think some deal trusts may be— 

I am just not sure. 

Senator PRYOR. OK. 

Mr. BLANKFEIN. I could tell you that as a matter of our policy, 

we mark to market all the risks of the firm, whether they are on 

balance sheet or off balance sheet, so there would be no P&L consequence to us—— 

Senator PRYOR. So they are disclosed? The off balance sheet is 

disclosed? 

Mr. BLANKFEIN. I don’t know. 

Senator PRYOR. OK. Well, we may follow up in another context 

on that. 

I would like to ask you about the Securities and Exchange Commission case, if you are comfortable answering these questions, and 

if your lawyer says you are not, I understand why you wouldn’t be, 

but I do have some questions based on the press release that the 

SEC sent out back on April 16. If you will answer, I would just like 

to get a feel for what you think really happened, and I guess I 

would like to give you a chance to explain some of this. 

It says, ‘‘Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge 

fund played in the portfolio selection process and the fact that the 

hedge fund had taken a short position against the CDO.’’ Is that 

true, that you failed to disclose that? 

Mr. BLANKFEIN. Again, well, you obviously know I wasn’t 

there—— 

Senator PRYOR. Right. 

Mr. BLANKFEIN [continuing]. But I think our person who testified 

in the first panel, Fabrice Tourre, maintained that he believed that 

they did know, and I think that—look, some of these things, it is 

not a question—you give me license in the sense that you know I 

wasn’t there and I don’t know. I am doing the best I can. I think 

there is a lot of elements of the transaction and reputations and 

things that suggest they should know and must have known, and 

then there is also a lot of opinions that are floating out in which 

some people say they did know. But I think it is not a question of 

not wanting to tell you. I can’t tell you more. I know that one of 


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the contested facts in the case is whether the selection agent knew 

or didn’t know. 

Senator PRYOR. Let me ask the follow-up question about your 

standard of behavior, I guess we can say. Should that information 

have been disclosed to investors? 

Mr. BLANKFEIN. Again, I am not sure. In other words, the legal— 

the complaint is whether the—I mean, at least part of the complaint is whether the influence had an undue—of that person had 

an undue effect. I don’t think there would be anybody—I am not 

sure that anybody—there is any duty on us to disclose the existence of that short position. This is a synthetic, so there had to have 

been a short position. If it wasn’t them, it would be us. So everybody in the transaction knew, to the extent there was a long, there 

had to have been a short. 

The issue is not whether there was a short and whether we were 

disclosing it. It just has to be a short. The question was, did that 

short have undue influence on the placement—on the selection 

agent, and then you get to the situation where our person says— 

thinks—believes they knew. I think Paulson may have—person 

may have been quoted as having an opinion on that. And then 

there is the issue with, well, how could you not know, that kind 

of element to it. 

So you get a factual thing, and obviously it is a legal case, so 

there are people on one side and people on the other, and I don’t 

want to diminish it, but that is the best I can do. That is what the 

case is. That is the factual issue over which the case is. 

Senator PRYOR. Right, and let me go to the next paragraph. It 

says, ‘‘Goldman wrongly permitted a client that was betting against 

the mortgage market to heavily influence which mortgage securities to include in an investment portfolio while telling other investors that the securities were selected by an independent, objective 

third party.’’ So the first question is, is that allegation true, and 

if it is—— 

Mr. BLANKFEIN. Again, I will do the best I can—— 

Senator PRYOR. Right. 

Mr. BLANKFEIN [continuing]. Not knowing any of these facts 

firsthand. But one of the facts, and I think it is in the SEC’s complaint, was that the portfolio that was initially proposed, in which 

the hedge fund at least participated, and maybe, for all I know, 

gave—I am not sure, maybe proposed all the names—more than 

half those securities were thrown out by the selection agent. Now, 

in throwing out more than half, they are obviously looking and 

making a judgment about all of them. They just turned back more 

than half of them, but that doesn’t mean they only looked at that 

half. They looked at all of them and asked that more than half of 

them be eliminated. 

Then Paulson, I guess, proposed others. Some of those were accepted. Some of those were turned back. And then IKB also proposed, I think, some. So there was a healthy back-and-forth over— 

so it looks like they were—and so every decision that was made, 

people may have been—there is no deal unless the long and the 

short agree to it. So there was no doubt because it is part of the 

record there were conversations between them—but whether the 

selection agent that had the responsibility and duty to pick that 


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portfolio picked that portfolio. They did. That is our point of view. 

The SEC, I think, has its point of view. 

Now, I hope I am doing a good job representing both sides of this 

because I am really trying to be cooperative and not resort—and 

not not answering, but that is my best understanding that I have. 

Senator PRYOR. This press release also says, ‘‘The marketing materials for the CDO known as Abacus 07 AC–1, all represented that 

the RMBS portfolio underlying the CDO was selected by ACA Management, LLC, a third party with expertise in analyzing credit risk 

in RMBS.’’ The SEC alleges that ‘‘undisclosed in the marketing materials and unbeknownst to the investors, the Paulson and Company hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should 

make up the portfolio.’’ Is that true, that all the materials represented—that the RMBS portfolio was selected—underlying the 

CDO was selected by ACA Management? Is that true? 

Mr. BLANKFEIN. Well, on the basis of what—that is consistent 

with what I just said and that is consistent, in my view, that they 

did select the portfolio. We have an independent auditor. It doesn’t 

mean we don’t interact with them. It doesn’t mean that we don’t 

give them our views if they have an opinion of how they should 

treat an accounting item at Goldman Sachs. But at the end of the 

day, they are the independent auditor and they make the judgment. 

Senator PRYOR. And do you have documentation there at your 

company about what was disclosed to whom and when? 

Mr. BLANKFEIN. I don’t know, but if there is a disclosure document, which I assume there is—I mean, there were disclosure materials, yes. 

Senator PRYOR. And so on these type transactions, there are documented disclosure materials that pass among all the parties? 

Mr. BLANKFEIN. There are disclosure materials, yes. 

Senator PRYOR. OK. In the past 25 years, America has seen an 

increasing number and severity of financial crises. You have the 

savings and loan crisis, Enron, the dot-com bubble, the housing 

bubble. What steps will Wall Street take to assure that there is not 

another financial crisis? 

Mr. BLANKFEIN. Listen, I think the financial reform is a good 

step—— 

Senator PRYOR. That we are working on now? 

Mr. BLANKFEIN. That we are working on. There will be gives and 

takes in it, and I am not sure myself where it would—nobody is— 

where it would come out, so the need for reform. I mentioned earlier the need for higher capital standards, systemic risk regulation. 

That is general. And obviously every firm needs to manage its risks 

very well and better than they have been doing in most cases. And 

I think in our case, particularly, you have to look also through 

every aspect of your business practices to make sure, and to not be 

defensive, which there is a tendency to be, but to learn from prior 

situations, including the one we are in now, and make sure that 

you do a better job. 

Senator PRYOR. Well, that was one of my questions that I was 

going to follow up with, is what are the lessons learned from this 

most recent financial crisis and what is Goldman doing differently 


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internally now that you have had to go through the bailout and all 

the other strains and difficulties that we have all gone through the 

last year and a half? 

Mr. BLANKFEIN. Senator, even as I am explaining what we did 

and why I thought it was adequate at the time, there is not a thing 

that will arise here and elsewhere that won’t be the subject of some 

big soul search and some tightening up of some standards. We 

have a high level committee in our firm going over every—we call 

it Business Practices Committee chaired by our vice chairman, one 

of our named executive officers, that involves the seniormost people 

in the firm, and it is not with reference to legal requirements, law, 

whether we can win a lawsuit or lose a lawsuit, what happened, 

what the standards of the day were, and we are going over everything. 

Now, we always do things—it is a little bit like painting a bridge. 

You get to the end of the bridge, you go back, and you paint the 

beginning because things are evolving. But if we have to—everybody has to tighten up and ratchet their standards up and learn 

from these elements. 

You asked me—we were just talking about the standards in that 

particular transaction that is the subject of the lawsuit. We have 

the position that we do, and we believe everything is adequate, but 

given the criticism that we are going under and given the position 

that the SEC has taken with our duties, we wouldn’t do it that 

way—guess what. We would tighten that up now. Of course, everything that has been the subject of criticism will be tightened up. 

Senator PRYOR. There is a company that is based in Little Rock 

named Stevens, Incorporated. I don’t know if you know Stevens, 

Inc. 

Mr. BLANKFEIN. I don’t know them well, but I have heard of the 

company, of course. 

Senator PRYOR. And Jack Stevens, one of the founding brothers 

of that—there were two Stevens brothers that founded that company—he always said that he had the philosophy of, we want to 

be in business tomorrow, and what he meant by that, and apparently the way Stevens still operates is they want to service their 

customers, do an excellent job there, and also they want to be prudent and jealously guard the trust of their investors. So Stevens, 

as far as I know, has never gotten into some of these 20–1, 30–1, 

40–1 type leveraged deals. They just don’t do that. And I am sure 

they haven’t made as much money as some in the industry have, 

but also, I think that they have remained very sound through this 

process. 

Is Goldman Sachs and/or the industry changing those really high 

leverage ratios and going back to something that I think is more 

appropriate, and you may say more conservative, but that is based 

more on reality rather than just how much money you can make 

off one transaction? 

Mr. BLANKFEIN. Yes. I think the industry is substantially less leveraged. I will tell you, we thought we weren’t leveraged going into 

the crisis as much—and we weren’t as much as other investment 

banks like ourselves. With the benefit of hindsight, we were too leveraged even at what we thought at the time was fine and we are 

substantially—we are less than half as leveraged as we were then. 


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The recency of this crisis is going to reverberate with me for the 

rest of my career and my life. So I will be—the image of it and the 

fear and the anxiety that we all had. 

And so I agree, I think the firm—all firms will be run much more 

conservatively and I hope for a long time, and I tell you that society will not rely on the good will and the memory of financial firms. 

I think Congress and regulators will impose tighter-higher capital 

requirements and liquidity requirements, and I think that is appropriate, because as we also found out in the crisis, we all have interrelated obligations to each other and it wouldn’t suit me to have 

Goldman Sachs be conservative if everybody else is going to take 

too much risk and put the system at risk, which is why, again, I 

echo making the world safer and ending too big to fail, I think, is 

something that is a substantial interest of society at large and also 

of the industry and Goldman Sachs. 

Senator PRYOR. Thank you. 

Mr. Chairman, thank you for your diligence on this matter. Like 

I said, this didn’t start with you 2 weeks ago. This has been going 

on for a year and a half and you have just done yeoman’s work on 

this. Thank you. 

Senator LEVIN. Thank you so much, Senator Pryor. Senator Tester. 

Senator TESTER. Yes. Thank you, Mr. Chairman. 

I want to echo Senator Pryor’s remarks, and Mr. Blankfein, I appreciate you being here. I am going to get into some questions here 

that I have prepared, but is Goldman too big to fail? 

Mr. BLANKFEIN. I don’t believe so. 

Senator TESTER. OK. So if Goldman went down, the financial 

markets wouldn’t go into a tailspin that wouldn’t be recovered? 

Mr. BLANKFEIN. If we went into a tailspin in a normal world, one 

in which everybody else wasn’t doing the same thing, which is another issue and, by the way, one you can’t rely on because it is 

very—I said this before. A lot of institutions would have been too 

big to fail if you were afraid that one spark would set off the whole 

forest. But I think that, generally, if people’s credit is eroding, the 

market starts to move funds away, stops credit, so firms start to 

shrink when they get into trouble. But I do think some additional 

legislation with respect to too big to fail is warranted. I think that, 

for sure. 

Senator TESTER. All right. I really want to follow up on some 

questions on the first panel and drill down some of the specifics of 

the Abacus deal, and hopefully you can help me on that. 

I think we have pretty well established that Goldman and 

Paulson and Company both played a role in selecting the assets in 

the Abacus deal. We know that Paulson wanted to short the mortgage market and he picked securities, 84 percent of which were ultimately downgraded within 6 months. We also know from some of 

the emails included in the exhibits that Goldman was eager to complete the deal. 

So, Mr. Blankfein, we know you wanted to get the deal done. 

Goldman wanted to get the deal done. And we know that at least 

in the previous Abacus deals, of which there were about 15 in total, 

you did not use an independent portfolio management agent. Why 

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ment agent in the Abacus 2001 deal and why would you use a 

manager if the assets had already been selected? 

Mr. BLANKFEIN. The assets weren’t selected. The assets, I think, 

were being proposed, and what was proposed, more than half of 

them were rejected by that agent that was picked. 

Senator TESTER. OK. 

Mr. BLANKFEIN. And I wouldn’t—I don’t know the circumstances 

under which you use an agent and in which you don’t. 

Senator TESTER. I understand. It is a big company. ACA was not 

the first choice of the portfolio management agent. In fact, they described the arrangement as highly unusual. What I was wondering, 

was the selection of a portfolio management agent in Abacus 2001 

due to the fact that the only investor that could be found was IKB 

and they indicated they were only interested in the CDOs if you 

used an independent portfolio agent? 

Mr. BLANKFEIN. One thing I know for sure is that there was at 

least another investor, because the independent selection agent 

itself looked at the portfolio and bought the biggest piece of it. So 

ACA also invested. 

But on Abacus and how it was—I am sorry. 

Senator TESTER. No, go ahead. Keep going. That does bring up 

another question, but I will let you finish. 

Mr. BLANKFEIN. But Abacus and how it was structured, I don’t 

know anything more other than what I learned from the questions 

you asked Fabrice Tourre. 

Senator TESTER. OK. I guess I need to know the role, because 

IKB was hung out for a lot of dough. You said that ACA was an 

80 to 90 percent buyer of $1.1 billion—— 

Mr. BLANKFEIN. That was just in my head—— 

Senator TESTER. That is OK. Are you saying that IKB only had 

10 percent of it? What are we really saying here? 

Mr. BLANKFEIN. I think IKB—we can provide the exact numbers, 

but to the best of my recollection, that IKB had a total position of 

something like 150, and I think—and these numbers, I think, are 

in the complaint—I think the ACA ended up having a total position 

that was multiples of that, something—I seem to recall something 

in the 900s of millions. 

Senator TESTER. OK. 

Mr. BLANKFEIN. I am sorry. IKB, I think, had 150 and ACA had 

910 plus 42, representing different parts of the capital structure, 

so 952 million. 

Senator TESTER. And we are talking about these folks were on 

the long side of things when Paulson was on the short side? 

Mr. BLANKFEIN. Correct. 

Senator TESTER. And when it was marketed to IKB, because this 

is a question that has been brought up, because we are talking 

about disclosure and transparency and conflict of interest and all 

that stuff, but was IKB told that Paulson was a part of the process 

in selecting the securities? 

Mr. BLANKFEIN. Senator, all I have is the testimony, the information we have from Fabrice Tourre. I don’t have independent knowledge of it. I just don’t. 

Senator TESTER. OK. Well, all right. I listed off about four or five 

different—four, I think it was, different arrangements that GoldVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00188 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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man had, and I do agree with Senator McCaskill that there should 

probably be four or five other folks up beside you as we move forward and try to dig down into this. 

I have been sitting here trying to really figure out a good analogy 

of how this happened, and I get the impression from the fellows 

that were up here earlier today and you that this is kind of—works 

well at times that folks can pick securities with their perspective 

that they are going to fail because they sell them short and then 

try to market them to somebody else who thinks they are going to 

be successful. And that is kind of the way business is being 

done—— 

Mr. BLANKFEIN. No, I am sorry, the securities weren’t meant to 

fail. They succeeded by conveying the risk that people wanted to 

have, and in a market, that is not a failure. Somebody had asked 

me—— 

Senator TESTER. We are like we are speaking a different language here, and that is not being critical of you—— 

Mr. BLANKFEIN. Well, that is my fault—— 

Senator TESTER. No, it is not. But it seems to me more than just 

a little bit odd that Paulson picked these securities because he was 

going to make some dough on them because they were going to go 

down, and so he sold them short so that would happen. He picked 

the securities that he could sell short so he could make money on, 

and somebody else, somebody else that maybe didn’t have the information that Paulson had—so that is where the disclosure and the 

transparency comes in—figured that they were going to be OK, so 

they bought the long side. That may be oversimplifying. 

It seems to me, and it is not like selling a lame horse or an unsound horse. It is not like selling a bin of corn that has been 

through a cow and you are calling it corn when it is really something else—— 

Mr. BLANKFEIN. Right. I think in these transactions, sometimes 

the buyer comes to you and reverse inquires and wants somebody 

to offer the other side. Most of these transactions are initiated— 

most transactions are initiated by one side or the other, and in the 

absence of two sides, usually we provide the side. 

Senator TESTER. OK. Because what I have read here indicates 

that this independent portfolio selection agency on Abacus 07 AC– 

1 was selected, that ACA was selected because there was an outfit 

by the name of IKB that wanted to buy it, and the only way they 

would buy it is if you had this independent portfolio selection 

agent. You are saying that is not correct? 

Mr. BLANKFEIN. No, I am not saying that is not correct. I read 

that, too. What I am saying is I don’t have—I just can’t go through 

the ins and outs of it because I just don’t know more than what 

I have heard. 

Senator TESTER. OK. Well, I can tell you here, right and wrong 

are indifferent. It really sounds like there was a failure to disclose 

information relevant to the parties in the transaction. That is what 

it sounds like to me. The vehicles, synthetic financial vehicles, and 

I know you said everybody has the right to hedge their risk, but 

these go beyond that. I mean, they really do. It is more like a scam. 

I came in and I heard you talk about your clients being critically 

important. This is early on. 


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Mr. BLANKFEIN. Right. 

Senator TESTER. And I think anybody would think that—anybody 

would know that. I mean, that is probably the most important 

thing you can do, although the previous folks who were up here 

today said that they really wouldn’t say whether they worked for 

the clients or worked for the company. They said they were market—— 

Mr. BLANKFEIN. Makers. 

Senator TESTER. They were market makers. That is what they 

said they were. But the fact is, it was ironic to me that they 

wouldn’t say they worked for the clients. 

Mr. BLANKFEIN. Well, the—— 

Senator TESTER. And that speaks volumes in and of itself. Why 

would the clients believe in Goldman Sachs? 

Mr. BLANKFEIN. Senator, there are parts of our business that are 

fiduciary—and it will sound splitting—but there is a market and 

you can’t—when you are a principal—I can understand their confusion in answering the question. I am trying to explain it, and I 

wish I were better to explain it. 

There are parts of the business where you are a money manager, 

where you owe a duty to the client. There are parts of the business 

where you are a principal and you are giving the client what it 

wants and it is understood where you have to know that they are 

suitable, you have to know that the product you do delivers what 

they expect to have, but the markets couldn’t work if you had to 

make sure it was good for them. 

Senator TESTER. So what you are saying, in one case, you are 

working for the client. In the other case, you are setting markets. 

Mr. BLANKFEIN. But they are also—and I will tell you, in the 

business world, if we are not the biggest, most important market 

maker, we are right up there. 

Senator TESTER. OK. 

Mr. BLANKFEIN. In other words, we do well at this and our clients value us for this. 

Senator TESTER. Right. 

Mr. BLANKFEIN. In other words, it is not—what I am describing 

to you—— 

Senator TESTER. And one doesn’t bleed over into the other, or 

vice-versa? 

Mr. BLANKFEIN. I think the market understands when these people are buying—I will say it like—— 

Senator TESTER. So what are your responsibilities—— 

Mr. BLANKFEIN. They are buying for their own P&L. 

Senator TESTER. OK. And so what are your responsibilities when 

you create a product? Do you have any? 

Mr. BLANKFEIN. Yes, huge, fairness, that it be effective. We have 

a whole process in our firm—— 

Senator TESTER. Is disclosure part of it when you create a product? 

Mr. BLANKFEIN. I think there are disclosure requirements in connection with underwritings, and we are talking about these are 

underwritings, what you are talking about. 

Senator TESTER. Yes. 


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Mr. BLANKFEIN. Yes. But the disclosure is the disclosure of the 

risks associated with that. It is not related to whether you are long 

or short also or whether housing is going up and down. 

Senator TESTER. I guess the point is, is disclosure—— 

Mr. BLANKFEIN. Does the product work? Does the product deliver 

what the client seeks? 

Senator TESTER. Yes. But disclosure—— 

Mr. BLANKFEIN. Disclosure is very—— 

Senator TESTER. If disclosure isn’t given equally to both sides, 

because you said there have got to be two sides for this to work, 

if it is not given equally to both sides, whose responsibility is that 

to make sure that the information is given to both sides? It is not 

you, or is it you? 

Mr. BLANKFEIN. The disclosure requirements in an underwrite, 

again, are very well evolved. 

Senator TESTER. OK. So is it you? Do you have to disclose to both 

sides what is in so that both sides know? 

Mr. BLANKFEIN. I think the disclosure document would disclose 

to the world of buyers of that instrument. I mean, I think it is in 

the—— 

Senator TESTER. So you think IKB knew that Paulson was part 

of selecting the securities? 

Mr. BLANKFEIN. Again, this is what the lawsuit is, over whether 

we satisfied it, and that is a factual and a legal dispute now. 

Senator TESTER. OK. You know the instruments. Do you, on behalf of Goldman, accept any responsibility for the collapse of 2008? 

Mr. BLANKFEIN. Yes. 

Senator TESTER. Are you in any way embarrassed that the U.S. 

taxpayer had to bail out Goldman? 

Mr. BLANKFEIN. We got funds from the government, and it was 

an embarrassing situation then and it is embarrassing now. 

Senator TESTER. Do you think that those funds were critically 

important as to you being able to stay in business? 

Mr. BLANKFEIN. I think they were critically important. I don’t 

know what would—I can’t say what would have happened otherwise—— 

Senator TESTER. I understand. 

Mr. BLANKFEIN [continuing]. But they were critically important 

for the system and, therefore, critically important to us. 

Senator TESTER. Do you feel you owe anything to the taxpayers 

because of that bailout? 

Mr. BLANKFEIN. I think, yes, and we owe—we live in the good— 

yes, we—and for many other reasons. I would like to say, Senator, 

also, on the—and I am answering you without qualification on all 

those points—— 

Senator TESTER. That is right. 

Mr. BLANKFEIN [continuing]. But we were not waiting for government bailout. We—and I think this was quite famous and observed, 

that weeks before that, we did a transaction with Warren Buffett 

where we gave him equity warrants on a substantial portion of 

Goldman Sachs in exchange for his investment in Goldman Sachs, 

which I could tell you, he wouldn’t do in a million years if he 

thought we were going to fail because he makes money and he 

doesn’t give it away, even if he liked us. 


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And then a day after that transaction, we did an equity deal, a 

common equity deal in the market where we raised another—his 

was $5 billion—we raised another $5.75 billion dollars. Those deals 

closed, I think, 3 or 4 weeks before the TARP. So I think the TARP 

and the action that the government took was—you used the word 

critical, I will echo that critical. It was critical for the overall environment. If the market seized up and no one could get financing 

again, it would have affected everybody including us. 

And so we are grateful for it. We expressed that gratitude. But 

we could get financing in the world. We got it. And, frankly, when 

we took the five-and-three-quarters, we could have gotten more if 

we wanted. So it was critical because I think there was a—I don’t 

know whether the system would have gone completely out of kilter 

if it hadn’t been done, but it was too much of a risk and I am really 

glad—and we were beneficiaries of what happened. 

Senator TESTER. Well, I appreciate it. I can tell you that there 

are some things in my job as a U.S. Senator from Montana that 

don’t make a lot of sense. One of the things that doesn’t make a 

lot of sense to me is why these synthetic—and I know you have got 

an answer for it—but why these synthetic instruments came about 

when there is nothing in them. 

And Senator McCaskill is right. It is just like betting on a sports 

event. It is like betting on whether it is going to rain. It is like betting on a bunch of stuff that doesn’t make any sense. It is not like 

hedging as a farmer would do it or as an airline or a coal company 

or whatever might be. This is just playing around, from my perspective. 

And the fact is that I think part of this playing around is why 

taxpayers had to bail out part of what went on on Wall Street. I 

have got some issues with that, and I, like other Members on this 

Subcommittee, think you are a smart guy and I would like to work 

with you. I think this country is in dire need of Wall Street reform 

and I think that you could add some to the equation as long as we 

can bore down and get to the facts—— 

Mr. BLANKFEIN. Senator, I—— 

Senator TESTER [continuing]. And transparency is critically important, and making sure that consumers are protected. 

I can’t tell you how many stories I have heard of folks who have 

lost their retirement, lost their college tuition for their kids, lost all 

sorts of bad things while other folks that got bailed out are making 

literally millions of dollars. 

Mr. BLANKFEIN. Senator, I agree and I would like to be helpful 

and I will be helpful. And I would like to say another thing. I can 

tell you, and I tried to, what the hedging purpose was of having 

people be able to take long or short positions synthetically in housing in order to shape their portfolios. 

But that is not the end of the inquiry. If at the end of the day, 

even if that—so I am explaining what the purpose is. But even at 

the end of the day, if they are too complicated and too risky and 

generate the kind of risk that apparently these did, then notwithstanding—finding a social purpose or a hedging purpose in them is 

not the end. Notwithstanding that, they may be something that 

should not be permitted, and so, therefore, I am not making a spirited defense that anybody could think of should be done. 


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Senator TESTER. Yes. 

Mr. BLANKFEIN. Clearly, the world needs more regulation. 

Senator TESTER. And I think part of this, as I look at it as a regular person, you have a guy by the name of Paulson who is picking 

out—who had a role in it. He may not have been the only person, 

but he had a role in picking out these securities and I firmly believe, from what I have read, he picked them so they would fail so 

he could sell them short, and I think somebody else may have not 

been told the story that Paulson knew on the one side of the equation. And I think that is where the problem is, also. 

Thank you very much. I appreciate it, Mr. Chairman. Thank you 

for being here, Mr. Blankfein. 

Mr. BLANKFEIN. Thank you, Senator. 

Senator LEVIN. Thank you very much, Senator Tester. 

Let me just pick up where Senator Tester left off. These credit 

default swaps that you engaged in, these synthetics, in my judgment and I think most people’s judgment, do not serve a social purpose. Maybe you can try to find one there, but in most people’s 

minds, there is no social purpose. It is a bet not on whether or not 

your particular house will go up or down in value or that particular 

house will that you have an interest in. It is a bet on something 

that you have no interest in, where there is no collateral involved, 

there is no risk being taken by collateral, where people are betting 

whether or not some event will occur. And what happened here is 

that you won that bet. You won that bet with AIG. 

Mr. BLANKFEIN. I am sorry. We lost that. We lost money in that 

ACA deal. 

Senator LEVIN. No. I am not saying on the ACA deal. 

Mr. BLANKFEIN. I am sorry. 

Senator LEVIN. The only reason you lost money on the ACA deal 

was because you ended up with a piece of the long on that—— 

Mr. BLANKFEIN. Right. 

Senator LEVIN [continuing]. That you did not intend to have. We 

heard that earlier today. 

Mr. BLANKFEIN. Senator, I am afraid, with due respect, that 

misses the point. 

Senator LEVIN. No. You said that you lost money on the deal. 

Mr. BLANKFEIN. We did. 

Senator LEVIN. I understand what you are saying, but now listen 

to what I am saying. You intended to sell that piece of the long and 

couldn’t do it. 

Mr. BLANKFEIN. Right. Therefore—— 

Senator LEVIN. You had never intended—— 

Mr. BLANKFEIN [continuing]. We took the risk and we failed—— 

Senator LEVIN. You had never intended to invest in that deal. 

Mr. BLANKFEIN. We intend to sell everything we have as profit. 

The reason why it is risky—— 

Senator LEVIN. No. You don’t intend to sell your short positions 

all the time, do you? 

Mr. BLANKFEIN. Well—— 

Senator LEVIN. You intended to keep short positions in all kinds 

of transactions we went into today. You insisted on keeping short 

positions even when a client preferred that short position. We gave 

an example of that. You put your own interest ahead of your client 


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when the client wanted a short position in one of these deals. So 

you were doing that for your own proprietary interest in those 

other deals. You were keeping a short position. You wanted to go 

short. In this one, you didn’t want to go short. I understand that. 

But you were paid a whole bunch of money by the Federal Government. AIG owed you that money, did they not? 

Mr. BLANKFEIN. AIG—I am sorry, we are switching—— 

Senator LEVIN. Did AIG owe you some money, and the money 

which was paid to AIG through the TARP program then was filtered through to you? Is that true? 

Mr. BLANKFEIN. They—AIG had—yes. Yes. AIG owed us margin, 

most of which we had collected. 

Senator LEVIN. Right. But they owed you some money, and the 

TARP funds ended up paying their debt to you, did it not? 

Mr. BLANKFEIN. I don’t know if those were TARP funds. I am not 

sure. 

Senator LEVIN. You don’t know whether TARP funds that went 

to AIG then came through to you? 

Mr. BLANKFEIN. They were—again, I don’t know what pocket 

they came from. I know that government money went into AIG and 

that money flowed through. 

Senator LEVIN. And that money flowed through. How many billions of dollars flowed through, government money, to you through 

AIG? 

Mr. BLANKFEIN. Well, literally, the cash flow has been reported, 

and I think David Viniar went through this. It went to $12.9 billion 

flowed. They gave us stuff and we gave them back stuff. So, in 

other words, it wasn’t $12.9 billion—— 

Senator LEVIN. What was it that flowed to you net? Of those 

funds through AIG? 

Mr. BLANKFEIN. Net of what we gave them back? 

Senator LEVIN. Yes. 

Mr. BLANKFEIN. I would say the only thing that—— 

Senator LEVIN. Just give me a dollar figure, if you would. 

Mr. BLANKFEIN. The only thing that flowed through to us was an 

additional $2.5 billion worth of margin that they owed us against 

which we had an insurance contract in case they didn’t pay us. 

Senator LEVIN. I understand. But they owed you $2.5 billion. 

Mr. BLANKFEIN. They owed us $2.5 billion. 

Senator LEVIN. The government did not owe you $2.5 billion, did 

we? 

Mr. BLANKFEIN. No, the government did not. 

Senator LEVIN. But you ended up with $2.5 billion of taxpayers’ 

funds. 

Mr. BLANKFEIN. That we would have gotten from an insurance 

company had we not. 

Senator LEVIN. Yes, but you wouldn’t have gotten it from the taxpayers. 

Mr. BLANKFEIN. Well, we weren’t looking to get it from the taxpayers. 

Senator LEVIN. But you got it from the taxpayers. 

Mr. BLANKFEIN. In lieu of what would have come from the insurance—— 


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Senator LEVIN. From a private party. We didn’t owe you any 

money. 

Mr. BLANKFEIN. I didn’t—— 

Senator LEVIN. Two private parties owed you money, either AIG 

or that insurance company that you insured the AIG debt with. So 

why do you end up with $2.5 billion of taxpayers’ money in your 

pocket when we don’t owe you the money? AIG owes you the money 

or an insurance company owes you the money—— 

Mr. BLANKFEIN. But the U.S. Government decided not to allow 

AIG to default. And if they had defaulted, that is, if they had not 

paid us the money, they would have been in default and we would 

have gotten paid from an insurance company. 

Senator LEVIN. You would have gotten paid from somebody other 

than the taxpayer. 

Mr. BLANKFEIN. Correct. 

Senator LEVIN. So why do you end up with $2.5 billion of taxpayers’ money? 

Mr. BLANKFEIN. Because the government made a decision that 

the government didn’t want AIG to default. 

Senator LEVIN. And you could have gotten that money from a 

private insurance company. 

Mr. BLANKFEIN. Correct. 

Senator LEVIN. And so now you have got money of the taxpayers 

in your pocket—— 

Mr. BLANKFEIN. No, we got money from AIG. 

Senator LEVIN. That was taxpayers’ money, Mr. Blankfein. Yes? 

Mr. BLANKFEIN. AIG got money from the government—— 

Senator LEVIN. Taxpayers’ money. 

Mr. BLANKFEIN [continuing]. That paid it over to us—— 

Senator LEVIN. Right. That is what I am saying. 

Mr. BLANKFEIN [continuing]. So that we got that $2.5 billion in- stead of the $2.5 billion we would have gotten in insurance. 

Senator LEVIN. I know we are going around and around—— 

Mr. BLANKFEIN. We are. 

Senator LEVIN [continuing]. But the facts still are that you got $2.5 billion of taxpayers’ money on a private deal. Does that bother 

you? 

Mr. BLANKFEIN. It bothers me to the—— 

Senator LEVIN. So why didn’t you go after that other insurance 

company instead of taking taxpayers’ money? Why isn’t that unjust 

enrichment at the expense of the taxpayers? Why don’t you go after 

the insurance—— 

Mr. BLANKFEIN. Because it was insurance against the default of 

AIG. By the U.S. Government intervening, AIG didn’t default and 

therefore they didn’t owe us the insurance. So we were either going 

to get it from AIG, or upon their default from the insurance. 

Senator LEVIN. Right. 

Mr. BLANKFEIN. One way or the other, we would get the $2.5 billion. 

Senator LEVIN. Right. But you wouldn’t have gotten it from taxpayers’ money if you had gotten it from the private parties. 

Mr. BLANKFEIN. I would have much rather—— 

Senator LEVIN. Let me ask you, did you have any conversations 

with anybody at the Treasury Department about that? 


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Mr. BLANKFEIN. About—— 

Senator LEVIN. Whether or not AIG would get money and then 

pay it to you? 

Mr. BLANKFEIN. No. 

Senator LEVIN. You had no conversations with anybody at the 

Treasury Department or the Federal Government? 

Mr. BLANKFEIN. At the time of the announcement, I was asked 

by my regulator, maybe all of my regulators, are you OK, in other 

words, do you have exposure, and I said, no, we don’t. That was 

the—because we had this insurance contract. And by the way, $2.5 

billion wouldn’t have caused us that much—in other words, that is 

not necessarily an unmanageable number, but—— 

Senator LEVIN. If it is not unmanageable for you, it is kind of 

disgraceful from the taxpayers’ point of view that you end up with 

taxpayers’ money which we don’t owe you. We didn’t owe you that. 

Mr. BLANKFEIN. Only because AIG owed it and because the government did not want AIG to fail. AIG honored its obligations and 

paid us. Without that, we would have gotten our insurance on 

the—— 

Senator LEVIN. I know. I understand you would have gotten it 

from a private source, not from the taxpayers. 

Mr. BLANKFEIN. Correct. 

Senator LEVIN. You said that a number of times here. There was 

a statement of the Senators in the 1930s who were investigating 

the Great Depression. I don’t know if you heard this this morning 

or not. Did you hear my opening statement this morning by any 

chance? 

Mr. BLANKFEIN. Yes, I did. 

Senator LEVIN. And what they said is that investors must believe 

that their investment banker would not offer them bonds unless 

the banker believed them to be safe, and ended up saying, but 

while the banker may make mistakes, he must never make the 

mistake of offering investments to his clients which he does not believe in. 

Now, you turned that idea, which is a pretty fundamental idea, 

offering to clients investments that the banker does not believe in, 

you said you shouldn’t have to be sure that an investment is good 

for a client. I agree with that. But that is not the issue. You can’t 

guarantee an investment is going to be good for a client. The question is if you believe that it is a bad investment for that client because you are going short against that at the same time you are 

selling it, that is what these Senators back in the 1930s were saying was one of the causes of the Great Depression, that bankers 

were selling things, making money for themselves, by selling things 

that they didn’t believe in. 

And that is what happened here. You were selling things that 

you didn’t believe in. What was the sure test of that is that you 

were betting against them at the same time you were selling them. 

You were taking and intending to keep a short position, and that 

is a very different thing from what you said about 20 minutes ago, 

that is you should not have to make sure that an investment is 

good for the client. No one is saying that. Of course, you can’t make 

sure. But you can make sure that someone you sell an investment 


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1See Exhibit No. 163, which appears in the Appendix on page 1009. 

2See Exhibit No. 50, which appears in the Appendix on page 390. 

to knows that you believe it is a bad investment and that you, at 

the same time, are betting against that same investment. 

Now, I am going to leave it at that. You obviously don’t see that. 

It troubles me that you don’t see that. It troubles me that you don’t 

see that your client is yourself, that is what this has turned into 

too often, is that Goldman Sachs has turned itself into its own client and has taken advantage of a relationship by doing what you 

did in so many of these cases. 

And another thing you did, you took stuff from your own inventory in massive amounts which you didn’t believe in and sold it. 

That is OK, but you did more than that. You then bet against your 

own sale. That happened in at least two of these cases. That is 

what is so troubling to me. 

Now, there is another problem here which is the bigger issue, a 

broader issue, that you made a major decision to bet against the 

housing market. We can spend a lot more time on that if you want 

to. Let us put up a couple of charts here to just show you very 

quickly what I mean by that. Put up the chart about their long 

sales. Exhibit 163.1

Now, if you take a look at Exhibit 50 2—I will get to Exhibit 163 

in a minute. This is what you sent to the Securities and Exchange 

Commission on November 7, 2007. If you look at page 5, you will 

see here that you said your long cash subprime mortgage exposure 

consists of mortgage loans and mortgage-backed securities. And 

then you said, ‘‘As of August 31, 2007 and November 24, 2006 our 

investments in subprime mortgages totaled $462 million and $7.8 

billion, respectively, and our investments in subprime mortgagebacked.’’ 

Mr. BLANKFEIN. I am sorry. I am not following. 

Senator LEVIN. OK. Page 5, do you see that? Exhibit 50. 

Mr. BLANKFEIN. Give me one second to see what—— 

Senator LEVIN. Sure. 

Mr. BLANKFEIN. OK. I am just cautioning that I haven’t seen this 

paper before. 

Senator LEVIN. This table? 

Mr. BLANKFEIN. I am sorry. I am just cautioning that I have 

never seen this piece of paper, but—— 

Senator LEVIN. OK. Well, this is a letter that Goldman Sachs 

sent to the Securities and Exchange Commission on November 7. 

So here is what you folks said. You said what your investments 

were in November 2006 and what your investments—this is on the 

long side now—of August 2007. That is what happened to your investments. 

Take a look at this chart that we have got over here, and I will 

give you the number of it if you want to look at a smaller one, but 

that is what you did on the long side. That is what you were selling 

long, OK. 

Now, you also went short, big time. You don’t acknowledge it is 

big time. You said it was, what, a small net short. After deducting 

your long position, you said that your short position was what? You 

used the word ‘‘small,’’ I believe. 


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1See Exhibit No. 162, which appears in the Appendix on page 997. 

Mr. BLANKFEIN. I used the word ‘‘small’’ because the one immutable fact, and the way you really can tell—because some of—you 

can’t—— 

Senator LEVIN. OK. Use the word ‘‘small.’’ That is OK. Let us 

take a look—— 

Mr. BLANKFEIN. Yes. 

Senator LEVIN. Let us take a look at how small they were. Let 

us just take a look at how small your net shorts were. 

We put up another chart, which is based on your numbers, and 

I will give you the numbers in a minute. This chart shows how net 

short you were. That is total net short. That is taking everything 

into consideration. I am going to give you the numbers right now 

on that. Exhibit 162.1 Take a look at this chart. 

This chart, which is the same one as you see up there, was taken 

from information from your Mortgage Department’s top sheets, 

which were supplied by Goldman from February to December 2007, 

listing the department’s short positions, Goldman’s short positions, 

several times per month. 

Now, we gave you an example, if you will look at that, of those 

top sheets. 

Mr. BLANKFEIN. Where am I looking? I am sorry. 

Senator LEVIN. You are looking at Exhibit 162. Do you see that? 

Mr. BLANKFEIN. Not yet. I am doing the best I can. It is just that 

graph. 

Senator LEVIN. This is your short positions. Now, this is based 

on your top sheets, by the way. This is what you call small net 

shorts. Every single day, by the way, you are net short, so that is 

not something which was sporadic, until December when you 

cashed in your net shorts. But everyday until December 20, you 

had a net short, as high as $13 billion. And the back-up sheets you 

have seen there are attached to that exhibit. Is that what you 

would call a small net short, $13 billion? 

Mr. BLANKFEIN. No, I think—you can’t go by the gross amount 

because some of these positions don’t move. The way you can tell 

whether you are short and long, really, the best way is, look, if you 

were short early in the crisis—— 

Senator LEVIN. I am just asking you. You said these were small 

positions. 

Mr. BLANKFEIN. Senator, they are. 

Senator LEVIN. I didn’t use the word ‘‘small.’’ 

Mr. BLANKFEIN. Senator, I am doing the best I can, and I am trying to be responsive. 

Senator LEVIN. The answer is yes. If you think $12 billion is a 

small net short, the answer is, you think that is small. 

Mr. BLANKFEIN. This didn’t act like a $12 billion position. You 

can see our entire P&L from residential for the whole year 2007 

was under $500 million. There are—you can have gross headline 

numbers, but early in the crisis, if the better credit—if you are long 

the better credit, the slightly better credit, and short the slightly 

worse credit, the positions you are short could move more than the 

positions you are long, and those could reverse at different times. 


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1See Exhibit No. 55b, which appears in the Appendix on page 441. 

In these complicated portfolios, you can have gross numbers that 

were long or short, but the portfolio didn’t necessarily react that 

way. That is why successive people who have testified here, including our risk managers, said you really had to look at how they behaved. The best evidence of how they behaved is what was the 

P&L from it? When the market went down, did it make money or 

lose money, and it—— 

Senator LEVIN. Fine. Let us look at the P&L. 

Mr. BLANKFEIN. OK. 

[Pause.] 

Senator LEVIN. Are you familiar with Exhibit 55b? 1 We talked 

about this today. This is Mr. Swenson’s performance evaluation. 

‘‘Extraordinary profits’’ from the shorts at his desk, $3 billion as of 

September 2007. ‘‘Tremendous profits,’’ he said, ‘‘extraordinary 

profits.’’ 

Mr. BLANKFEIN. I am sorry. I see Tab 55, and then it goes to 56. 

Is there an a and b? 

Senator LEVIN. Exhibit 55 a, b, and c. First, there is a b. Do you 

see that? 

Mr. BLANKFEIN. I go from Exhibit 55 to 56. 

Senator LEVIN. It is inside Exhibit 55. 

Mr. BLANKFEIN. Is there a tab? 

Senator LEVIN. It is just inside Exhibit 55. 

Mr. BLANKFEIN. Reviewee’s feedback? 

Senator LEVIN. Yes. 

Mr. BLANKFEIN. OK, sorry. It was Exhibit 55. 

Senator LEVIN. Mr. Swenson talked about ‘‘extraordinary prof- its,’’ ‘‘tremendous profits,’’ ‘‘$3 billion.’’ 

Mr. BLANKFEIN. Where am I looking on Exhibit 55? 

[Pause.] 

Mr. BLANKFEIN. OK. I see it now, sir. What page number? 

Senator LEVIN. Page 2. Do you see that? 

Mr. BLANKFEIN. Yes. I am on page 2 now. 

Senator LEVIN. Do you see there where it says ‘‘tremendous profits’’ in the second paragraph? Is $3 billion a tremendous profit? 

Mr. BLANKFEIN. I see the contributions to the $3 billion of SBG 

trading profits? 

Senator LEVIN. Yes. Do you consider that a tremendous profit? 

Mr. BLANKFEIN. For that trading desk—— 

Senator LEVIN. Yes. 

Mr. BLANKFEIN [continuing]. It would have been, and I think the 

guy who is writing this is bragging about his local business. 

Senator LEVIN. Right. Local? That was a big part of your business that year, wasn’t it? 

Mr. BLANKFEIN. Well, it was adjacent to other businesses. I 

would never even see this. I would see the mortgage—— 

Senator LEVIN. That is why I am showing it to you right now. 

I am just asking you, do you think that is a big profit, $3 billion? 

Mr. BLANKFEIN. That is a big number, just like the loss in his 

adjacent business is a big loss. 

Senator LEVIN. That was the profit they made. 

Mr. BLANKFEIN. That was the revenue—— 


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1See Exhibit No. 18, which appears in the Appendix on page 271. 

2See Exhibit No. 154, which appears in the Appendix on page 966. 

3See Exhibit No. 46, which appears in the Appendix on page 361. 

Senator LEVIN. The profits they made that year on short sales. 

That is what we are talking about, taking short positions, they 

made huge profits. What you want to do is deduct the long positions, which you had in your inventory mainly, from that. That is 

not the question. Did you bet big time in 2007 against the housing 

mortgage business, and you did. You went big and short—— 

Mr. BLANKFEIN. No, we did not. 

Senator LEVIN. Well, let us take a look at what you told your 

Board. 

Mr. BLANKFEIN. Sure. 

Senator LEVIN. Go to Exhibit 18.1 This is from Sparks. This was 

just in the synthetics. 

Mr. BLANKFEIN. Is one local—— 

Senator LEVIN. I know. Everything is local. I am just telling you 

what happened in the shift. I will get to the major shift in a 

minute. That is what you told your Board, that there was a major 

shift, OK, but I will get to that in a minute. Let us talk about what 

made up that major shift. 

Mr. BLANKFEIN. OK. I am looking at—— 

Senator LEVIN. ‘‘In [this] synthetic space,’’ and that is what we 

have been talking about—do you see that at the bottom—— 

Mr. BLANKFEIN. Exhibit 18? 

Senator LEVIN [continuing]. On Exhibit 18? 

Mr. BLANKFEIN. In synthetic space, yes. 

Senator LEVIN. ‘‘The desk started the quarter with long, $6 bil- lion . . . and shifted the position to net short $10 billion . . . by 

reducing the longs . . . and increasing shorts.’’ That is what it 

says. Now, that was one piece of your operation. They shifted from 

long to short. 

Then you told the SEC on Form 8–K, which is Exhibit 154,2 and 

this is dated September 20—— 

Mr. BLANKFEIN. I am sorry. Where am I looking? 

Senator LEVIN. You are looking at Exhibit 154. 

Mr. BLANKFEIN. Yes, sir. 

Senator LEVIN. Have you got it? 

Mr. BLANKFEIN. Yes, I do. Thank you. 

Senator LEVIN. OK, page 3, second paragraph, second line. ‘‘Net 

revenues in mortgages were also significantly higher, despite continued deterioration in the market environment. Significant losses 

on non-prime loans and securities were more than offset by gains 

on short mortgage positions.’’ OK. So your significant losses on the 

non-prime loans and securities were more than offset by gains on 

the short mortgage positions. That was some of your net short positions. 

Now take a look at Exhibit 46,3 page 3, the bottom paragraph. 

‘‘It is important to note however that we are active traders of mortgage securities and loans and, as with any of the financial instruments we trade, at any point in time we may choose to take a directional view of the market’’—that is what you deny—‘‘and will express that view through the use of mortgage securities, loans, and 

derivatives. Therefore, although we did have long balance sheet exVerDate Nov 24 2008 10:59 Jan 06, 2011 Jkt 057322 PO 00000 Frm 00200 Fmt 6633 Sfmt 6633 P:\DOCS\57322.TXT SAFFAIRS PsN: PAT

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1See Exhibit No. 48, which appears in the Appendix on page 376. 

2See Exhibit No. 45, which appears in the Appendix on page 349. 

3See Exhibit No. 22, which appears in the Appendix on page 276. 

posure to sub-prime securities in the past three years, albeit small 

exposure, our net risk position was variously either long or short 

depending on our changing view of the market.’’ 

Mr. BLANKFEIN. Sure. 

Senator LEVIN. It is a view of the market—this is your own filing, by the way—changing view of the market. ‘‘For example, during most of 2007, we maintained a net short sub-prime position 

and therefore stood to benefit from declining prices in the mortgage 

market.’’ That is your filing. 

Now, take a look at Exhibit 48,1 a Tax Department Presentation, 

October 2007. Here, on page 2, right in the middle. ‘‘So what happened to us? A quick word on our own market and credit risk performance in this regard. In market risk - you saw in our 2nd and 

3rd qtr results that we made money despite our inherently long 

cash positions.’’ Inherently long. That is what was inherited—— 

Mr. BLANKFEIN. No, inherent, not inherited. 

Senator LEVIN. Both. Much of it was inherited, right? They were 

in your inventory, and some of it for a long time, but OK. You don’t 

know the breakdown of it. I am going to keep reading. ‘‘Because 

starting early in 2007, our mortgage trading desk started putting 

on big short positions.’’ OK. Those aren’t my words. Those are 

Goldman Sachs’ words. ‘‘Big short positions, mostly using the ABX, 

which is a family of indices designed to replicate cash bonds, and 

did so in enough quantity that we were net short and made money, 

substantial money in the third quarter as the subprime market 

weakened. This remains our position today.’’ 

That is your Tax Department’s presentation. You made ‘‘substantial money in the third quarter.’’ I am sorry, that was the Chief 

Risk Officer who said this in an internal presentation to Goldman’s 

Tax Department, to be perfectly accurate. 

Then you did that Form 8–K filing, which we have already read 

about, talking about you did very well that year. You did very well 

because you had a big short. 

And then Exhibit 45.2 That is the conference call that Goldman 

held for the third quarter of 2007. ‘‘Our risk bias from that market 

was to be short and that net short position was profitable.’’ No 

hedge there. Profitable because of our short position. 

Then there is that September conference call. Let me go on. 

Now, what had happened is that you had a meeting with your 

Board of Directors—I assume that you would have been there—in 

March 2007. That is Exhibit 22.3 You had made a decision. There 

were big problems, we have heard all day long, about the subprime 

sector, about mortgages, and that shows on page 8 of Exhibit 22, 

if we are together. The first quarter: ‘‘Long position grows with increased market activity.’’ This is back in 2006, first and second 

quarter of 2006. Do you see that arrow? Going back to 2006, you 

reported—— 

Mr. BLANKFEIN. What page? 

Senator LEVIN. Eight. Do you see that big arrow in the middle? 

Mr. BLANKFEIN. I do. 


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1See Exhibit No. 41, which appears in the Appendix on page 327. 

Senator LEVIN. OK. And then the first and second quarter of 

2006, your long position grows. And then as you go down 2006, 

third and fourth quarter, you start scaling back purchasing of 

riskier loans. You reduce your CDO activity. Residual assets— 

those are the ones in your inventory—marked down to reflect market deterioration—and look here—Goldman Sachs ‘‘reverses long 

market position through purchases of single-name CDS and reductions of ABX.’’ You are reversing your long market position. That 

is a direction for most people’s vocabulary. You don’t like to use the 

word ‘‘direction’’ in your public statements, but that is what happened. You told the Board that you reversed the long market position. 

And then when you had the next Board meeting in September, 

you told your Board, and this is Exhibit 41,1 page 4—have you got 

it? 

Mr. BLANKFEIN. I do. 

Senator LEVIN. OK. This is what you told your Board in September, you were going back, and on page 4, you will see the first 

quarter. What did you do in the first quarter? You ‘‘shut down all 

residential mortgage warehouses.’’ You ‘‘reduced [your] loan position.’’ You ‘‘increased protection’’—that means going short—‘‘on disaster scenarios.’’ In the second quarter, you ‘‘shut down all [your] 

CDO warehouses.’’ You ‘‘took significant mark to market losses.’’ 

You ‘‘reduced [your] loan purchases.’’ You ‘‘reduced counterparty 

exposure.’’ 

And then in quarter two and three, here is what you said. You 

‘‘positioned [the] business tactically.’’ And this, by the way, is under 

the heading, ‘‘The business has taken proactive steps to position 

the firm strategically in the ensuing mortgage credit and liquidity 

crisis.’’ 

Perfectly proper, what you did. That is not the issue. You ‘‘shorted synthetics.’’ You ‘‘shorted CDOs and RMBS.’’ You ‘‘reduced 

[your] long inventory.’’ You were short, short, short. You shorted 

like crazy. It is clear from all these documents. 

Mr. Blankfein, you can say publicly that there was no direction 

here, but your documents show otherwise. The words are used even 

to the Board that you ‘‘shifted’’—changed your position from long 

to short. You told the Board repeatedly what you were doing to 

focus on the short position. So there is clearly a directional change. 

It was so sharp, I think you may have been the only bank like 

yourself that made money when the housing bubble burst. 

You made—maybe you don’t think it is a lot of money, maybe it 

is not the amount of money you usually make in a month or a year, 

but according to your own records, it was a billion dollars net, after 

all of your long losses in that year. You say it is a half-a-billion. 

OK. Your records show it is a billion, but we won’t quibble over 

half-a-billion dollars. You came out ahead in 2007 in a market 

which crashed, and you did it because you went short, big time, big 

short, in your own words, Mr. Viniar’s words. You don’t want to acknowledge that, I know, but that is what your own documents 

show. 


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I am not sure, again, why it is that you are saying these things 

publicly, like there was no directional change and that you weren’t 

big net short in 2007 when you were. These are big net short positions. I know you are saying those are net short, and they are. If 

you just looked at the short side, they would be huge. But you don’t 

want to look at the short side, and that is okay. You want to look 

at the net short side. You were up to $13 billion net short and 

there wasn’t a day that year, until the end of December, when you 

actually had anything other than a net short position. 

So you want folks to trust you. You basically want folks to trust 

you, but here is the way I have seen it. We have been through this 

business of selling securities to people and in that same deal not 

telling them that you were betting against those securities. We 

have gone through that—— 

Mr. BLANKFEIN. Will you indulge me for one second? 

Senator LEVIN. Yes. Just wait until I am done, because I want 

to give you my view. 

You want to be trusted. I am glad you want to be trusted, but 

I think you can understand why there are a lot of folks who have 

some real doubts when, you don’t acknowledge the big short, you 

try to hedge that, tamp that down, and when you also over and 

over again in these documents, which we went through today in 

the first panel, you were selling securities to your clients at the 

same time you are betting against those same securities. 

Now, you can argue that people know that, and what I am saying 

to you is that people expect, as those 1930’s Senators said, that 

bankers would be selling things that they would expect or hope or 

believe will be OK, not that they are betting against. 

And so that is what we have shown as to the problems. You are 

in a fairly unique position, by the way, not just because of your big 

size but because of the big short. The big short puts your bank in 

a position where you were one of the rare banks that actually came 

out okay in 2007. The other ones who were on the wrong side, on 

the long side, who didn’t engage in the big short like you did, lost 

big time. Some of them went under. 

And so it is not the fact that you made a profit. It is not the fact 

even that you went short. You have a right to go short. It is the 

conflict. It is the conflict that is so troubling to me between going 

in that direction, clearly changing direction—nothing could be 

clearer from these documents. You told your Board you were 

changing direction. Your documents show changing direction. 

But then in that process, over and over again in securities that 

you were selling to customers, you bet against those securities simultaneously with the sale as part of the security distribution, and 

that is part that troubles me most, I think. There are a lot of 

things that trouble me here, including the language that—not just 

the language, the beliefs that your own sales people had that they 

were selling junk or crap. 

And when you say that nothing you heard today troubled you— 

that is what you answered one of my colleagues, that nothing you 

heard from that first panel troubled you, you thought it was all 

OK, one of my colleagues pressed you on that. I don’t know whether you heard—— 

Mr. BLANKFEIN. He asked me concerned, and I—— 


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Senator LEVIN. Concerned. 

Mr. BLANKFEIN. Yes. 

Senator LEVIN. That is OK. If that didn’t concern you, that the 

people who are selling securities under your name believe that they 

are selling crap or junk, and words even saltier than those, if that 

doesn’t concern you, that concerns me and, I think, would concern 

an awful lot of people in this country. You shouldn’t be selling 

junk. You shouldn’t be selling crap. You shouldn’t be betting 

against your own customer at the same time you are selling to 

them. 

And that all coming together is creating a necessity that we take 

some regulatory steps in the conflict of interest area. There is an 

amendment which will be offered, introduced to the Dodd bill 

which will strengthen the bill in that regard, in the conflict of interest area, because the conflict of interest not only exists there, it 

exists—and I think maybe you or another Goldman representative 

today acknowledged that—in the area of credit rating. There is the 

appearance of a conflict of interest, because you folks are paying 

the credit raters to rate securities that you are selling, and it is 

clearly in your interest that they be AAA. 

Do you remember during the deposition that you had with my 

staff, do you remember being asked the question—— 

Mr. BLANKFEIN. Senator, have we moved past the question 

you—— 

Senator LEVIN. Yes. Do you want to comment on what I just 

said? That is OK. You can comment on what I just said and then 

I will go back to the credit rating agencies. Go on. 

Mr. BLANKFEIN. I would say, Senator, people are using language, 

big change, what they think, whether an isolated individual is 

characterizing his P&L in isolation versus the other position adjacent to him. The one unmutable fact here that is in the past that 

is ascertainable, that is audited, is the net of all these positions in 

the market yielded less than $500 million worth of revenue in the 

residential space in 2007—— 

Senator LEVIN. In 2007—— 

Mr. BLANKFEIN [continuing]. And lost $1.7 billion in 2008. 

Senator LEVIN. We are not talking 2008. 

Mr. BLANKFEIN. In the context—— 

Senator LEVIN. The bubble burst in 2007. We are looking at the 

causes of that bubble bursting. 

Mr. BLANKFEIN. In the context of the chaos in the market, all the 

size positions, all the market making we were doing in that period 

of time, with all that was going on, getting within $500 million of 

flat during that year 2007, I think, reflects a desire and an accomplishment to get closer to home. We bought—OK, and I will just— 

so anyway, I just wanted to respond to you—— 

Senator LEVIN. You may not think a half-a-billion dollars is a lot, 

but the fact that you were able to get through 2007, when the bubble burst, was because you went with the big short. Those are your 

own—— 

Mr. BLANKFEIN. Less than 1 percent of our revenues that year. 

Senator LEVIN. I know, but 56 percent of your value at risk. 

Mr. BLANKFEIN. Because the market volatility—— 


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1 Exhibit No. 176, Deposition of Lloyd C. Blankfein, a Sealed Exhibit, is retained in the files 

of the Subcommittee. 

Senator LEVIN. I know the because, but you put a huge amount 

of value at risk to go short in that market. 

Mr. BLANKFEIN. The market forced the value at risk higher because of the volatility. 

Senator LEVIN. All right. Now let us talk about the credit rating 

agencies. We asked you this question during your deposition.1

These are your words, so you will probably remember them. We are 

going to get you a copy. 

Mr. BLANKFEIN. OK. Thank you. 

Senator LEVIN. Take a look at page 46, if you would. 

Mr. BLANKFEIN. Page 46. 

Senator LEVIN. Got it? Near the bottom. 

Mr. BLANKFEIN. Yes, sir. 

Senator LEVIN. Now, at the bottom, line 25, ‘‘Either based on 

your own knowledge and opinions or what your senior executives 

may have expressed to you, how critical did Goldman believe that 

the ratings given by the CRAs were to the—how critical were those 

ratings to the successful marketing and selling of RMBSs and 

CDOs?’’ Your answer, ‘‘I don’t know what the standards—I don’t 

know what drove the business. I don’t know what drove the business. I don’t know how important they were in the business to investors.’’ You don’t know how important they are. We do. 

OK, the next question. ‘‘But did you understand that at least 

there were certain classes of investors that could only invest in certain rated products?’’ Your answer, ‘‘I never thought of it.’’ It 

strains credulity that you never thought there are classes of investors that can only invest in AAA products. Is that something you 

really never thought about, never knew? 

Mr. BLANKFEIN. I never thought of it. 

Senator LEVIN. You never thought of the importance of AAA, 

that there are a whole bunch of institutions, universities, and a 

whole bunch of other folks that can only invest in AAA? You are 

not aware that your own firm argues for large AAA tranches? You 

are not aware that those BBBs that are turned into the AAAs 

through this process of CDO-ing them, that the reason for that is 

to have more AAA tranches and more AAA securities? 

Mr. BLANKFEIN. Senator—— 

Senator LEVIN. You are not aware of all of that? 

Mr. BLANKFEIN. Senator, I never marketed that. I don’t—I mean, 

if you asked me whether I would think that it would be more desirable to have a AAA than a AA, I would say, for sure. If you are 

asking me whether I knew that some category is absolutely barred 

from buying it unless it had a AAA, it is just not within my—it 

wasn’t within my scope to know that. 

Senator LEVIN. Well, then look at the top question here. When 

I said, ‘‘Either based on your own knowledge’’—that is the bottom 

of page 46—‘‘and the opinions of your senior executives that they 

may have expressed to you, how critical did Goldman believe that 

the ratings given by the CRAs were to the successful marketing 

and selling of RMBSs and CDOs?’’ Now we are talking the marketing and selling. How important is it? Your answer, ‘‘I don’t 


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know what the standards—I don’t know what drove the business. 

I don’t know what drove the business. I don’t know how important 

they were in the business to investors.’’ You are telling us that you 

don’t know that AAA ratings are important to investors? That is 

what you say in your deposition. 

Mr. BLANKFEIN. Senator, I am not saying—you are using different language—— 

Senator LEVIN. I am reading it exactly. Based on what you know 

or the opinions—— 

Mr. BLANKFEIN. I said I don’t know the standards. I don’t know 

what drove the business. I don’t know what drove the business. I 

don’t know—— 

Senator LEVIN. ‘‘I don’t know how important they were in the 

business to investors.’’ 

Mr. BLANKFEIN. That is—— 

Senator LEVIN. You don’t know how important AAA—— 

Mr. BLANKFEIN. I can’t say the extent to it. Senator, I am being 

asked a question in a deposition about a line of business that I 

never personally was in in my—I never did this in my life in the 

firm and I am being asked. There are so many people at Goldman 

Sachs who can answer this question with precision. I wasn’t one of 

them. 

Senator LEVIN. That wasn’t precision. That is the question. You 

don’t know that those ratings are important to sales? 

Mr. BLANKFEIN. I said I don’t know how important they were in 

the business to investors. 

Senator LEVIN. Oh. 

Mr. BLANKFEIN. And that is—I don’t know—— 

Senator LEVIN. Do you know that they are important? 

Mr. BLANKFEIN. Yes, I know that they are important, and I know 

that they be preferred—at the same price, by the way. But I don’t 

know the extent to which those investors for a lower rating but a 

higher yield are capable of buying it. I just don’t know. 

Senator LEVIN. The deposition was taken by staff, not by me, so 

when I said, I asked you something, it was the—— 

Mr. BLANKFEIN. I am sorry. 

Senator LEVIN. No, that was my statement. When I said, I asked 

you something, it wasn’t me. It was the staff that asked you the 

question. 

Mr. BLANKFEIN. I was taking it at the royal ‘‘we.’’ 

Senator LEVIN. I didn’t say ‘‘we.’’ 

Mr. BLANKFEIN. I am sorry. 

Senator LEVIN. I said ‘‘I.’’ 

Let me just close with a very brief statement. We have a debate 

going on here at this moment on how Congress should respond to 

the abuses that we have looked at in four hearings now. Those 

abuses include the conveyor belt of toxic mortgages that got into 

the financial system, huge demand for them that came from a 

whole lot of places. We focused on WaMu. We always focus on a 

case history and they were a very logical case history. So WaMu 

dumps, and others like them, dump billions of dollars of toxic mortgages into the system. 

Goldman and other banks like them provided these lenders with 

more money to issue bad loans. There is evidence, by the way, from 


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the documents we came in with today that Goldman was very 

much aware that they were buying loans from companies that were 

selling bad loans, including New Century. 

Then the financial engineering comes along to turn those highrisk mortgages into allegedly safe investments, taking BBBs and 

other things that are not good, solid B’s, turning them into ‘‘safe 

investments’’ through the magic of CDOs. Selling them then to pension funds, universities, municipalities, insurance companies, and 

banks. So now the poison spreads further. 

Then we have these synthetic securities, which magnifies all of 

that. The mortgage system begins to buckle under the weight of 

these loans and the synthetic stuff that floods the system. And 

then we have this situation where Goldman bets against the mortgage market as a whole, profits from its collapse. I know it was 

only a half-a-billion dollars in 2007, but amazingly enough there 

was a profit at all. The rare instance where despite all the losses 

that you took in your inventory and on the longs, you nonetheless 

were able to make a profit because of your huge investment on the 

short side. 

I happen to be one that believes in a free market. But if it is 

going to be truly free, it cannot be designed for just a few people 

to reap enormous benefits while passing the risks on to the rest of 

us. It must be free of deception. It has got to be free of conflicts 

of interest. It needs a cop on the beat and it has got to get back 

on Wall Street. 

Senator Dodd’s bill is an important beginning, and we hope to 

strengthen it with provisions that address conflicts of interest, that 

address proprietary trading that puts a firm’s self-interest ahead of 

its clients’ interests. That is what we saw evidence of today. That 

addresses these synthetic instruments that magnify risk while 

gambling on the demise of companies instead of on their successes; 

that ends these reckless lending practices, such as stated income, 

which means liar loans, and negatively amortizing loans; that gives 

stronger enforcement tools for regulators to protect consumers. 

That is what we have got to do to rebuild the defenses to protect 

Main Street from the excesses of Wall Street and those other excesses that we have studied during these four hearings. I hope 

these hearings provide added strength to the reform effort. A lot 

of us will be working on legislation to stop the abuses that were 

exposed in these four hearings. 

We thank our staffs. They have worked extremely hard and extremely long hours. Elise Bean and our staff, and I know that this 

is true also of Senator Coburn’s staff, have spent untold hours 

digging through these documents. 

I love the way some of your folks tell the press that the documents were cherry-picked. That book in front of you is a whole 

bowl of cherries. These are not cherry-picked. Those documents reflect the history of what happened here. From millions of documents, you obviously have to select some that you think represent 

a reality, and we did that. It is a reality which has some unseemly 

aspects to it, particularly in terms of conflicts. But we are just hoping that whether or not we can get the support of Wall Street 

firms, and you indicated some willingness to support reforms here 


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today, but whether we get that support for a strong reform bill, we 

have to have the willpower and the backbone to do just that. 

We thank our witnesses. Mr. Blankfein, we thank you. It has 

been a long day. We thank all of the witnesses. And again, particularly, we thank our staffs. 

We stand adjourned. 

[Whereupon, at 8:42 p.m., the Subcommittee was adjourned.] 


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ph44585 on D330-44585-7600 with DISTILLER57322.058
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ph44585 on D330-44585-7600 with DISTILLER57322.059
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ph44585 on D330-44585-7600 with DISTILLER57322.069
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ph44585 on D330-44585-7600 with DISTILLER57322.093
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ph44585 on D330-44585-7600 with DISTILLER57322.094
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ph44585 on D330-44585-7600 with DISTILLER57322.095
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ph44585 on D330-44585-7600 with DISTILLER57322.096
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ph44585 on D330-44585-7600 with DISTILLER57322.097
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ph44585 on D330-44585-7600 with DISTILLER57322.103
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ph44585 on D330-44585-7600 with DISTILLER57322.105
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ph44585 on D330-44585-7600 with DISTILLER57322.107
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ph44585 on D330-44585-7600 with DISTILLER57322.108
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ph44585 on D330-44585-7600 with DISTILLER57322.109
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ph44585 on D330-44585-7600 with DISTILLER57322.110
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ph44585 on D330-44585-7600 with DISTILLER57322.111
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ph44585 on D330-44585-7600 with DISTILLER57322.112
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ph44585 on D330-44585-7600 with DISTILLER57322.113
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ph44585 on D330-44585-7600 with DISTILLER57322.114
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ph44585 on D330-44585-7600 with DISTILLER57322.115
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ph44585 on D330-44585-7600 with DISTILLER57322.116
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ph44585 on D330-44585-7600 with DISTILLER57322.117
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ph44585 on D330-44585-7600 with DISTILLER57322.118
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ph44585 on D330-44585-7600 with DISTILLER57322.120
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ph44585 on D330-44585-7600 with DISTILLER57322.122
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ph44585 on D330-44585-7600 with DISTILLER57322.123
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ph44585 on D330-44585-7600 with DISTILLER57322.126
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ph44585 on D330-44585-7600 with DISTILLER57322.127
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ph44585 on D330-44585-7600 with DISTILLER57322.128
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ph44585 on D330-44585-7600 with DISTILLER57322.131
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ph44585 on D330-44585-7600 with DISTILLER57322.132
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ph44585 on D330-44585-7600 with DISTILLER57322.133
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ph44585 on D330-44585-7600 with DISTILLER57322.134
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ph44585 on D330-44585-7600 with DISTILLER57322.135
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ph44585 on D330-44585-7600 with DISTILLER57322.136
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ph44585 on D330-44585-7600 with DISTILLER57322.137
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ph44585 on D330-44585-7600 with DISTILLER57322.138
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ph44585 on D330-44585-7600 with DISTILLER57322.139
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ph44585 on D330-44585-7600 with DISTILLER57322.140
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ph44585 on D330-44585-7600 with DISTILLER57322.141
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ph44585 on D330-44585-7600 with DISTILLER57322.142
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ph44585 on D330-44585-7600 with DISTILLER57322.143
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ph44585 on D330-44585-7600 with DISTILLER57322.144
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ph44585 on D330-44585-7600 with DISTILLER57322.145
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ph44585 on D330-44585-7600 with DISTILLER57322.146
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ph44585 on D330-44585-7600 with DISTILLER57322.147
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ph44585 on D330-44585-7600 with DISTILLER57322.148
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ph44585 on D330-44585-7600 with DISTILLER57322.149
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ph44585 on D330-44585-7600 with DISTILLER57322.150
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ph44585 on D330-44585-7600 with DISTILLER57322.151
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ph44585 on D330-44585-7600 with DISTILLER57322.152
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ph44585 on D330-44585-7600 with DISTILLER57322.153
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ph44585 on D330-44585-7600 with DISTILLER57322.154
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ph44585 on D330-44585-7600 with DISTILLER57322.155
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ph44585 on D330-44585-7600 with DISTILLER57322.156
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ph44585 on D330-44585-7600 with DISTILLER57322.157
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ph44585 on D330-44585-7600 with DISTILLER57322.158
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ph44585 on D330-44585-7600 with DISTILLER57322.159
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ph44585 on D330-44585-7600 with DISTILLER57322.160
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ph44585 on D330-44585-7600 with DISTILLER57322.161
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ph44585 on D330-44585-7600 with DISTILLER57322.162
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ph44585 on D330-44585-7600 with DISTILLER57322.163
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ph44585 on D330-44585-7600 with DISTILLER57322.164
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ph44585 on D330-44585-7600 with DISTILLER57322.165
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ph44585 on D330-44585-7600 with DISTILLER57322.166
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ph44585 on D330-44585-7600 with DISTILLER57322.167
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ph44585 on D330-44585-7600 with DISTILLER57322.168
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ph44585 on D330-44585-7600 with DISTILLER57322.169
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ph44585 on D330-44585-7600 with DISTILLER57322.170
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ph44585 on D330-44585-7600 with DISTILLER57322.171
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ph44585 on D330-44585-7600 with DISTILLER57322.172
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ph44585 on D330-44585-7600 with DISTILLER57322.173
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ph44585 on D330-44585-7600 with DISTILLER57322.174
367 


ph44585 on D330-44585-7600 with DISTILLER57322.175
368 


ph44585 on D330-44585-7600 with DISTILLER57322.176
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ph44585 on D330-44585-7600 with DISTILLER57322.177
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ph44585 on D330-44585-7600 with DISTILLER57322.178
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ph44585 on D330-44585-7600 with DISTILLER57322.179
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ph44585 on D330-44585-7600 with DISTILLER57322.180
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ph44585 on D330-44585-7600 with DISTILLER57322.181
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ph44585 on D330-44585-7600 with DISTILLER57322.182
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ph44585 on D330-44585-7600 with DISTILLER57322.183
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ph44585 on D330-44585-7600 with DISTILLER57322.184
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ph44585 on D330-44585-7600 with DISTILLER57322.185
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ph44585 on D330-44585-7600 with DISTILLER57322.186
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ph44585 on D330-44585-7600 with DISTILLER57322.187
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ph44585 on D330-44585-7600 with DISTILLER57322.188
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ph44585 on D330-44585-7600 with DISTILLER57322.189
382 


ph44585 on D330-44585-7600 with DISTILLER57322.190
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ph44585 on D330-44585-7600 with DISTILLER57322.191
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ph44585 on D330-44585-7600 with DISTILLER57322.192
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ph44585 on D330-44585-7600 with DISTILLER57322.193
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ph44585 on D330-44585-7600 with DISTILLER57322.194
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ph44585 on D330-44585-7600 with DISTILLER57322.195
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ph44585 on D330-44585-7600 with DISTILLER57322.196
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ph44585 on D330-44585-7600 with DISTILLER57322.197
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ph44585 on D330-44585-7600 with DISTILLER57322.198
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ph44585 on D330-44585-7600 with DISTILLER57322.199
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ph44585 on D330-44585-7600 with DISTILLER57322.200
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ph44585 on D330-44585-7600 with DISTILLER57322.201
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ph44585 on D330-44585-7600 with DISTILLER57322.202
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ph44585 on D330-44585-7600 with DISTILLER57322.203
396 


ph44585 on D330-44585-7600 with DISTILLER57322.204
397 


ph44585 on D330-44585-7600 with DISTILLER57322.205
398 


ph44585 on D330-44585-7600 with DISTILLER57322.206
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ph44585 on D330-44585-7600 with DISTILLER57322.207
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ph44585 on D330-44585-7600 with DISTILLER57322.208
401 


ph44585 on D330-44585-7600 with DISTILLER57322.209
402 


ph44585 on D330-44585-7600 with DISTILLER57322.210
403 


ph44585 on D330-44585-7600 with DISTILLER57322.211
404 


ph44585 on D330-44585-7600 with DISTILLER57322.212
405 


ph44585 on D330-44585-7600 with DISTILLER57322.213
406 


ph44585 on D330-44585-7600 with DISTILLER57322.214
407 


ph44585 on D330-44585-7600 with DISTILLER57322.215
408 


ph44585 on D330-44585-7600 with DISTILLER57322.216
409 


ph44585 on D330-44585-7600 with DISTILLER57322.217
410 


ph44585 on D330-44585-7600 with DISTILLER57322.218
411 


ph44585 on D330-44585-7600 with DISTILLER57322.219
412 


ph44585 on D330-44585-7600 with DISTILLER57322.220
413 


ph44585 on D330-44585-7600 with DISTILLER57322.221
414 


ph44585 on D330-44585-7600 with DISTILLER57322.222
415 


ph44585 on D330-44585-7600 with DISTILLER57322.223
416 


ph44585 on D330-44585-7600 with DISTILLER57322.224
417 


ph44585 on D330-44585-7600 with DISTILLER57322.225
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ph44585 on D330-44585-7600 with DISTILLER57322.226
419 


ph44585 on D330-44585-7600 with DISTILLER57322.227
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ph44585 on D330-44585-7600 with DISTILLER57322.228
421 


ph44585 on D330-44585-7600 with DISTILLER57322.229
422 


ph44585 on D330-44585-7600 with DISTILLER57322.230
423 


ph44585 on D330-44585-7600 with DISTILLER57322.231
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ph44585 on D330-44585-7600 with DISTILLER57322.232
425 


ph44585 on D330-44585-7600 with DISTILLER57322.233
426 


ph44585 on D330-44585-7600 with DISTILLER57322.234
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ph44585 on D330-44585-7600 with DISTILLER57322.235
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ph44585 on D330-44585-7600 with DISTILLER57322.236
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ph44585 on D330-44585-7600 with DISTILLER57322.237
430 


ph44585 on D330-44585-7600 with DISTILLER57322.238
431 


ph44585 on D330-44585-7600 with DISTILLER57322.239
432 


ph44585 on D330-44585-7600 with DISTILLER57322.240
433 


ph44585 on D330-44585-7600 with DISTILLER57322.241
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ph44585 on D330-44585-7600 with DISTILLER57322.242
435 


ph44585 on D330-44585-7600 with DISTILLER57322.243
436 


ph44585 on D330-44585-7600 with DISTILLER57322.244
437 


ph44585 on D330-44585-7600 with DISTILLER57322.245
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ph44585 on D330-44585-7600 with DISTILLER57322.246
439 


ph44585 on D330-44585-7600 with DISTILLER57322.247
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ph44585 on D330-44585-7600 with DISTILLER57322.248
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ph44585 on D330-44585-7600 with DISTILLER57322.249
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ph44585 on D330-44585-7600 with DISTILLER57322.250
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ph44585 on D330-44585-7600 with DISTILLER57322.251
444 


ph44585 on D330-44585-7600 with DISTILLER57322.252
445 


ph44585 on D330-44585-7600 with DISTILLER57322.253
446 


ph44585 on D330-44585-7600 with DISTILLER57322.254
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ph44585 on D330-44585-7600 with DISTILLER57322.255
448 


ph44585 on D330-44585-7600 with DISTILLER57322.256
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ph44585 on D330-44585-7600 with DISTILLER57322.257
450 


ph44585 on D330-44585-7600 with DISTILLER57322.258
451 


ph44585 on D330-44585-7600 with DISTILLER57322.259
452 


ph44585 on D330-44585-7600 with DISTILLER57322.260
453 


ph44585 on D330-44585-7600 with DISTILLER57322.261
454 


ph44585 on D330-44585-7600 with DISTILLER57322.262
455 


ph44585 on D330-44585-7600 with DISTILLER57322.263
456 


ph44585 on D330-44585-7600 with DISTILLER57322.264
457 


ph44585 on D330-44585-7600 with DISTILLER57322.265
458 


ph44585 on D330-44585-7600 with DISTILLER57322.266
459 


ph44585 on D330-44585-7600 with DISTILLER57322.267
460 


ph44585 on D330-44585-7600 with DISTILLER57322.268
461 


ph44585 on D330-44585-7600 with DISTILLER57322.269
462 


ph44585 on D330-44585-7600 with DISTILLER57322.270
463 


ph44585 on D330-44585-7600 with DISTILLER57322.271
464 


ph44585 on D330-44585-7600 with DISTILLER57322.272
465 


ph44585 on D330-44585-7600 with DISTILLER57322.273
466 


ph44585 on D330-44585-7600 with DISTILLER57322.274
467 


ph44585 on D330-44585-7600 with DISTILLER57322.275
468 


ph44585 on D330-44585-7600 with DISTILLER57322.276
469 


ph44585 on D330-44585-7600 with DISTILLER57322.277
470 


ph44585 on D330-44585-7600 with DISTILLER57322.278
471 


ph44585 on D330-44585-7600 with DISTILLER57322.279
472 


ph44585 on D330-44585-7600 with DISTILLER57322.280
473 


ph44585 on D330-44585-7600 with DISTILLER57322.281
474 


ph44585 on D330-44585-7600 with DISTILLER57322.282
475 


ph44585 on D330-44585-7600 with DISTILLER57322.283
476 


ph44585 on D330-44585-7600 with DISTILLER57322.284
477 


ph44585 on D330-44585-7600 with DISTILLER57322.285
478 


ph44585 on D330-44585-7600 with DISTILLER57322.286
479 


ph44585 on D330-44585-7600 with DISTILLER57322.287
480 


ph44585 on D330-44585-7600 with DISTILLER57322.288
481 


ph44585 on D330-44585-7600 with DISTILLER57322.289
482 


ph44585 on D330-44585-7600 with DISTILLER57322.290
483 


ph44585 on D330-44585-7600 with DISTILLER57322.291
484 


ph44585 on D330-44585-7600 with DISTILLER57322.292
485 


ph44585 on D330-44585-7600 with DISTILLER57322.293
486 


ph44585 on D330-44585-7600 with DISTILLER57322.294
487 


ph44585 on D330-44585-7600 with DISTILLER57322.295
488 


ph44585 on D330-44585-7600 with DISTILLER57322.296
489 


ph44585 on D330-44585-7600 with DISTILLER57322.297
490 


ph44585 on D330-44585-7600 with DISTILLER57322.298
491 


ph44585 on D330-44585-7600 with DISTILLER57322.299
492 


ph44585 on D330-44585-7600 with DISTILLER57322.300
493 


ph44585 on D330-44585-7600 with DISTILLER57322.301
494 


ph44585 on D330-44585-7600 with DISTILLER57322.302
495 


ph44585 on D330-44585-7600 with DISTILLER57322.303
496 


ph44585 on D330-44585-7600 with DISTILLER57322.304
497 


ph44585 on D330-44585-7600 with DISTILLER57322.305
498 


ph44585 on D330-44585-7600 with DISTILLER57322.306
499 


ph44585 on D330-44585-7600 with DISTILLER57322.307
500 


ph44585 on D330-44585-7600 with DISTILLER57322.308
501 


ph44585 on D330-44585-7600 with DISTILLER57322.309
502 


ph44585 on D330-44585-7600 with DISTILLER57322.310
503 


ph44585 on D330-44585-7600 with DISTILLER57322.311
504 


ph44585 on D330-44585-7600 with DISTILLER57322.312
505 


ph44585 on D330-44585-7600 with DISTILLER57322.313
506 


ph44585 on D330-44585-7600 with DISTILLER57322.314
507 


ph44585 on D330-44585-7600 with DISTILLER57322.315
508 


ph44585 on D330-44585-7600 with DISTILLER57322.316
509 


ph44585 on D330-44585-7600 with DISTILLER57322.317
510 


ph44585 on D330-44585-7600 with DISTILLER57322.318
511 


ph44585 on D330-44585-7600 with DISTILLER57322.319
512 


ph44585 on D330-44585-7600 with DISTILLER57322.320
513 


ph44585 on D330-44585-7600 with DISTILLER57322.321
514 


ph44585 on D330-44585-7600 with DISTILLER57322.322
515 


ph44585 on D330-44585-7600 with DISTILLER57322.323
516 


ph44585 on D330-44585-7600 with DISTILLER57322.324
517 


ph44585 on D330-44585-7600 with DISTILLER57322.325
518 


ph44585 on D330-44585-7600 with DISTILLER57322.326
519 


ph44585 on D330-44585-7600 with DISTILLER57322.327
520 


ph44585 on D330-44585-7600 with DISTILLER57322.328
521 


ph44585 on D330-44585-7600 with DISTILLER57322.329
522 


ph44585 on D330-44585-7600 with DISTILLER57322.330
523 


ph44585 on D330-44585-7600 with DISTILLER57322.331
524 


ph44585 on D330-44585-7600 with DISTILLER57322.332
525 


ph44585 on D330-44585-7600 with DISTILLER57322.333
526 


ph44585 on D330-44585-7600 with DISTILLER57322.334
527 


ph44585 on D330-44585-7600 with DISTILLER57322.335
528 


ph44585 on D330-44585-7600 with DISTILLER57322.336
529 


ph44585 on D330-44585-7600 with DISTILLER57322.337
530 


ph44585 on D330-44585-7600 with DISTILLER57322.338
531 


ph44585 on D330-44585-7600 with DISTILLER57322.339
532 


ph44585 on D330-44585-7600 with DISTILLER57322.340
533 


ph44585 on D330-44585-7600 with DISTILLER57322.341
534 


ph44585 on D330-44585-7600 with DISTILLER57322.342
535 


ph44585 on D330-44585-7600 with DISTILLER57322.343
536 


ph44585 on D330-44585-7600 with DISTILLER57322.344
537 


ph44585 on D330-44585-7600 with DISTILLER57322.345
538 


ph44585 on D330-44585-7600 with DISTILLER57322.346
539 


ph44585 on D330-44585-7600 with DISTILLER57322.347
540 


ph44585 on D330-44585-7600 with DISTILLER57322.348
541 


ph44585 on D330-44585-7600 with DISTILLER57322.349
542 


ph44585 on D330-44585-7600 with DISTILLER57322.350
543 


ph44585 on D330-44585-7600 with DISTILLER57322.351
544 


ph44585 on D330-44585-7600 with DISTILLER57322.352
545 


ph44585 on D330-44585-7600 with DISTILLER57322.353
546 


ph44585 on D330-44585-7600 with DISTILLER57322.354
547 


ph44585 on D330-44585-7600 with DISTILLER57322.355
548 


ph44585 on D330-44585-7600 with DISTILLER57322.356
549 


ph44585 on D330-44585-7600 with DISTILLER57322.357
550 


ph44585 on D330-44585-7600 with DISTILLER57322.358
551 


ph44585 on D330-44585-7600 with DISTILLER57322.359
552 


ph44585 on D330-44585-7600 with DISTILLER57322.360
553 


ph44585 on D330-44585-7600 with DISTILLER57322.361
554 


ph44585 on D330-44585-7600 with DISTILLER57322.362
555 


ph44585 on D330-44585-7600 with DISTILLER57322.363
556 


ph44585 on D330-44585-7600 with DISTILLER57322.364
557 


ph44585 on D330-44585-7600 with DISTILLER57322.365
558 


ph44585 on D330-44585-7600 with DISTILLER57322.366
559 


ph44585 on D330-44585-7600 with DISTILLER57322.367
560 


ph44585 on D330-44585-7600 with DISTILLER57322.368
561 


ph44585 on D330-44585-7600 with DISTILLER57322.369
562 


ph44585 on D330-44585-7600 with DISTILLER57322.370
563 


ph44585 on D330-44585-7600 with DISTILLER57322.371
564 


ph44585 on D330-44585-7600 with DISTILLER57322.372
565 


ph44585 on D330-44585-7600 with DISTILLER57322.373
566 


ph44585 on D330-44585-7600 with DISTILLER57322.374
567 


ph44585 on D330-44585-7600 with DISTILLER57322.375
568 


ph44585 on D330-44585-7600 with DISTILLER57322.376
569 


ph44585 on D330-44585-7600 with DISTILLER57322.377
570 


ph44585 on D330-44585-7600 with DISTILLER57322.378
571 


ph44585 on D330-44585-7600 with DISTILLER57322.379
572 


ph44585 on D330-44585-7600 with DISTILLER57322.380
573 


ph44585 on D330-44585-7600 with DISTILLER57322.381
574 


ph44585 on D330-44585-7600 with DISTILLER57322.382
575 


ph44585 on D330-44585-7600 with DISTILLER57322.383
576 


ph44585 on D330-44585-7600 with DISTILLER57322.384
577 


ph44585 on D330-44585-7600 with DISTILLER57322.385
578 


ph44585 on D330-44585-7600 with DISTILLER57322.386
579 


ph44585 on D330-44585-7600 with DISTILLER57322.387
580 


ph44585 on D330-44585-7600 with DISTILLER57322.388
581 


ph44585 on D330-44585-7600 with DISTILLER57322.389
582 


ph44585 on D330-44585-7600 with DISTILLER57322.390
583 


ph44585 on D330-44585-7600 with DISTILLER57322.391
584 


ph44585 on D330-44585-7600 with DISTILLER57322.392
585 


ph44585 on D330-44585-7600 with DISTILLER57322.393
586 


ph44585 on D330-44585-7600 with DISTILLER57322.394
587 


ph44585 on D330-44585-7600 with DISTILLER57322.395
588 


ph44585 on D330-44585-7600 with DISTILLER57322.396
589 


ph44585 on D330-44585-7600 with DISTILLER57322.397
590 


ph44585 on D330-44585-7600 with DISTILLER57322.398
591 


ph44585 on D330-44585-7600 with DISTILLER57322.399
592 


ph44585 on D330-44585-7600 with DISTILLER57322.400
593 


ph44585 on D330-44585-7600 with DISTILLER57322.401
594 


ph44585 on D330-44585-7600 with DISTILLER57322.402
595 


ph44585 on D330-44585-7600 with DISTILLER57322.403
596 


ph44585 on D330-44585-7600 with DISTILLER57322.404
597 


ph44585 on D330-44585-7600 with DISTILLER57322.405
598 


ph44585 on D330-44585-7600 with DISTILLER57322.406
599 


ph44585 on D330-44585-7600 with DISTILLER57322.407
600 


ph44585 on D330-44585-7600 with DISTILLER57322.408
601 


ph44585 on D330-44585-7600 with DISTILLER57322.409
602 


ph44585 on D330-44585-7600 with DISTILLER57322.410
603 


ph44585 on D330-44585-7600 with DISTILLER57322.411
604 


ph44585 on D330-44585-7600 with DISTILLER57322.412
605 


ph44585 on D330-44585-7600 with DISTILLER57322.413
606 


ph44585 on D330-44585-7600 with DISTILLER57322.414
607 


ph44585 on D330-44585-7600 with DISTILLER57322.415
608 


ph44585 on D330-44585-7600 with DISTILLER57322.416
609 


ph44585 on D330-44585-7600 with DISTILLER57322.417
610 


ph44585 on D330-44585-7600 with DISTILLER57322.418
611 


ph44585 on D330-44585-7600 with DISTILLER57322.419
612 


ph44585 on D330-44585-7600 with DISTILLER57322.420
613 


ph44585 on D330-44585-7600 with DISTILLER57322.421
614 


ph44585 on D330-44585-7600 with DISTILLER57322.422
615 


ph44585 on D330-44585-7600 with DISTILLER57322.423
616 


ph44585 on D330-44585-7600 with DISTILLER57322.424
617 


ph44585 on D330-44585-7600 with DISTILLER57322.425
618 


ph44585 on D330-44585-7600 with DISTILLER57322.426
619 


ph44585 on D330-44585-7600 with DISTILLER57322.427
620 


ph44585 on D330-44585-7600 with DISTILLER57322.428
621 


ph44585 on D330-44585-7600 with DISTILLER57322.429
622 


ph44585 on D330-44585-7600 with DISTILLER57322.430
623 


ph44585 on D330-44585-7600 with DISTILLER57322.431
624 


ph44585 on D330-44585-7600 with DISTILLER57322.432
625 


ph44585 on D330-44585-7600 with DISTILLER57322.433
626 


ph44585 on D330-44585-7600 with DISTILLER57322.434
627 


ph44585 on D330-44585-7600 with DISTILLER57322.435
628 


ph44585 on D330-44585-7600 with DISTILLER57322.436
629 


ph44585 on D330-44585-7600 with DISTILLER57322.437
630 


ph44585 on D330-44585-7600 with DISTILLER57322.438
631 


ph44585 on D330-44585-7600 with DISTILLER57322.439
632 


ph44585 on D330-44585-7600 with DISTILLER57322.440
633 


ph44585 on D330-44585-7600 with DISTILLER57322.441
634 


ph44585 on D330-44585-7600 with DISTILLER57322.442
635 


ph44585 on D330-44585-7600 with DISTILLER57322.443
636 


ph44585 on D330-44585-7600 with DISTILLER57322.444
637 


ph44585 on D330-44585-7600 with DISTILLER57322.445
638 


ph44585 on D330-44585-7600 with DISTILLER57322.446
639 


ph44585 on D330-44585-7600 with DISTILLER57322.447
640 


ph44585 on D330-44585-7600 with DISTILLER57322.448
641 


ph44585 on D330-44585-7600 with DISTILLER57322.449
642 


ph44585 on D330-44585-7600 with DISTILLER57322.450
643 


ph44585 on D330-44585-7600 with DISTILLER57322.451
644 


ph44585 on D330-44585-7600 with DISTILLER57322.452
645 


ph44585 on D330-44585-7600 with DISTILLER57322.453
646 


ph44585 on D330-44585-7600 with DISTILLER57322.454
647 


ph44585 on D330-44585-7600 with DISTILLER57322.455
648 


ph44585 on D330-44585-7600 with DISTILLER57322.456
649 


ph44585 on D330-44585-7600 with DISTILLER57322.457
650 


ph44585 on D330-44585-7600 with DISTILLER57322.458
651 


ph44585 on D330-44585-7600 with DISTILLER57322.459
652 


ph44585 on D330-44585-7600 with DISTILLER57322.460
653 


ph44585 on D330-44585-7600 with DISTILLER57322.461
654 


ph44585 on D330-44585-7600 with DISTILLER57322.462
655 


ph44585 on D330-44585-7600 with DISTILLER57322.463
656 


ph44585 on D330-44585-7600 with DISTILLER57322.464
657 


ph44585 on D330-44585-7600 with DISTILLER57322.465
658 


ph44585 on D330-44585-7600 with DISTILLER57322.466
659 


ph44585 on D330-44585-7600 with DISTILLER57322.467
660 


ph44585 on D330-44585-7600 with DISTILLER57322.468
661 


ph44585 on D330-44585-7600 with DISTILLER57322.469
662 


ph44585 on D330-44585-7600 with DISTILLER57322.470
663 


ph44585 on D330-44585-7600 with DISTILLER57322.471
664 


ph44585 on D330-44585-7600 with DISTILLER57322.472
665 


ph44585 on D330-44585-7600 with DISTILLER57322.473
666 


ph44585 on D330-44585-7600 with DISTILLER57322.474
667 


ph44585 on D330-44585-7600 with DISTILLER57322.475
668 


ph44585 on D330-44585-7600 with DISTILLER57322.476
669 


ph44585 on D330-44585-7600 with DISTILLER57322.477
670 


ph44585 on D330-44585-7600 with DISTILLER57322.478
671 


ph44585 on D330-44585-7600 with DISTILLER57322.479
672 


ph44585 on D330-44585-7600 with DISTILLER57322.480
673 


ph44585 on D330-44585-7600 with DISTILLER57322.481
674 


ph44585 on D330-44585-7600 with DISTILLER57322.482
675 


ph44585 on D330-44585-7600 with DISTILLER57322.483
676 


ph44585 on D330-44585-7600 with DISTILLER57322.484
677 


ph44585 on D330-44585-7600 with DISTILLER57322.485
678 


ph44585 on D330-44585-7600 with DISTILLER57322.486
679 


ph44585 on D330-44585-7600 with DISTILLER57322.487
680 


ph44585 on D330-44585-7600 with DISTILLER57322.488
681 


ph44585 on D330-44585-7600 with DISTILLER57322.489
682 


ph44585 on D330-44585-7600 with DISTILLER57322.490
683 


ph44585 on D330-44585-7600 with DISTILLER57322.491
684 


ph44585 on D330-44585-7600 with DISTILLER57322.492
685 


ph44585 on D330-44585-7600 with DISTILLER57322.493
686 


ph44585 on D330-44585-7600 with DISTILLER57322.494
687 


ph44585 on D330-44585-7600 with DISTILLER57322.495
688 


ph44585 on D330-44585-7600 with DISTILLER57322.496
689 


ph44585 on D330-44585-7600 with DISTILLER57322.497
690 


ph44585 on D330-44585-7600 with DISTILLER57322.498
691 


ph44585 on D330-44585-7600 with DISTILLER57322.499
692 


ph44585 on D330-44585-7600 with DISTILLER57322.500
693 


ph44585 on D330-44585-7600 with DISTILLER57322.501
694 


ph44585 on D330-44585-7600 with DISTILLER57322.502
695 


ph44585 on D330-44585-7600 with DISTILLER57322.503
696 


ph44585 on D330-44585-7600 with DISTILLER57322.504
697 


ph44585 on D330-44585-7600 with DISTILLER57322.505
698 


ph44585 on D330-44585-7600 with DISTILLER57322.506
699 


ph44585 on D330-44585-7600 with DISTILLER57322.507
700 


ph44585 on D330-44585-7600 with DISTILLER57322.508
701 


ph44585 on D330-44585-7600 with DISTILLER57322.509
702 


ph44585 on D330-44585-7600 with DISTILLER57322.510
703 


ph44585 on D330-44585-7600 with DISTILLER57322.511
704 


ph44585 on D330-44585-7600 with DISTILLER57322.512
705 


ph44585 on D330-44585-7600 with DISTILLER57322.513
706 


ph44585 on D330-44585-7600 with DISTILLER57322.514
707 


ph44585 on D330-44585-7600 with DISTILLER57322.515
708 


ph44585 on D330-44585-7600 with DISTILLER57322.516
709 


ph44585 on D330-44585-7600 with DISTILLER57322.517
710 


ph44585 on D330-44585-7600 with DISTILLER57322.518
711 


ph44585 on D330-44585-7600 with DISTILLER57322.519
712 


ph44585 on D330-44585-7600 with DISTILLER57322.520
713 


ph44585 on D330-44585-7600 with DISTILLER57322.521
714 


ph44585 on D330-44585-7600 with DISTILLER57322.522
715 


ph44585 on D330-44585-7600 with DISTILLER57322.523
716 


ph44585 on D330-44585-7600 with DISTILLER57322.524
717 


ph44585 on D330-44585-7600 with DISTILLER57322.525
718 


ph44585 on D330-44585-7600 with DISTILLER57322.526
719 


ph44585 on D330-44585-7600 with DISTILLER57322.527
720 


ph44585 on D330-44585-7600 with DISTILLER57322.528
721 


ph44585 on D330-44585-7600 with DISTILLER57322.529
722 


ph44585 on D330-44585-7600 with DISTILLER57322.530
723 


ph44585 on D330-44585-7600 with DISTILLER57322.531
724 


ph44585 on D330-44585-7600 with DISTILLER57322.532
725 


ph44585 on D330-44585-7600 with DISTILLER57322.533
726 


ph44585 on D330-44585-7600 with DISTILLER57322.534
727 


ph44585 on D330-44585-7600 with DISTILLER57322.535
728 


ph44585 on D330-44585-7600 with DISTILLER57322.536
729 


ph44585 on D330-44585-7600 with DISTILLER57322.537
730 


ph44585 on D330-44585-7600 with DISTILLER57322.538
731 


ph44585 on D330-44585-7600 with DISTILLER57322.539
732 


ph44585 on D330-44585-7600 with DISTILLER57322.540
733 


ph44585 on D330-44585-7600 with DISTILLER57322.541
734 


ph44585 on D330-44585-7600 with DISTILLER57322.542
735 


ph44585 on D330-44585-7600 with DISTILLER57322.543
736 


ph44585 on D330-44585-7600 with DISTILLER57322.544
737 


ph44585 on D330-44585-7600 with DISTILLER57322.545
738 


ph44585 on D330-44585-7600 with DISTILLER57322.546
739 


ph44585 on D330-44585-7600 with DISTILLER57322.547
740 


ph44585 on D330-44585-7600 with DISTILLER57322.548
741 


ph44585 on D330-44585-7600 with DISTILLER57322.549
742 


ph44585 on D330-44585-7600 with DISTILLER57322.550
743 


ph44585 on D330-44585-7600 with DISTILLER57322.551
744 


ph44585 on D330-44585-7600 with DISTILLER57322.552
745 


ph44585 on D330-44585-7600 with DISTILLER57322.553
746 


ph44585 on D330-44585-7600 with DISTILLER57322.554
747 


ph44585 on D330-44585-7600 with DISTILLER57322.555
748 


ph44585 on D330-44585-7600 with DISTILLER57322.556
749 


ph44585 on D330-44585-7600 with DISTILLER57322.557
750 


ph44585 on D330-44585-7600 with DISTILLER57322.558
751 


ph44585 on D330-44585-7600 with DISTILLER57322.559
752 


ph44585 on D330-44585-7600 with DISTILLER57322.560
753 


ph44585 on D330-44585-7600 with DISTILLER57322.561
754 


ph44585 on D330-44585-7600 with DISTILLER57322.562
755 


ph44585 on D330-44585-7600 with DISTILLER57322.563
756 


ph44585 on D330-44585-7600 with DISTILLER57322.564
757 


ph44585 on D330-44585-7600 with DISTILLER57322.565
758 


ph44585 on D330-44585-7600 with DISTILLER57322.566
759 


ph44585 on D330-44585-7600 with DISTILLER57322.567
760 


ph44585 on D330-44585-7600 with DISTILLER57322.568
761 


ph44585 on D330-44585-7600 with DISTILLER57322.569
762 


ph44585 on D330-44585-7600 with DISTILLER57322.570
763 


ph44585 on D330-44585-7600 with DISTILLER57322.571
764 


ph44585 on D330-44585-7600 with DISTILLER57322.572
765 


ph44585 on D330-44585-7600 with DISTILLER57322.573
766 


ph44585 on D330-44585-7600 with DISTILLER57322.574
767 


ph44585 on D330-44585-7600 with DISTILLER57322.575
768 


ph44585 on D330-44585-7600 with DISTILLER57322.576
769 


ph44585 on D330-44585-7600 with DISTILLER57322.577
770 


ph44585 on D330-44585-7600 with DISTILLER57322.578
771 


ph44585 on D330-44585-7600 with DISTILLER57322.579
772 


ph44585 on D330-44585-7600 with DISTILLER57322.580
773 


ph44585 on D330-44585-7600 with DISTILLER57322.581
774 


ph44585 on D330-44585-7600 with DISTILLER57322.582
775 


ph44585 on D330-44585-7600 with DISTILLER57322.583
776 


ph44585 on D330-44585-7600 with DISTILLER57322.584
777 


ph44585 on D330-44585-7600 with DISTILLER57322.585
778 


ph44585 on D330-44585-7600 with DISTILLER57322.586
779 


ph44585 on D330-44585-7600 with DISTILLER57322.587
780 


ph44585 on D330-44585-7600 with DISTILLER57322.588
781 


ph44585 on D330-44585-7600 with DISTILLER57322.589
782 


ph44585 on D330-44585-7600 with DISTILLER57322.590
783 


ph44585 on D330-44585-7600 with DISTILLER57322.591
784 


ph44585 on D330-44585-7600 with DISTILLER57322.592
785 


ph44585 on D330-44585-7600 with DISTILLER57322.593
786 


ph44585 on D330-44585-7600 with DISTILLER57322.594
787 


ph44585 on D330-44585-7600 with DISTILLER57322.595
788 


ph44585 on D330-44585-7600 with DISTILLER57322.596
789 


ph44585 on D330-44585-7600 with DISTILLER57322.597
790 


ph44585 on D330-44585-7600 with DISTILLER57322.598
791 


ph44585 on D330-44585-7600 with DISTILLER57322.599
792 


ph44585 on D330-44585-7600 with DISTILLER57322.600
793 


ph44585 on D330-44585-7600 with DISTILLER57322.601
794 


ph44585 on D330-44585-7600 with DISTILLER57322.602
795 


ph44585 on D330-44585-7600 with DISTILLER57322.603
796 


ph44585 on D330-44585-7600 with DISTILLER57322.604
797 


ph44585 on D330-44585-7600 with DISTILLER57322.605
798 


ph44585 on D330-44585-7600 with DISTILLER57322.606
799 


ph44585 on D330-44585-7600 with DISTILLER57322.607
800 


ph44585 on D330-44585-7600 with DISTILLER57322.608
801 


ph44585 on D330-44585-7600 with DISTILLER57322.609
802 


ph44585 on D330-44585-7600 with DISTILLER57322.610
803 


ph44585 on D330-44585-7600 with DISTILLER57322.611
804 


ph44585 on D330-44585-7600 with DISTILLER57322.612
805 


ph44585 on D330-44585-7600 with DISTILLER57322.613
806 


ph44585 on D330-44585-7600 with DISTILLER57322.614
807 


ph44585 on D330-44585-7600 with DISTILLER57322.615
808 


ph44585 on D330-44585-7600 with DISTILLER57322.616
809 


ph44585 on D330-44585-7600 with DISTILLER57322.617
810 


ph44585 on D330-44585-7600 with DISTILLER57322.618
811 


ph44585 on D330-44585-7600 with DISTILLER57322.619
812 


ph44585 on D330-44585-7600 with DISTILLER57322.620
813 


ph44585 on D330-44585-7600 with DISTILLER57322.621
814 


ph44585 on D330-44585-7600 with DISTILLER57322.622
815 


ph44585 on D330-44585-7600 with DISTILLER57322.623
816 


ph44585 on D330-44585-7600 with DISTILLER57322.624
817 


ph44585 on D330-44585-7600 with DISTILLER57322.625
818 


ph44585 on D330-44585-7600 with DISTILLER57322.626
819 


ph44585 on D330-44585-7600 with DISTILLER57322.627
820 


ph44585 on D330-44585-7600 with DISTILLER57322.628
821 


ph44585 on D330-44585-7600 with DISTILLER57322.629
822 


ph44585 on D330-44585-7600 with DISTILLER57322.630
823 


ph44585 on D330-44585-7600 with DISTILLER57322.631
824 


ph44585 on D330-44585-7600 with DISTILLER57322.632
825 


ph44585 on D330-44585-7600 with DISTILLER57322.633
826 


ph44585 on D330-44585-7600 with DISTILLER57322.634
827 


ph44585 on D330-44585-7600 with DISTILLER57322.635
828 


ph44585 on D330-44585-7600 with DISTILLER57322.636
829 


ph44585 on D330-44585-7600 with DISTILLER57322.637
830 


ph44585 on D330-44585-7600 with DISTILLER57322.638
831 


ph44585 on D330-44585-7600 with DISTILLER57322.639
832 


ph44585 on D330-44585-7600 with DISTILLER57322.640
833 


ph44585 on D330-44585-7600 with DISTILLER57322.641
834 


ph44585 on D330-44585-7600 with DISTILLER57322.642
835 


ph44585 on D330-44585-7600 with DISTILLER57322.643
836 


ph44585 on D330-44585-7600 with DISTILLER57322.644
837 


ph44585 on D330-44585-7600 with DISTILLER57322.645
838 


ph44585 on D330-44585-7600 with DISTILLER57322.646
839 


ph44585 on D330-44585-7600 with DISTILLER57322.647
840 


ph44585 on D330-44585-7600 with DISTILLER57322.648
841 


ph44585 on D330-44585-7600 with DISTILLER57322.649
842 


ph44585 on D330-44585-7600 with DISTILLER57322.650
843 


ph44585 on D330-44585-7600 with DISTILLER57322.651
844 


ph44585 on D330-44585-7600 with DISTILLER57322.652
845 


ph44585 on D330-44585-7600 with DISTILLER57322.653
846 


ph44585 on D330-44585-7600 with DISTILLER57322.654
847 


ph44585 on D330-44585-7600 with DISTILLER57322.655
848 


ph44585 on D330-44585-7600 with DISTILLER57322.656
849 


ph44585 on D330-44585-7600 with DISTILLER57322.657
850 


ph44585 on D330-44585-7600 with DISTILLER57322.658
851 


ph44585 on D330-44585-7600 with DISTILLER57322.659
852 


ph44585 on D330-44585-7600 with DISTILLER57322.660
853 


ph44585 on D330-44585-7600 with DISTILLER57322.661
854 


ph44585 on D330-44585-7600 with DISTILLER57322.662
855 


ph44585 on D330-44585-7600 with DISTILLER57322.663
856 


ph44585 on D330-44585-7600 with DISTILLER57322.664
857 


ph44585 on D330-44585-7600 with DISTILLER57322.665
858 


ph44585 on D330-44585-7600 with DISTILLER57322.666
859 


ph44585 on D330-44585-7600 with DISTILLER57322.667
860 


ph44585 on D330-44585-7600 with DISTILLER57322.668
861 


ph44585 on D330-44585-7600 with DISTILLER57322.669
862 


ph44585 on D330-44585-7600 with DISTILLER57322.670
863 


ph44585 on D330-44585-7600 with DISTILLER57322.671
864 


ph44585 on D330-44585-7600 with DISTILLER57322.672
865 


ph44585 on D330-44585-7600 with DISTILLER57322.673
866 


ph44585 on D330-44585-7600 with DISTILLER57322.674
867 


ph44585 on D330-44585-7600 with DISTILLER57322.675
868 


ph44585 on D330-44585-7600 with DISTILLER57322.676
869 


ph44585 on D330-44585-7600 with DISTILLER57322.677
870 


ph44585 on D330-44585-7600 with DISTILLER57322.678
871 


ph44585 on D330-44585-7600 with DISTILLER57322.679
872 


ph44585 on D330-44585-7600 with DISTILLER57322.680
873 


ph44585 on D330-44585-7600 with DISTILLER57322.681
874 


ph44585 on D330-44585-7600 with DISTILLER57322.682
875 


ph44585 on D330-44585-7600 with DISTILLER57322.683
876 


ph44585 on D330-44585-7600 with DISTILLER57322.684
877 


ph44585 on D330-44585-7600 with DISTILLER57322.685
878 


ph44585 on D330-44585-7600 with DISTILLER57322.686
879 


ph44585 on D330-44585-7600 with DISTILLER57322.687
880 


ph44585 on D330-44585-7600 with DISTILLER57322.688
881 


ph44585 on D330-44585-7600 with DISTILLER57322.689
882 


ph44585 on D330-44585-7600 with DISTILLER57322.690
883 


ph44585 on D330-44585-7600 with DISTILLER57322.691
884 


ph44585 on D330-44585-7600 with DISTILLER57322.692
885 


ph44585 on D330-44585-7600 with DISTILLER57322.693
886 


ph44585 on D330-44585-7600 with DISTILLER57322.694
887 


ph44585 on D330-44585-7600 with DISTILLER57322.695
888 


ph44585 on D330-44585-7600 with DISTILLER57322.696
889 


ph44585 on D330-44585-7600 with DISTILLER57322.697
890 


ph44585 on D330-44585-7600 with DISTILLER57322.698
891 


ph44585 on D330-44585-7600 with DISTILLER57322.699
892 


ph44585 on D330-44585-7600 with DISTILLER57322.700
893 


ph44585 on D330-44585-7600 with DISTILLER57322.701
894 


ph44585 on D330-44585-7600 with DISTILLER57322.702
895 


ph44585 on D330-44585-7600 with DISTILLER57322.703
896 


ph44585 on D330-44585-7600 with DISTILLER57322.704
897 


ph44585 on D330-44585-7600 with DISTILLER57322.705
898 


ph44585 on D330-44585-7600 with DISTILLER57322.706
899 


ph44585 on D330-44585-7600 with DISTILLER57322.707
900 


ph44585 on D330-44585-7600 with DISTILLER57322.708
901 


ph44585 on D330-44585-7600 with DISTILLER57322.709
902 


ph44585 on D330-44585-7600 with DISTILLER57322.710
903 


ph44585 on D330-44585-7600 with DISTILLER57322.711
904 


ph44585 on D330-44585-7600 with DISTILLER57322.712
905 


ph44585 on D330-44585-7600 with DISTILLER57322.713
906 


ph44585 on D330-44585-7600 with DISTILLER57322.714
907 


ph44585 on D330-44585-7600 with DISTILLER57322.715
908 


ph44585 on D330-44585-7600 with DISTILLER57322.716
909 


ph44585 on D330-44585-7600 with DISTILLER57322.717
910 


ph44585 on D330-44585-7600 with DISTILLER57322.718
911 


ph44585 on D330-44585-7600 with DISTILLER57322.719
912 


ph44585 on D330-44585-7600 with DISTILLER57322.720
913 


ph44585 on D330-44585-7600 with DISTILLER57322.721
914 


ph44585 on D330-44585-7600 with DISTILLER57322.722
915 


ph44585 on D330-44585-7600 with DISTILLER57322.723
916 


ph44585 on D330-44585-7600 with DISTILLER57322.724
917 


ph44585 on D330-44585-7600 with DISTILLER57322.725
918 


ph44585 on D330-44585-7600 with DISTILLER57322.726
919 


ph44585 on D330-44585-7600 with DISTILLER57322.727
920 


ph44585 on D330-44585-7600 with DISTILLER57322.728
921 


ph44585 on D330-44585-7600 with DISTILLER57322.729
922 


ph44585 on D330-44585-7600 with DISTILLER57322.730
923 


ph44585 on D330-44585-7600 with DISTILLER57322.731
924 


ph44585 on D330-44585-7600 with DISTILLER57322.732
925 


ph44585 on D330-44585-7600 with DISTILLER57322.733
926 


ph44585 on D330-44585-7600 with DISTILLER57322.734
927 


ph44585 on D330-44585-7600 with DISTILLER57322.735
928 


ph44585 on D330-44585-7600 with DISTILLER57322.736
929 


ph44585 on D330-44585-7600 with DISTILLER57322.737
930 


ph44585 on D330-44585-7600 with DISTILLER57322.738
931 


ph44585 on D330-44585-7600 with DISTILLER57322.739
932 


ph44585 on D330-44585-7600 with DISTILLER57322.740
933 


ph44585 on D330-44585-7600 with DISTILLER57322.741
934 


ph44585 on D330-44585-7600 with DISTILLER57322.742
935 


ph44585 on D330-44585-7600 with DISTILLER57322.743
936 


ph44585 on D330-44585-7600 with DISTILLER57322.744
937 


ph44585 on D330-44585-7600 with DISTILLER57322.745
938 


ph44585 on D330-44585-7600 with DISTILLER57322.746
939 


ph44585 on D330-44585-7600 with DISTILLER57322.747
940 


ph44585 on D330-44585-7600 with DISTILLER57322.748
941 


ph44585 on D330-44585-7600 with DISTILLER57322.749
942 


ph44585 on D330-44585-7600 with DISTILLER57322.750
943 


ph44585 on D330-44585-7600 with DISTILLER57322.751
944 


ph44585 on D330-44585-7600 with DISTILLER57322.752
945 


ph44585 on D330-44585-7600 with DISTILLER57322.753
946 


ph44585 on D330-44585-7600 with DISTILLER57322.754
947 


ph44585 on D330-44585-7600 with DISTILLER57322.755
948 


ph44585 on D330-44585-7600 with DISTILLER57322.756
949 


ph44585 on D330-44585-7600 with DISTILLER57322.757
950 


ph44585 on D330-44585-7600 with DISTILLER57322.758
951 


ph44585 on D330-44585-7600 with DISTILLER57322.759
952 


ph44585 on D330-44585-7600 with DISTILLER57322.760
953 


ph44585 on D330-44585-7600 with DISTILLER57322.761
954 


ph44585 on D330-44585-7600 with DISTILLER57322.762
955 


ph44585 on D330-44585-7600 with DISTILLER57322.763
956 


ph44585 on D330-44585-7600 with DISTILLER57322.764
957 


ph44585 on D330-44585-7600 with DISTILLER57322.765
958 


ph44585 on D330-44585-7600 with DISTILLER57322.766
959 


ph44585 on D330-44585-7600 with DISTILLER57322.767
960 


ph44585 on D330-44585-7600 with DISTILLER57322.768
961 


ph44585 on D330-44585-7600 with DISTILLER57322.769
962 


ph44585 on D330-44585-7600 with DISTILLER57322.770
963 


ph44585 on D330-44585-7600 with DISTILLER57322.771
964 


ph44585 on D330-44585-7600 with DISTILLER57322.772
965 


ph44585 on D330-44585-7600 with DISTILLER57322.773
966 


ph44585 on D330-44585-7600 with DISTILLER57322.774
967 


ph44585 on D330-44585-7600 with DISTILLER57322.775
968 


ph44585 on D330-44585-7600 with DISTILLER57322.776
969 


ph44585 on D330-44585-7600 with DISTILLER57322.777
970 


ph44585 on D330-44585-7600 with DISTILLER57322.778
971 


ph44585 on D330-44585-7600 with DISTILLER57322.779
972 


ph44585 on D330-44585-7600 with DISTILLER57322.780
973 


ph44585 on D330-44585-7600 with DISTILLER57322.781
974 


ph44585 on D330-44585-7600 with DISTILLER57322.782
975 


ph44585 on D330-44585-7600 with DISTILLER57322.783
976 


ph44585 on D330-44585-7600 with DISTILLER57322.784
977 


ph44585 on D330-44585-7600 with DISTILLER57322.785
978 


ph44585 on D330-44585-7600 with DISTILLER57322.786
979 


ph44585 on D330-44585-7600 with DISTILLER57322.787
980 


ph44585 on D330-44585-7600 with DISTILLER57322.788
981 


ph44585 on D330-44585-7600 with DISTILLER57322.789
982 


ph44585 on D330-44585-7600 with DISTILLER57322.790
983 


ph44585 on D330-44585-7600 with DISTILLER57322.791
984 


ph44585 on D330-44585-7600 with DISTILLER57322.792
985 


ph44585 on D330-44585-7600 with DISTILLER57322.793
986 


ph44585 on D330-44585-7600 with DISTILLER57322.794
987 


ph44585 on D330-44585-7600 with DISTILLER57322.795
988 


ph44585 on D330-44585-7600 with DISTILLER57322.796
989 


ph44585 on D330-44585-7600 with DISTILLER57322.797
990 


ph44585 on D330-44585-7600 with DISTILLER57322.798
991 


ph44585 on D330-44585-7600 with DISTILLER57322.799
992 


ph44585 on D330-44585-7600 with DISTILLER57322.800
993 


ph44585 on D330-44585-7600 with DISTILLER57322.801
994 


ph44585 on D330-44585-7600 with DISTILLER57322.802
995 


ph44585 on D330-44585-7600 with DISTILLER57322.803
996 


ph44585 on D330-44585-7600 with DISTILLER57322.804
997 


ph44585 on D330-44585-7600 with DISTILLER57322.805
998 


ph44585 on D330-44585-7600 with DISTILLER57322.806
999 


ph44585 on D330-44585-7600 with DISTILLER57322.807
1000 


ph44585 on D330-44585-7600 with DISTILLER57322.808
1001 


ph44585 on D330-44585-7600 with DISTILLER57322.809
1002 


ph44585 on D330-44585-7600 with DISTILLER57322.810
1003 


ph44585 on D330-44585-7600 with DISTILLER57322.811
1004 


ph44585 on D330-44585-7600 with DISTILLER57322.812
1005 


ph44585 on D330-44585-7600 with DISTILLER57322.813
1006 


ph44585 on D330-44585-7600 with DISTILLER57322.814
1007 


ph44585 on D330-44585-7600 with DISTILLER57322.815
1008 


ph44585 on D330-44585-7600 with DISTILLER57322.816
1009 


ph44585 on D330-44585-7600 with DISTILLER57322.817
1010 


ph44585 on D330-44585-7600 with DISTILLER57322.818
1011 


ph44585 on D330-44585-7600 with DISTILLER57322.819
1012 


ph44585 on D330-44585-7600 with DISTILLER57322.820
1013 


ph44585 on D330-44585-7600 with DISTILLER57322.821
1014 


ph44585 on D330-44585-7600 with DISTILLER57322.822
1015 


ph44585 on D330-44585-7600 with DISTILLER57322.823
1016 


ph44585 on D330-44585-7600 with DISTILLER57322.824
1017 


ph44585 on D330-44585-7600 with DISTILLER57322.825
1018 


ph44585 on D330-44585-7600 with DISTILLER57322.826
1019 


ph44585 on D330-44585-7600 with DISTILLER57322.827
1020 


ph44585 on D330-44585-7600 with DISTILLER57322.828
1021 


ph44585 on D330-44585-7600 with DISTILLER57322.829
1022 


ph44585 on D330-44585-7600 with DISTILLER57322.830
1023 


ph44585 on D330-44585-7600 with DISTILLER57322.831
1024 


ph44585 on D330-44585-7600 with DISTILLER57322.832
1025 


ph44585 on D330-44585-7600 with DISTILLER57322.833
1026 


ph44585 on D330-44585-7600 with DISTILLER57322.834
1027 


ph44585 on D330-44585-7600 with DISTILLER57322.835
1028 


ph44585 on D330-44585-7600 with DISTILLER57322.836
1029 


ph44585 on D330-44585-7600 with DISTILLER57322.837
1030 


ph44585 on D330-44585-7600 with DISTILLER57322.838
1031 


ph44585 on D330-44585-7600 with DISTILLER57322.839
1032 


ph44585 on D330-44585-7600 with DISTILLER57322.840
1033 


ph44585 on D330-44585-7600 with DISTILLER57322.841
1034 


ph44585 on D330-44585-7600 with DISTILLER57322.842
1035 


ph44585 on D330-44585-7600 with DISTILLER57322.843
1036 


ph44585 on D330-44585-7600 with DISTILLER57322.844
1037 


ph44585 on D330-44585-7600 with DISTILLER57322.845
1038 


ph44585 on D330-44585-7600 with DISTILLER57322.846
1039 


ph44585 on D330-44585-7600 with DISTILLER57322.847
1040 


ph44585 on D330-44585-7600 with DISTILLER57322.848
1041 


ph44585 on D330-44585-7600 with DISTILLER57322.849
1042 


ph44585 on D330-44585-7600 with DISTILLER57322.850
1043 


ph44585 on D330-44585-7600 with DISTILLER57322.851
1044 


ph44585 on D330-44585-7600 with DISTILLER57322.852
1045 


ph44585 on D330-44585-7600 with DISTILLER57322.853
1046 


ph44585 on D330-44585-7600 with DISTILLER57322.854
1047 


ph44585 on D330-44585-7600 with DISTILLER57322.855
1048 


ph44585 on D330-44585-7600 with DISTILLER57322.856
1049 


ph44585 on D330-44585-7600 with DISTILLER57322.857
1050 


ph44585 on D330-44585-7600 with DISTILLER57322.858
1051 


ph44585 on D330-44585-7600 with DISTILLER57322.859
1052 


ph44585 on D330-44585-7600 with DISTILLER57322.860
1053 


ph44585 on D330-44585-7600 with DISTILLER57322.861
1054 


ph44585 on D330-44585-7600 with DISTILLER57322.862
1055 


ph44585 on D330-44585-7600 with DISTILLER57322.863
1056 


ph44585 on D330-44585-7600 with DISTILLER57322.864
1057 


ph44585 on D330-44585-7600 with DISTILLER57322.865
1058 


ph44585 on D330-44585-7600 with DISTILLER57322.866
1059 


ph44585 on D330-44585-7600 with DISTILLER57322.867
1060 


ph44585 on D330-44585-7600 with DISTILLER57322.868
1061 


ph44585 on D330-44585-7600 with DISTILLER57322.869
1062 


ph44585 on D330-44585-7600 with DISTILLER57322.870
1063 


ph44585 on D330-44585-7600 with DISTILLER57322.871
1064 


ph44585 on D330-44585-7600 with DISTILLER57322.872
1065 


ph44585 on D330-44585-7600 with DISTILLER57322.873
1066 


ph44585 on D330-44585-7600 with DISTILLER57322.874
1067 


ph44585 on D330-44585-7600 with DISTILLER57322.875
1068 


ph44585 on D330-44585-7600 with DISTILLER57322.876
1069 


ph44585 on D330-44585-7600 with DISTILLER57322.877
1070 


ph44585 on D330-44585-7600 with DISTILLER57322.878
1071 


ph44585 on D330-44585-7600 with DISTILLER57322.879
1072 


ph44585 on D330-44585-7600 with DISTILLER57322.880
1073 


ph44585 on D330-44585-7600 with DISTILLER57322.881
1074 


ph44585 on D330-44585-7600 with DISTILLER57322.882
1075 


ph44585 on D330-44585-7600 with DISTILLER57322.883
1076 


ph44585 on D330-44585-7600 with DISTILLER57322.884
1077 


ph44585 on D330-44585-7600 with DISTILLER57322.885
1078 


ph44585 on D330-44585-7600 with DISTILLER57322.886
1079 


ph44585 on D330-44585-7600 with DISTILLER57322.887
1080 


ph44585 on D330-44585-7600 with DISTILLER57322.888
1081 


ph44585 on D330-44585-7600 with DISTILLER57322.889
1082 


ph44585 on D330-44585-7600 with DISTILLER57322.890
1083 


ph44585 on D330-44585-7600 with DISTILLER57322.891
1084 


ph44585 on D330-44585-7600 with DISTILLER57322.892
1085 


ph44585 on D330-44585-7600 with DISTILLER57322.893
1086 


ph44585 on D330-44585-7600 with DISTILLER57322.894
1087 


ph44585 on D330-44585-7600 with DISTILLER57322.895
1088 


ph44585 on D330-44585-7600 with DISTILLER57322.896
1089 


ph44585 on D330-44585-7600 with DISTILLER57322.897
1090 


ph44585 on D330-44585-7600 with DISTILLER57322.898
1091 


ph44585 on D330-44585-7600 with DISTILLER57322.899
1092 


ph44585 on D330-44585-7600 with DISTILLER57322.900
1093 


ph44585 on D330-44585-7600 with DISTILLER57322.901
1094 


ph44585 on D330-44585-7600 with DISTILLER57322.902
1095 


ph44585 on D330-44585-7600 with DISTILLER57322.903
1096 


ph44585 on D330-44585-7600 with DISTILLER57322.904
1097 


ph44585 on D330-44585-7600 with DISTILLER57322.905
1098 


ph44585 on D330-44585-7600 with DISTILLER57322.906
1099 


ph44585 on D330-44585-7600 with DISTILLER57322.907
1100 


ph44585 on D330-44585-7600 with DISTILLER57322.908
1101 


ph44585 on D330-44585-7600 with DISTILLER57322.909
1102 


ph44585 on D330-44585-7600 with DISTILLER57322.910
1103 


ph44585 on D330-44585-7600 with DISTILLER57322.911
1104 


ph44585 on D330-44585-7600 with DISTILLER57322.912
1105 


ph44585 on D330-44585-7600 with DISTILLER57322.913
1106 


ph44585 on D330-44585-7600 with DISTILLER57322.914
1107 


ph44585 on D330-44585-7600 with DISTILLER57322.915
1108 


ph44585 on D330-44585-7600 with DISTILLER57322.916
1109 


ph44585 on D330-44585-7600 with DISTILLER57322.917
1110 


ph44585 on D330-44585-7600 with DISTILLER57322.918
1111 


ph44585 on D330-44585-7600 with DISTILLER57322.919
1112 


ph44585 on D330-44585-7600 with DISTILLER57322.920
1113 


ph44585 on D330-44585-7600 with DISTILLER57322.921
1114 


ph44585 on D330-44585-7600 with DISTILLER57322.922
1115 


ph44585 on D330-44585-7600 with DISTILLER57322.923
1116 


ph44585 on D330-44585-7600 with DISTILLER57322.924
1117 


ph44585 on D330-44585-7600 with DISTILLER57322.925
1118 


ph44585 on D330-44585-7600 with DISTILLER57322.926
1119 


ph44585 on D330-44585-7600 with DISTILLER57322.927
1120 

Æ 


ph44585 on D330-44585-7600 with DISTILLER57322.928