A funny thing happened when Goldman Sachs employees had to explain what they meant when they put the slang phrase “the Street” on marketing documents.When they submitted their testimonies to the Financial Crisis subcommittee on what caused the financial crisis, Goldman employees had to explain yet again why the wording in some of the documents Goldman used to market products didn’t clearly say: we might have selected the assets in this product based on the likelihood that they are crap.
Of course, asking the traders these questions is barking up the wrong tree; if lawyers don’t write the “disclaimers” in question, they check it over 100 times with a fine tooth comb to make sure the language won’t land them in a losing lawsuit.
But in one case, the committee was questioning traders anyway, and it asked them what most people understand the phrase “the Street” to mean.
The phrase “sourced from the Street” appears on the marketing documents for Hudson, a $2 billion CDO that Goldman Sachs selected the underlying assets in. It has now emerged that the phrase was meant to be general, but had it been 100% accurate, it would have said, “sourced from Goldman’s inventory [of crap they don’t want].”
So the investors who bought Hudson now claim that Goldman didn’t properly disclose to them that they were shorting it. And in order to judge the validity of this claim and others like it, the committee spoke to a few traders.
Asked what they thought the phrase “sourced from the Street,” meant, the traders who don’t work for Goldman had the same answer.
- Andrew Davilman, a former Goldman salesperson who sold Hudson 1 securities to investors says he thought it meant “assets being acquired from a variety of different broker-dealers at the best prices.”
- Morgan Stanley (which bought Hudson) thought it meant “assets acquired from a variety of different broker-dealers.”
The Goldman traders, on the other hand, all had different answers.
- Darryl Herrick, who drafted the marketing booklet says it meant the assets were “sourced from a street dealer at street prices.”
- Peter Ostrem, a CDO Managing Director, stated that “sourced from the Street” referred to the fact the underlying RMBS securities were not originated or underwritten by Goldman.
- Deeb Salem, a Goldman mortgage trader who selected 40% of the assets in Hudson 1, described “the Street” as simply “short hand for all broker-dealers.”
The best answer comes from these two Goldman employees:
David Lehman and Matthew Bieber claimed that it was accurate to say the Hudson assets were “sourced from the Street,” even though all the assets were acquired from the Goldman ABS Desk, because Goldman was part of “the Street.”
It’s a funny explanation to say that “sourced by the Street” is an accurate way of saying, “sourced by us.” But here’s why it’s genius: Goldman was the *only* party short the $2 billion CDO. So getting rid of the CDO was its main objective.
Goldman Sachs’ lawyers don’t get enough credit for designing the wording in some of these CDO marketing documents. They made the legal disclaimer work in their favour.
So it might have sounded like Goldman was also an investor in Hudson and only bought insurance against its default as a hedge that would benefit every investor, when really, the opposite was true.
Maybe those objecting should point less blame at Goldman’s traders, who get too much crap for their role in the financial crisis, and levy more accusations at Goldman’s lawyers.