正文
By LOUISE STORY
NEW YORK TIMES
April 18, 2010, 11:27PM
Tensions were rising inside Goldman Sachs.
It was late 2006, and an argument had broken out inside the Wall Street bank\'s prized mortgage unit — a dispute that would reach all the way up to the executive suite.
One camp of traders was insisting that the American housing market was safe. Another thought it was poised for collapse.
Among those who saw disaster looming were an effusive young Frenchman, Fabrice Tourre, and his quiet colleague, Jonathan Egol, the mastermind behind a series of mortgage deals known as the Abacus investments.
Their elite mortgage unit is now at the center of allegations that Goldman and Tourre 31, defrauded investors with one of those complex deals.
The Securities and Exchange Commission filed a civil fraud suit on Friday that essentially says that Goldman built the financial equivalent of a time bomb and then sold it to unwitting investors. Egol, 40, was not named in the SEC\'s suit.
Goldman has vowed to fight the SEC. But the allegations have left many wondering how far the investigation might spread inside Goldman and perhaps beyond.
Tourre was the only person named in the SEC suit. But according to interviews with eight former Goldman employees, senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south. These people spoke on the condition that they not be named so as not to jeopardize business relationships.
According to these people, executives up to and including Lloyd Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit as the tremors in the housing market began to reverberate through the nation\'s economy. It was Goldman\'s top leadership, these people say, that finally ended the dispute on the mortgage desk by siding with those who, like Tourre and Egol, believed home prices would decline.
Company denies charges
Lucas van Praag, a Goldman spokesman, said that senior executives were not involved in approving the Abacus deals. He said that the executives had sought to balance Goldman\'s positive bets on the mortgage market, rather than take an overall negative view.
Mortgage specialists like those at Goldman were, in a sense, the mad scientists of the subprime era. They devised investments by bundling together bonds backed by home loans, a process that enabled mortgage lenders to make even more loans.
While this sort of financing helped make loans available, the most exotic creations also spread the growing risks inside the U.S. housing market throughout the world. When the boom went bust, the results were disastrous.
By early 2007, Goldman\'s mortgage unit had become a hive of intense activity. By then, the business had captured the attention of senior management. In addition to Blankfein, Gary Cohn, Goldman\'s president, and David Viniar, the chief financial officer, visited the mortgage unit frequently, often for hours.
The decision to get rid of positive bets on mortgages turned out to be prescient. Unlike most other Wall Street banks, Goldman profited from its mortgage business as the housing bubble was inflating and then again when the bubble burst.
Concern grows inside
During the boom, Goldman\'s mortgage unit was a leader on Wall Street. But in 2006, some inside Goldman began to worry about the fragile state of housing. Daniel Sparks, the Texan who ran the mortgage unit, sided with those who believed the market was safe. Two of his traders, Joshua Birnbaum and Michael Swenson, had placed a big bet that mortgage bonds would rise in value.
But this camp clashed with Goldman sales staff who were working with hedge funds that wanted to bet against subprime mortgages. Birnbaum told the team to stop promoting bets against some mortgage investments since such trades were hurting the market and Goldman\'s own position, according to two former Goldman employees.
But a few desks away, Tourre and Egol were quietly working on the Abacus deals.What united them was an unusually negative view on the mortgage market. As far back as 2005, they clashed with Goldman traders who worked with big mortgage lenders like Countrywide to buy and package loans. Their Abacus deals included insurance-like protection that would pay out if certain mortgage bonds soured. Such credit-default swaps were not worth much in 2005, when housing was flying high, but became highly valuable once the market sputtered.
Unlike many of their colleagues at Goldman and other banks, they argued that the nation\'s mortgage market was far more interconnected than believed, former Goldman employees said. Their view was that if one group of mortgages or mortgage bonds ran into trouble, the entire market might falter.
Tourre and Egol created a way for a prominent hedge fund manager, John Paulson, to bet against risky mortgages. With Paulson\'s help, Goldman created an Abacus investment that, the SEC now says, was devised to fall apart. By betting against that investment, Paulson reaped $1 billion in profit, according to the SEC. Paulson was not named in the SEC complaint.
Goldman\'s top ranks changed its stance on housing in December 2006. Viniar, the CFO, and Cohn, the president, gathered executives so that Sparks could walk them through the numbers. The group was unanimous: Goldman had to reduce its exposure to the increasingly troubled mortgage market.
The executives told Sparks to tell his traders to sell Goldman\'s positive bets on housing. The traders\' short positions — that is, negative bets, mostly used to hedge other investments — were placed in a central trading account.
Goldman turned over all these negative positions to Swenson and Birnbaum, the traders who had previously been positive on the market. Along with Sparks, they have been credited for managing the short position that yielded a $4 billion profit for Goldman in 2007. But former Goldman employees said those traders benefited from the short positions that were given to them. And their trading was tightly overseen by senior executives.
NEW YORK TIMES
April 18, 2010, 11:27PM
Tensions were rising inside Goldman Sachs.
It was late 2006, and an argument had broken out inside the Wall Street bank\'s prized mortgage unit — a dispute that would reach all the way up to the executive suite.
One camp of traders was insisting that the American housing market was safe. Another thought it was poised for collapse.
Among those who saw disaster looming were an effusive young Frenchman, Fabrice Tourre, and his quiet colleague, Jonathan Egol, the mastermind behind a series of mortgage deals known as the Abacus investments.
Their elite mortgage unit is now at the center of allegations that Goldman and Tourre 31, defrauded investors with one of those complex deals.
The Securities and Exchange Commission filed a civil fraud suit on Friday that essentially says that Goldman built the financial equivalent of a time bomb and then sold it to unwitting investors. Egol, 40, was not named in the SEC\'s suit.
Goldman has vowed to fight the SEC. But the allegations have left many wondering how far the investigation might spread inside Goldman and perhaps beyond.
Tourre was the only person named in the SEC suit. But according to interviews with eight former Goldman employees, senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south. These people spoke on the condition that they not be named so as not to jeopardize business relationships.
According to these people, executives up to and including Lloyd Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit as the tremors in the housing market began to reverberate through the nation\'s economy. It was Goldman\'s top leadership, these people say, that finally ended the dispute on the mortgage desk by siding with those who, like Tourre and Egol, believed home prices would decline.
Company denies charges
Lucas van Praag, a Goldman spokesman, said that senior executives were not involved in approving the Abacus deals. He said that the executives had sought to balance Goldman\'s positive bets on the mortgage market, rather than take an overall negative view.
Mortgage specialists like those at Goldman were, in a sense, the mad scientists of the subprime era. They devised investments by bundling together bonds backed by home loans, a process that enabled mortgage lenders to make even more loans.
While this sort of financing helped make loans available, the most exotic creations also spread the growing risks inside the U.S. housing market throughout the world. When the boom went bust, the results were disastrous.
By early 2007, Goldman\'s mortgage unit had become a hive of intense activity. By then, the business had captured the attention of senior management. In addition to Blankfein, Gary Cohn, Goldman\'s president, and David Viniar, the chief financial officer, visited the mortgage unit frequently, often for hours.
The decision to get rid of positive bets on mortgages turned out to be prescient. Unlike most other Wall Street banks, Goldman profited from its mortgage business as the housing bubble was inflating and then again when the bubble burst.
Concern grows inside
During the boom, Goldman\'s mortgage unit was a leader on Wall Street. But in 2006, some inside Goldman began to worry about the fragile state of housing. Daniel Sparks, the Texan who ran the mortgage unit, sided with those who believed the market was safe. Two of his traders, Joshua Birnbaum and Michael Swenson, had placed a big bet that mortgage bonds would rise in value.
But this camp clashed with Goldman sales staff who were working with hedge funds that wanted to bet against subprime mortgages. Birnbaum told the team to stop promoting bets against some mortgage investments since such trades were hurting the market and Goldman\'s own position, according to two former Goldman employees.
But a few desks away, Tourre and Egol were quietly working on the Abacus deals.What united them was an unusually negative view on the mortgage market. As far back as 2005, they clashed with Goldman traders who worked with big mortgage lenders like Countrywide to buy and package loans. Their Abacus deals included insurance-like protection that would pay out if certain mortgage bonds soured. Such credit-default swaps were not worth much in 2005, when housing was flying high, but became highly valuable once the market sputtered.
Unlike many of their colleagues at Goldman and other banks, they argued that the nation\'s mortgage market was far more interconnected than believed, former Goldman employees said. Their view was that if one group of mortgages or mortgage bonds ran into trouble, the entire market might falter.
Tourre and Egol created a way for a prominent hedge fund manager, John Paulson, to bet against risky mortgages. With Paulson\'s help, Goldman created an Abacus investment that, the SEC now says, was devised to fall apart. By betting against that investment, Paulson reaped $1 billion in profit, according to the SEC. Paulson was not named in the SEC complaint.
Goldman\'s top ranks changed its stance on housing in December 2006. Viniar, the CFO, and Cohn, the president, gathered executives so that Sparks could walk them through the numbers. The group was unanimous: Goldman had to reduce its exposure to the increasingly troubled mortgage market.
The executives told Sparks to tell his traders to sell Goldman\'s positive bets on housing. The traders\' short positions — that is, negative bets, mostly used to hedge other investments — were placed in a central trading account.
Goldman turned over all these negative positions to Swenson and Birnbaum, the traders who had previously been positive on the market. Along with Sparks, they have been credited for managing the short position that yielded a $4 billion profit for Goldman in 2007. But former Goldman employees said those traders benefited from the short positions that were given to them. And their trading was tightly overseen by senior executives.
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