It’s hard to pick the biggest lie when the room is full of politicians and investment bankers defending their actions.
My personal nomination is for Mr. Sparks (head of mortgages at Goldman) with this gem:
“At the time we did those deals, we expected the deals to perform.”
I wish the geniuses at Monty Python were still doing their skits, because these hearings are briliant raw material.
After plenty of time spent establishing that the housing market had already turned south in the beginning to middle of 2006, Goldman had made the policy decision to go short the mortgage market by the end of that year. Yet, Sparks had that to say about deals priced in 2007.
How about a little reality testing? The late 2006 e-mail paper trail showed that all the way up to the top, Goldman was anxious to offload their mortgage risk.
Did they stop buying mortgages?
In fact, they cranked up their purchase and securitization programs well after the point they decided they didn’t want to own the risk. As Sparks testified, the 2007 mortgage department revenue was over a billion dollars, and up by about 25% over 2006, and not what you would expect from a group of people who decided that the game was over and they didn’t want to take the risk any more.
What they did have was a generous supply of bag-holders, and they went about filling those bags. Some of the bagholders were pension funds and Norwegian towns, but those were the small fry.
The biggest risk-takers turned out to be taxpayers in Germany (IKB) and the US (AIGFP).
Only now do we know that a “savings and loan” charter in the US was used by a group of people sitting in London to take huge swaths of that risk, as it turns out, on behalf of the taxpayer, since there was no way they could ever pay the claims for the insurance they sold to Goldman and others.
Love the reading by Senator Levin of a CDO offering memorandum that claims Goldman’s interests were aligned with bond investors in one deal because they took a piece of the synthetic CDO equity (probably on the order of $10 million), all the while getting short the entire $2 billion of the deal via CDS.
Hmmm. Net short $1.99 billion, but somehow “aligned” with the buyers of the bonds.
As I’ve said before, it’s not just the losers in the poker game that destabilized the system. In some ways, especially if the game is being held at their house, the winners in the game are every bit as responsible.