At 7:00 PM Jeremy returned to the office to check on the futures citing that Dean Machado was in his head and he felt uncomfortable about his short position. At 7:05 Jeremy returned to Yoga and then at 7:19 the news hit the tape that Levin was pushing the GS case to the Justice Department. The story is as follows:
Goldman Sachs Group Inc. (GS) misled clients and Congress about the firm’s investments in securities tied to mortgages, the chairman of the Senate panel that investigated the causes of the financial crisis said.
Senator Carl Levin, releasing the findings of a two-year inquiry, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm was betting they would fall in value.
The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that the firm took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.
“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin said at a press briefing today where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.
Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG (DB) of peddling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.
In a statement, New York-based Goldman Sachs denied that it had misled anyone about its activities. “The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Goldman Sachs spokesman Lucas van Praag said.
“The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point,” van Praag said.
In a statement, Deutsche Bank spokeswoman Michele Allison said, “As the PSI report correctly states, there were divergent views within the bank about the U.S. housing market. Moreover, the bank’s views were fully communicated to the market through research reports, industry events, trading desk commentary and press coverage. Despite the bearish views held by some, Deutsche Bank was long the housing market and endured significant losses.”
The panel’s report also examined the role of credit-rating firms in the meltdown, lax oversight byWashington regulators and the drop in lending standards that fuelled the mortgage bubble and ultimately caused hundreds of bank failures.
The subcommittee’s findings show “without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers,” said Coburn. “When that happens, no country can survive and neither can their financial institutions.”
The report is likely Washington’s final official assessment of the turmoil beginning in 2007 that froze credit markets, took down investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc. (LEHMQ), sent housing finance giants Fannie Mae and Freddie Mac into government conservatorship and caused the worst economic collapse in the U.S. since the Great Depression.
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