Washington, DC, United States (AHN) – After two years of investigating, a U.S. Senate committee has charged that Goldman Sachs knew the mortgage-backed securities it was selling to investors would fail.
The Senate Permanent Subcommittee on Investigations looked at the behavior of Wall Street banks during the credit crisis and found Goldman Sachs knowingly misled investors.
In a report issued Wednesday, the committee said that Goldman failed to tell banks and other investors that four sets of complex mortgage securities were risky. Moreover, Goldman was betting the investment’s value would fall and did not mention to investors that it did not believe in backing the investments it was selling.
Goldman marketed billions of dollars worth of poor quality mortgage securities that were parceled out to bundles of securities called collateralized debt obligations.
But Goldman didn’t invest much in the collateralized securities. On the risk, or long side, Goldman only invested $6 million, and then Goldman secretly invested $2 billion in bets against the securities, which was the opposite or short position. Goldman did not tell investors about the bank’s bets against the securities it was selling them.
In addition, the committee found that Goldman CEO Lloyd Blankfein’s testimony to Congress in 2010 was misleading. It has asked the Justice Department to investigate Blankfein’s testimony.
However, Goldman Sachs has disputed the findings of the report. The bank also says all its executives gave truthful and accurate testimony to Congress in 2010.
Other banks were investigated along with Goldman.
The Senate committee made similar charges against Deutsche Bank and also found that Washington Mutual ignored warnings from its chief credit officer to knowingly underwrite poor quality mortgages.
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