Short shrift

Goldman Sachs: The US Senate’s investigations unit has scored some easy political points in its study of Goldman Sachs’s subprime mortgage activities in 2007. But there is no concrete evidence of wrongdoing, or even of an excessively zealous search for profits, in the four exchanges of embarrassing emails from the Wall Street firm released over the weekend. Still, Goldman hardly makes a killer case with its defence - that it was merely hedging risk.

A discussion of what finance chief David Viniar called the “big short” against subprime did not sound good. One email mentions making $50 million in one day, another talks about making some “serious money”, while a third mentions losing $2.5 million on bonds that it structured for a lender - but also making $5 million shorting them. And Goldman chief Lloyd Blankfein wrote that “we made more than we lost because of shorts”.

But a closer look shows Senator Carl Levin’s subcommittee has not found any smoking guns. The first three are snapshots, not an overall view. As for the firm’s profits in this line of business, Levin’s subcommittee has not, so far, provided any analysis. Without that, Blankfein’s email comment does not contradict the firm’s earlier statements that it did not make significantly more money shorting mortgages than it lost holding them.

In fact, Goldman released its own set of emails over the weekend, which showed it reacting early and prudently to the crisis. They bolster the argument that Goldman’s overarching goal was nothing more sinister than minimising losses.

Goldman is hardly in the clear, though. Some of the emails it released detail how the Wall Street firm was also constantly looking for other ways to make money - such as considering buying up distressed mortgage lenders or dreaming up new mortgage trades.

In the world of Goldman, that sort of thinking is normal. Making money is what investment banks are supposed to do. But the critics may not be satisfied unless Goldman can demonstrate that it put all its clients first in all its trades. That looks like a tall order.