Goldman Uses Wall Street’s Favorite Reporter to Make Unpersuasive Defense Against Levin Report

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Last night, the Wall Street Journal reported that Goldman was going on the offensive against the Levin report:

Goldman Sachs Group Inc., trying to counter a Senate subcommittee report that is fueling investigations and suspicion of the firm, plans to accuse the subcommittee of drastically overstating Goldman’s bets against the housing market in 2007….

The subcommittee’s 639-page report in April denounced Goldman as an unusually strong example of wrongdoing by financial firms during the crisis. According to the report, Goldman systematically sought to profit from a “big short” against the housing market and betrayed clients by putting the firm’s own interests ahead of theirs.

Goldman initially said it disagreed “with many of the conclusions of the report,” though the company added that it takes “seriously the issues explored by the subcommittee.”

Tonight, Andrew Ross Sorkin of the New York Times offers what appears to be a preview of the Goldman defense. If this is the sort of thing Goldman plans to provide, it is not terribly convincing.

It’s telling that the first salvo is being leaked through Wall Street’s favorite reporter. Now it’s possible the firm was using Sorkin as a one-man focus group to test and refine their messaging and have him all prepped to go. Sorkin says he’s been in communication with Goldman officials “for the past several weeks”. But this may also indicate that the firm intends to make its case to the press and then let the press persuade the public.

I see that as a sign of serious weakness. The Levin committee provides a great deal of documentation to the public as well as a detailed summary of its findings. By contrast, Wall Street firms make an art form of cherry picking numbers and presenting them in isolation. And journalists don’t have enough knowledge of tradecraft to push back in a serious way.

If the firm is not willing to make data available in a way that people who have market knowledge can assess its claims, I’m going to have trouble taking a Goldman rebuttal all that seriously. Yes, Sorkin does point out some real errors the report made, for instance reporting two figures in the same sentence, one which was net revenues, the other net earnings, and labeling them both as net revenues (the Senate’s mistake has the effect of making Goldman’s conduct look worse).

But as the committee points out in response to the Goldman corrections, why didn’t Goldman make these months ago? The firm adopted an intransigent stance, dumping an overwhelming amount of documents in a deliberate “Fuck you”, assuming they’d never be able to navigate their way through them.

The WSJ story yesterday said Goldman “was considering” releasing material on its site; there’s no indication of that in the Sorkin piece. If they instead go the “spin reporters” route, it simply confirms the impression that Goldman does indeed have something to hide. Matt Taibbi provided his own colorful reading of the Levin report, and the rebuttal via Sorkin leaves most of his charges intact. And we still have the patently false Lloyd Blankfein “market marker” defense from the hearings. Sorry, Goldman in selling CDOs was a placement agent, and that is not at all the same as being a market maker. Blankfein lied and he and the firm cannot pretend otherwise.

And this is where Goldman’s misdirection pays off. Remember, Levin forwarded his entire report to various prosecutors, including the Department of Justice. Sorkin focuses on the statement that got Blankfein into the most hot water: “We didn’t have a massive short against the housing market” and concludes that Blankfein was not lying. But he cannot know that based on the information he presents in his article. It’s not sufficient to reach that conclusion. You’d need to see pretty extensive trading data to reach that conclusion, and reading between the lines, that was not provided to Sorkin. Goldman referred him to various P&L figures.

That tells you nothing. Anyone who has ever done any trading know that positions move in value over time. Your profit is the result of how well you entered and exited a position. The firm could well have had a large short position and closed it out too early. so the realized profits would not be an accurate reflection of the size of the wager. It would be particularly instructive to look at February and March 2008. Both e-mails and pre-bonus self evaluations by members of the mortgage group indicate the firm went short in time to catch the downdraft in February and early March, closed out the short, and then got long and caught the rebound. Looking at the size of the gross and net positions on this round trip would tell us who is closer to the truth on this one.

Having Sorkin stand up for Blankfein on the charge made most loudly against him creates the impression that the Goldman CEO was probably truthful on other topics, when as we indicated earlier, his market maker defense was dishonest.

Given the firm’s having first taken the stance that it would ignore the extensive Levin disclosures and never tried to correct the record at the time, its sudden adoption of a belligerent posture looks highly sus. If the report was really that wrong, why did the firm not issue a lengthy correction at the time?

If the firm does make detailed disclosures as it said it might, it could prove the Levin committee to be wrong. But chats with favored reporters who need to maintain access is no substitute for transparency.

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38 comments

  1. Lloyd C. Bankster

    Sorkin is good man. Lowenstein is also a good man. (Some people get them confused and think that Lowenstein is a nom de plume for Sorkin, and vice versa, but they are in fact two separate stenographers for the TBTF Banks, er, I mean two very fine Wall Street reporters.)

    As I was saying Sorkin is a good man. When the chips are down, you can always count on him to do the right thing.

    1. fidel

      Sorkin is a wal street toilet licker! Did anyone see that joke… too big to fail? There already was an account of what the MOFO’s of wall street did, and it is called “inside job!”

    2. Little Boy

      Bankster says: “When the chips are down, you can always count on him to do the right thing.”

      I think Winston Churchill said it best: “You can always count on Americans to do the right thing – after they’ve tried everything else.”

      1. sgt_doom

        Not to worry….we can depend upon former chief Goldman Sachs lobbyist, Mark Patterson, now chief of staff for Timothy Geithner, Treasury Secretary.

        Not to worry…we can depend upon former Barney Frank staffer, now chief Goldman Sachs lobbyist, Chucky Pease.

        Don’t worry…..be happy….

    3. Little Boy

      Sorkin’s piece demonstrates how GS and others get away with their con. Their dealings are hugely complex and accompanied by mountains of documents. They are, in fact, designed to be incomprehensible. Those who challenge them are put to the test,having to spend ungodly amounts of time and money making a case. In response, GS has their minions parse words and find gotchas that create doubt in the mind of people who are no up to the task. As Yves points out, Sorkin cannot possibly draw proper conclusions from his facts. (Think Adlai Stevenson when he said: “These are the conclusions on which I base my facts.”) GS succeeds in their mission by always managing to be tried by those people who are not up to the task — a jury of ANYONE BUT their peers, so to speak. Good guy or not, it appears to me that Sorkin fits the bill.

  2. par4

    Their “defence” doesn’t need to be convincing. They are Goldman Sachs and we are not a democracy.

  3. A Good Bankster

    I agree with Brother Lloyd that Sorkin is a good man.

    Once he was interviewing me for an article entitled “Some Backup for Goldman on AIG” (which appeared in the NY Times business section)

    http://www.nytimes.com/2010/07/27/business/27sorkin.html?_r=1&dbk

    Suddenly I had a craving for one of those Starbuck’s Caramel Machiattos (with just a little caramel sauce on top). My secretary was occupied at the moment and so what does Sorkin do? He went all the way over to that Starbucks near the Millenium Hilton, fetched me a Caramel Machiatto, and had it back on my desk within 15 minutes.

    A little heavy on the caramel sauce, but hey, nobody’s perfect.

    They don’t make reporters any better than Andrew Ross Sorkin.

  4. Leviathan

    In using Sorkin to do its dirty work so openly, GS risks exposing its own manipulation of the “free press.”

    If it must sacrifice its queen to take down Levin, it is much more vulnerable than most of us realized.

  5. Paul Tioxon

    I like the useful tips about the NYC media&cultural bubble that so many well heeled and allegedly informed New Yorkers operate within. I always liked the Times for the quality of the writing, even if I knew an article was part of the manufacturing of consent and false consciousness. You always need a program to tell who are the players, and Yves, when it comes to media spin and finance, this place is the program.

    One other note, and I feel it important to emphasize when it comes to the creation of certain narratives and how well they take hold in the public’s mind. There can be a feeling of oppressive futility when the info rolls off these posts and comments seem to confirm little more than we are all doomed. Obviously, if we are all doomed, your work, your discipline in grinding out a daily blog and the time we take to read and sometimes respond could be better used in the eat, drink and be merry department. I would rather NOT see “the finest minds of my generation destroyed by madness” but instead, carry on the burden of holding onto the whatever shread of a Democratically controlled Republic we have left.

    The banking crisis is an ongoing disaster, one that Obama can not shake. The consequences of high unemployment, long term unemployment, banking failures happening on the community level with the lack of lending, etc are again heading in the wrong direction and another government stimulus in the form of extended unemployment and grants to states to operate the necessary public services is the only answer. Without Democratic action in the Congress to fund this, votes for Democrats may dwindle in 2012 no matter how cruel and greedy the republicans act.

    The heart of the matter is the too big to fail bank bailout and consequent lack of cooperation on their part to put America back to work. The banks took the aid, they rebuilt their balances sheets with taxpayer money and no-interest Fed support and made monumental profits and personal bonuses, as if nothing bad had happened at all. And all of America sees this, and All of America is not that stupid, despite the regular bashing of the great unwashed populace that goes on here by too many fellow NC readers.

    The public strongly believes in Social Security and no matter how many NY Times articles and traveling town hall potemkin villages paid for by Peterson, this will not change at all. Goldman Sachs and the too big to fail banks, most Wall St based are not trusted and not empathized with in the least by a preponderance of Americans us grew up with NOT ONE STOCK BROKER or mutual fund to be found in our daily experience, but weekly US Savings Bond payroll deductions usually the extra retirement savings plan. No matter what BS is spun in print, on TV or over the radio waves and internet, don’t expect the needle to move at all in the favor of banks in general and Goldman in particular. Banks are at best a necessary evil for the average person, Social Security is the Rock of Gibraltar and nothing the Times or Sorkin can say will influence any other than those already under the influence of bank industry BS.

    1. Clark

      While I admire your reasoned optimism, I can’t agree that All of America sees what’s going on. Last year, I started tacking up on my door various short articles & c. about the banking crisis. I don’t work in finance, but most of my co-workers are lawyers. I got almost zero comments and eventually stopped posting. (To be fair, I didn’t attempt to go out of my way to engage anyone, either.) So I don’t know. I have talked to some friends about the topic. Some are interested, some not.
      I will say that I gave my 80-yr-old father a copy of “Inside Job.” I also send him links to articles on this site and others. I think I’m making some progress on that front.

    2. Tao Jonesing

      “The banking crisis is an ongoing disaster, one that Obama can not shake.”

      If by “disaster” you mean the banking crisis is working exactly as intended, I agree with you.

      As I’ve said before, neoliberalism just recasts many of the feudal control mechanisms into secular, rationalist terms. God is now the market. Economists are its priests. Winners in the market are winners due to the divine right of kings (the Market chose them). God (the Market) has turned its back on the unemployed and the poor, who are excommunicants not worthy of thought or concern.

      That is how liberalism got pwnerized (Seth’s twist).

        1. readerOfTeaLeaves

          It’s a taunt that comes out of online gaming, meaning roughly, “I own you (mofo)”.

          See http://en.wikipedia.org/wiki/Pwn

          With the development of remoting, to ‘pwn’ took on a whole new meaning.
          If you’ve never watched stuff move around on your computer while someone remotely adjusts things, you don’t get the full sense of how eerie this can be.

          Hope that helps ;-)

      1. finishing the analogy

        Communism is the devil. Socialism is lucifer. All communists must therefore rot in hell (poverty). Conversly, all poor people are communists and Satan’s minions. Obviously, everything possible must be done to vanquish them and create a free-market paradise on earth for the market-fearing true believers among us.

    3. Little Boy

      “Banks are at best a necessary evil for the average person”

      Banks – yes. Investments banks – no way! This is not a distinction without a difference.

  6. Jersey Girl

    Sorkin is Wall Street’s Judith Miller. When his NYT stenographer jig is up, he’ll get a high level talking head position @ CNBC. After that, its straight to congress.

  7. ECONOMISTA NON GRATA

    You are all consumers who must pay your taxes…. And that’s that…..

  8. readerOfTeaLeaves

    I think it is useful to link the Sorkin stenography with the obnoxious Goldman Sachs ad campaign that seems stuck in my browser these days.

    It seems that every third website I click on these days serves me up swanky Goldman Sachs ads — with links to other, even more elegant GS ads. I’d love to know how much money they are dumping into their “Progress is everyone’s business” ad campaign. Why, by golly, you’d think that GS is funding every entrepreneurial pizzeria and barber shop in the US of A…

    It’s a solid 5 stars on the gaggeriffic scale.

    One of the things that intrigues me is the resource asymmetry between GS and Levin’s committee.

    IIRC only about 15 staffers worked on that Levin report.

    I don’t know how many PR people GS employs, but the last I read, they had 14 full-time employees in PR. So GS has at least as many full-time PR people on the payroll as the entire nation pays for the employees of the senate committee staff that wrote the Levin Report.

    And that doesn’t include the GS attorneys.
    Nor does it count the amount of money going to ad firms and media outlets to run that gaggeriffic ad campaign.

    That’s a lot of money to be tossing around to manipulate public opinion.

    I smell fear ;-)

  9. Blessedly Data-Free

    $11 billion vs. $46 billion is kind of a big deal…

    The purely ad hominem rubbish in this thread/echo chamber isn’t remotely worthy of the intellectual rigor of the hostess.

    1. readerOfTeaLeaves

      Smacking around terms like ‘ad hominem’ are designed, I presume, to suggest that the arguments here are logical fallacies.

      An ‘ad hominem’ may sometimes be a fallacy; often it is not.
      To decry an ‘ad hominem’ attack does not address the fundamental issue of whether one’s behavior is consistent with professed principles.

      Yves is very patient with those of us who, like myself, come here to learn.
      I’ve noted previously in my comments that I had no interest whatsoever in finance until around mid 2008, and the learning curve is very steep.
      Many of us are not experts, but all of us are curious.

      Unless you are a paid troll, no one told you to come here and bandy your insults about the place.

    2. Tao Jonesing

      Sorkin is correct that the Senate Report on page 383 states that Goldman Sachs had net revenues of $11.6 billion, and that the actual net revenues reported were $45.98 billion.

      What Sorkin missed was the fact that the Senate Report on page 476 states that “Goldman’s total net revenues were approximately $46 billion, and its net earnings (after tax) were approximately $11.6 billion.”

      In fact, the net earnings were $11.6 billion.

      So, the Senate Report got it right once (and where it counted) and got it wrong once because it confused net earnings with net revenues.

      The passage at page 383 is somewhat introductory. Page 476 is where they discuss the big short.

      The Senate Report got it right, and its “error” was essentially a typo and no big deal at all.

      Sorkin is either “blessedly data-free” or dishonest. I vote for both.

      Page 383

      In 2007, it reported net revenues of $11.6 billion, of which $3.7 billion was generated by the Structured Products Group in the Mortgage Department, primarily as a result of its subprime investment activities.1515 Unlike other Wall Street banks

      Page 476

      The SPG Trading Desk’s net revenues for the full fiscal year 2007 were approximately $3.7 billion.1985 In fiscal year 2007, Goldman’s total net revenues were approximately $46 billion, and its net earnings (after tax) were approximately $11.6 billion.1986 At the Subcommittee hearing, Goldman’s Chief Financial Officer, David Viniar, stated that the Mortgage Department’s net revenue for 2007 was “less than $500 million, approximately 1 percent of Goldman Sachs’s overall net revenues.”1987 He insisted that its 2007 net short position in the mortgage market “was not a large short,”1988 and was largely offset by its long positions, omitting that, in 2007, the Mortgage Department’s SPG Trading Desk generated a record $3.7 billion in net revenues for the Department as a whole from its net shorts.1989 Those profits sustained the Mortgage Department and Goldman through the harsh financial environment of the subprime mortgage market meltdown and the global credit crisis in 2007. While much of those revenues were offset by other losses, they were a bulwark of profitability in what would otherwise have been a disastrous year for Goldman’s mortgage business. Id. Id. 1985 See 11/30/2007 “SPG Trading Mortgages W eekly Metrics 30-November-2007,” GS MBS-E-015646485. 1986 See Goldman Sachs Form 10-K for the fiscal year ending Nov. 30, 2007, filed on 1/28/2008, at 64; see also Goldman presentation, “Overview of Goldman Sachs,” at 5, available at http://www2.goldmansachs.com/our-firm/investors/creditor-information/creditor-presentation-3-1-11.pdf. 1987 April 27, 2010 Subcommittee Hearing at 96. See also 235, 252, 345. 1988 Id. at 98. 1989 11/30/2007 “SPG Trading Mortgages W eekly Metrics 30-November-2007,” GS MBS-E-015646485. 1984 1983

  10. seabos84

    “all the thoughts that are fit to think” – I was a 4 or 5 buck an hour 20 year old cook in 1980 and I was able to spot the sold out media clamoring on the Prop 13 / Raygun bandwagon of lies.

    Sorkin is doing what he SHOULD do – as an elitist sold out scumbag, we should expect the guy to wear sack cloth & feed lepers in India?

    Funny how I’ve heard the same whining from the same $ocial cla$$, from Sea to Shining Sea – whether I was a fine dine cook in Boston in hte mid 80’s, or microserf serf in Redmond 10 years later, the excuses are incessant from the noblerer gooderer smarterer cla$$ that the mean meanies are mean, and that lying thieves … lied to steal!

    Oh my – I don’t think I’m in Kansas anymore Toto!

    Let me try out this math problem – how come there are:

    – 100’s of 6 figure a year Dems,
    – 1000’s of their lackeys working in communications, media, press relations, public relations,…
    – TEN$ OF MILLION$ in annual salaries,

    and all we the peee-0ns can get is excuses and worthless ass “leaders” who are politically incompetent only when they’re not DLC-NeoLib $ell-0ut$?

    Oh well, after decades of betrayals, at least they’ve finally liberated this pee-on from wasting his pennies, his seconds and his votes on their worthless over degreed over credentialed over titled over paid asses.

    rmm.

    1. seabos84

      opps – I didn’t mean to imply that Yves is part of the whiny class, and I think I did.

      Yves rocks!

      I learned the little I know about writing on manual typewriters and can’t, obviously, edit worth a shit online.

      rmm

  11. David in NYC

    Yves is far too gentle in her criticism. Sorkin offers zero evidence in support of his dubious claim that, “the suggestion that the short was a huge directional bet by the firm to profit off a real estate collapse may not completely stand up.”

    First, The Big Short was not a bet on the real estate collapse, it was a huge position taken against on BBB tranches of subprime bonds that were guaranteed to fail as soon as the bubble ended. Goldman invested in a sure thing, not a “bet.”

    Second, the only way to ascertain Goldman’s net position is to compare its short positions and its long positions over time. Sorkin makes his point by referring to fragmentary comments on revenues. No trader would be so clueless as to take that column seriously.

    1. Little Boy

      The one thing that has absolutely astonished me is how the players managed to take the tranche previously rated as junk and somehow represent that it included AAA rated investments while passing the laugh test. I don’t see much on that subject. Using the players’ logic, each tranche of junk could have been reconstituted over and over until virtually all of the mortgages were AAA. (Kind of like fractional banking) I am not a trader or a lawyer, but the very concept suggests to me that it is a mathematical certainty that fraud was committed. No one could truly be so stupid as to believe that the junk could be magically transformed into investment grade assets through that process.

      1. Mark P.

        “…a mathematical certainty that fraud was committed?”

        Of course. Immense fraud is at the heart of this, as you suggest, from bottom to top.

        At the bottom, on the level of individual mortgage originations: the FBI was warning about massive fraud in documentation as early as 2004, IIRC, and was strenuously ignored/told to back off by politicians.

        At the top, on the level of the securitization industry and the rating agencies: as early as 2002, there was massive fraud there also. Here’s a link to a Bill Black presentation, wherein at one point Black quickly walks the audience through one documented example of how this fraud worked. The essential segment here is at 6:46 mins in, to 18:00 mins, —

        http://www.youtube.com/watch?v=YmLHyBabew4

        For those who don’t access the link, Black presents a letter written by a ratings agency executive in 2002 to an agency employee who’d committed the monstrous impropriety of asking to see the actual documentation underlying one set of MBS, so that the boss then forcefully told that employee in writing that this was an “entirely unacceptable” request — with strong intimations that the employee might be fired if they persisted in their unreasonableness.

  12. Cynthia

    If Carson Block, who founded the hedge-fund research firm, Muddy Waters, is right (listen to link below), then the Chinese economy isn’t as fraud-free as many like to think it is. The irony in this is that he is betting big time against Sino-Forest, the Chinese-based company that the billionaire hedge-funder John Paulson is heavily invested in. I’m not one to engage in schadenfreude, but I would take great pleasure in seeing the man, who was able to amass more wealth than anyone else by betting big time against the subprime market, take a nontrivial loss for a change.

    http://www.bloomberg.com/video/70530586/

    The Chinese are known for their brilliance at copycatting America. But if they are trying to copycat the great American Ponzi scheme, masterminded by the likes of Goldman Sachs, then look to see the entire global economy crash and burn in the not-so-distant future.

    This is why I’m staying out the market, at least not putting any new money into it. I regret not listening to people I normally trust regarding the market, people like Barry Ritholtz, when they said back in March of 2009 that market has hit a bottom and it would continue move up from that point onward, as long as The Bernanke has got his QE pedal to the metal. But I have such a low tolerance for risk that I find myself spending a lot of time sitting on the sidelines, watching closely but hardly ever taking action. A character flaw, no doubt.

  13. Fatty Goose

    Earlier this year our Federal Feds launched a series of roundups as a show of force against crime, the only problem is that, like in the Passover, they didn’t raid the houses that had the building abutments covered with the blood of borrowers:

    “The FBI arrested more than 100 suspected Mafia members in a series of early-morning raids Thursday in what Attorney General Eric Holder called a major effort to “once and for all” crack the Northeast’s major crime families.” – FUX News

    In other words, Holder only gives impressive “get tough” speeches when he is presented with a politically correct sound bite to enunciate.

  14. Schofield

    Tao Jonesing is so right. If you’ve ever read about the Neo-Liberal Project in “The Road From Mont Pelerin” you’ll know that it was all about transferring democracy out of parliament and into the market place. In that place you’ll also be very much aware that money talks not the collective will.

  15. bmeisen

    It’s slightly embarrassing to admit that I read Sorkin’s Too Big To Fail. It wasn’t easy – I had to keep hoping that the next page would be informative. I picked it because Simon Johnson praised it in the WAPO and it was a bestseller. Go figure. Something like manufacturing consent at work? And succeeding wildly!?! I respect Johnson but did he read the book?

    Thankfully I had discovered this blog by then and got Econned, a maginificent work! Thank you Yves! It directed me to Tett and Partnoy. Partnoy’s Insatiable Greed is also a compelling, informative, wonderful read. Hat tips galore!

    1. readerOfTeaLeaves

      I respect Johnson but did he read the book?

      Oh, it’s worse than that.
      Doesn’t matter whether Johnson read it.
      It was turned into a docudrama (I think by HBO)?

      That means a whole lot of people will assume it is THE narrative.

      The more comprehensive, accurate narrative of the bigger global impact is “Inside Job”.

  16. phichibe

    I would suggest that the proper eyes through which to view Sorkin’s words and deeds are those of Steven Rattner. Rattner was an NYT reporter who found a mentor and subsequently riches in Felix Rohatyn and through him Lazard; ironically for Rohatyn, Rattner could be bought but not his loyalty, and he later forced Felix out. My guess is every business reporter at the Times hopes he’ll be the next Rattner.

    I wager Sorkin is waiting for some panjandrum to bring him inside, probably not an I-bank but rather a hedge fund, so he can make his c. (or is it C.?) Sorkin figures if he carries enough water for Wall Street, his loyalty will bring its reward.

    Phichibe

    PS: Yves, I hope you’ll keep afflicting the comfortable. You’re one of the few fighting the good fight.

    1. Mark P.

      “My guess is every business reporter at the Times hopes he’ll be the next Rattner.”

      Not every one. But, sure, a serious proportion absolutely nourish such fantasies.

      Out in Silicon Valley during the dotcom bom, one of the heaviest-hitting venture capitalists was Michael Moritz at Sequoia Capital — originally, a Brit journalist who’d come out to California in the early 1980s — and quite a few of the male journalists I knew then hoped to cross the tracks similarly.

      At least a couple did. But the gig became thinner gruel and a harder grind thereafter. Which, arguably, is another instance of avaricious capital blowing too big a bubble in its greed, and killing the golden goose — except we had the Internet to show at the end of that, while the damage’s scope was nothing next to what’s out there today.

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