"While we strongly disagree with the SEC's complaint, I also recognize how such a complicated transaction may look to many people," he said. "To them, it is confirmation of how out of control they believe Wall Street has become, no matter how sophisticated the parties or what disclosures were made. We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky."
Levin said that the e-mails recovered by the committee contradict Goldman's claims that it did not make a directional bet on the mortgage market. In fact, Levin said, the e-mails show that the bank had made a "tactical decision" to short the market, a decision that ultimately helped it rake in a hefty profit.
In early 2007, Goldman e-mails reveal, the firm decided to take short positions -- in other words, to bet against -- the mortgage market, after the firm had sold billions of dollars worth of securities comprised of risky loans that would soon go sour.
In a 2007 performance review, Goldman's Josh Birnbaum, former managing director of the structured products group, wrote, "I concluded that we should not only get flat, but get VERY short. ... Much of the plan began working by February as the market dropped 25 points and our very profitable year was underway."
An e-mail from Blankfein in early 2007 asked, "Could/should we have cleaned up these books before and are we are doing enough right now to sell off cats and dogs in other books throughout the division."
As 2007 went on, the housing market worsened -- and Goldman's profits grew. The downturn, said Goldman's chief financial officer David Viniar in an e-mail in July 2007, "tells you what might be happening to people who don't have the big short."
"Short mortgages," Viniar e-mailed to Blankfein, "saved the day."
The more the loans backing the securities they had sold started to sour, the more Goldman profited.
In October 2007, a presentation by chief risk officer Craig Broderick said, "Starting early in '07 our mortgage trading desk started purring on big short positions ... and did so in enough quantity that we were net short, and made money (substantial $$ in the 3rd quarter) as the subprime market weakened."
Said Levin, "Goldman profited while the market dropped, taking many Goldman clients with it, not to mention the damage that was done to the U.S. economy."
The firm's gains left its employees gloating.
"The 2007 year is the one that I am most proud of to date ... extraordinary profits (nearly $3bb to date)," wrote Michael Swenson, now a managing director at Goldman, in a performance review. "[D]uring the early summer of 2006 it was clear that the market fundamentals in subprime and the highly levered nature of [collateralized-debt obligations] was going to have a very unhappy ending."
The Goldman e-mails, Levin said, fly in the face of the bank's public statements that it did not make "a significant amount of money in the mortgage market."
"There is no doubt they made huge money betting against the market in 2007," Levin said, arguing that the bank had made $3.7 billion in all.