Senate Investigation Singles Out Goldman Sachs, Finds 'Rampant Conflicts of Interest' Responsible for Financial Crisis

April 14, 2011 -- It was a year ago this month when Sen. Carl Levin, chairman of a Senate subcommittee investigating the financial crisis, ripped Goldman Sachs' top executives in an intense congressional hearing. Levin was brandishing an email in which a former Goldman employee described a mortgage-backed deal as "sh**ty."

Thomas Montag, Goldman's former head of sales, had written to Daniel Sparks, then head of the mortgage desk, describing a $1 billion set of mortgage-backed investments sold by the firm as "one sh**ty deal." Five months later, the transaction -- Timberwolf Ltd. -- had lost 80 percent of its value.

"Do you think it was a sh**ty deal?" Levin, D-Mich., asked Sparks. "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."

While lawmakers got few clear answers that day, Levin and Republican Sen. Tom Coburn of Oklahoma plowed ahead with their investigation, culminating in a 635-page report on the financial crisis issued this week.

In the new report released late Wednesday, Levin and Coburn unveiled new documents that they believe prove that Goldman took "short" positions; in other words, they bet against the mortgage market in an effort to profit when the market went south. The lawmakers contend that Goldman was designing, marketing, and selling mortgage-backed securities such as Timberwolf that created conflicts of interest with the investment giant's clients because the firm would profit when the risky loans went sour, while the clients -– unaware that Goldman was betting against the same loans -– would suffer substantial losses.

"Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing," Levin said in releasing the report.

"The free market has helped make America great, but it only functions when people deal with each other honestly and transparently," Coburn said. "At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest. Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight."