In a testy exchange at today's Senate grilling of Goldman Sachs executives, Sen. Carl Levin, D-Mich., confronted a former Goldman trader with an e-mail in which another former Goldman executive described a mortgage-backed deal as "sh**ty."
The transaction in question was Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other CDOs. In an e-mail to Daniel Sparks, then head of Goldman's mortgage desk, Thomas Montag, Goldman's former head of sales and trading, called a set of mortgage-linked investments sold by the firm as "one shi**y deal," according to an e-mail that Sen. Levin quoted. Within five months, Timberwolf lost 80 percent of its value.
"Do you think it was a sh**ty deal?" Levin asked Sparks, one of seven Goldman executives appearing today. Sparks said he did not recall the e-mail, and did not directly answer the question.
"If you can't give a clear answer to that one Mr. Sparks then we're not going to get any clear answers from you today," Levin said.
In his opening remarks, Levin called the allegations against the Wall Street firm "deeply troubling."
"The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities," Levin said. "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."
Speaking publicly for the first time since the Securities and Exchange Commission brought fraud charges against him and his employer, Goldman Sachs, the trader at the center of the case, Fabrice Tourre, strongly asserted his innocence, insisting repeatedly to a Senate panel that he didn't mislead clients in a controversial mortgage derivative product the SEC claims was designed to fail.
"I deny -- categorically -- the SEC's allegation," Tourre said. "And I will defend myself in court against this false claim."
Tourre was among the first of a number of Goldman executives to testify before the Senate panel today amid accusations that the firm helped create the housing bubble that preceded the worst financial crisis since the Great Depression of the 1930s.
The subcommittee said Monday that its 18-month investigation found that Goldman helped create the housing bubble by selling securities backed by risky subprime mortgage loans and then profited off that bubble's bursting by secretly betting against the market.
"Goldman continues to deny that it shorted the mortgage market for profit, despite the evidence," Sen. Levin, the chairman of the panel, said, kicking off the session. "Why the denial? My best estimate is that it's because the firm 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 or the mortgage market as a whole," said Sen. Levin.