One of the rhetorical tactics Goldman Sachs has used to answer the SEC complaint that it misled investors on the Abacus deals has been to argue that it had held a “positive” position holding the Abacus securities whose structuring it allegedly misrepresented.
In other words, Goldman is arguing that since it was itself heavily invested in the Abacus synthetic CDO, and in fact lost money by holding that position, it is not credible to claim it deliberately created an investment it wanted to fail. Why would it deliberately structure a deal to lose its own money?
But in questions from Senator Levin at today’s hearing, Goldman’s VP Tourre, the lone person in the SEC complaint, admitted that the only reason Goldman held that positive position is that it had wanted to lay off that positive position but was unable to sell it; it was thus stuck with the positive position and lost money on it.
This was, I believe, the first public concession from a Goldman employee about something smart financial bloggers (was it Rortybomb?) figured out over a week ago. But Goldman had continued to repeat the line that they couldn’t be accused of structuring an investment designed to fail because they invested in it themselves and lost money. Now we have a Goldman VP testifying under oath that the argument Goldman has been making was just baloney.
Making Lemonade out of Lemons
As the video from another part of the hearing shows, Levin also used another Goldman witness to read Goldman e-mails into the record. Several e-mails suggest that Goldman’s desire to create synthetic CDOs for the purpose of betting against them was the general Goldman strategy during 2007, the period that included the Abacus and several other such deals. As one Goldman described what the Goldman CDO makers were doing:
“They structured like mad, traveled the world, and worked their tails off, to make some lemonade out of some big ole lemons.”