UPDATE-3 Goldman CEO lauded profit from subprime shorts

* Emails show execs touting money to be made going short

* Sen. Levin: banks were self-interested promoters of risk

* Goldman says Senate panel seems to have prejudged it

* Says lost money in residential mortgages 2007-2008
(Adds further emails, background, report of executive share
sales)

By Dan Margolies

WASHINGTON, April 24 (BestGrowthStock) – Goldman Sachs Group Inc’s
(GS.N: ) top executive boasted in late 2007 about the money the
investment bank was making from betting against risky
mortgages, according to a collection of e-mails released by a
Senate panel on Saturday.

The emails were released ahead of a hearing on Tuesday by
the Senate Permanent Subcommittee on Investigations into the
origins of the financial crisis and come as the bank battles a
fraud suit by the Securities and Exchange Commission.

The emails could also help bolster support for financial
regulation legislation that is due to come to the floor of the
Senate on Monday.

“Of course we didn’t dodge the mortgage mess. We lost money,
then made more than we lost because of shorts,” Goldman Sachs
Chief Executive Lloyd Blankfein said in an e-mail dating from
November 2007.

“Sounds like we will make some serious money,” said Goldman
Sachs executive Donald Mullen in a separate group of e-mails
from October 2007 about the performance of deteriorating
second-lien positions in a collateralized debt obligation, or
CDO.

The SEC suit charges Goldman hid vital information from
investors about a subprime mortgage-linked security.

The subcommittee is due to hear from Blankfein and other
Goldman executives about the role of investment banks in the
financial crisis.

Senator Carl Levin, the chairman of the subcommittee, said
the emails showed Goldman “made a lot of money by betting
against the mortgage market.”

“Investment banks such as Goldman Sachs were not simply
market-makers, they were self-interested promoters of risky and
complicated financial schemes that helped trigger the crisis,”
Levin said in a statement.

Lucas van Praag, a spokesman for Goldman, said Levin’s
subcommittee had “cherry-picked just four e-mails from almost
20 million pages of documents and e-mails provided to it by
Goldman Sachs. It is concerning that the subcommittee seems to
have reached its conclusion even before holding a hearing.”

Van Praag said that Goldman’s profit and loss statements
for 2007 and 2008 demonstrated “conclusively” that the firm did
not make a “significant amount of money” in the mortgage
market.

“What it does show,” he said, “is that we had net losses of
over $1.2 billion in residential mortgage-related products in
the period. As a firm, we obviously could not have been
significantly net short since we lost money in a declining
housing market.”

FORETELLING THE CRASH

Goldman says it did not act against its clients’
interests.

An internal briefing paper prepared by Goldman for
Tuesday’s hearing says there was debate among Goldman
executives in the spring of 2007 about the direction of the
subprime residential market.

But some at Goldman were certain the subprime mortgage
market was going to crash.

The Wall Street Journal quoted a March 2007 email from
Fabrice Tourre, a bond trader and the only individual defendant
in the SEC suit, as saying subprime borrowers would not last
long.

“According to Sparks, that business is totally dead, and
the poor little subprime borrowers will not last so long!!!”
Tourre wrote to his girlfriend, the journal said.

Daniel Sparks, a former head of the mortgages department at
Goldman, and Tourre, are among those due to testify to Levin’s
subcommittee.

The SEC’s April 16 lawsuit accuses Goldman of fraud for
failing to tell clients that the debt securities they were
buying had input from hedge fund Paulson & Co, which stood to
benefit if the securities lost value.

John Paulson said his firm, not investors, will pay any
legal fees related to the SEC lawsuit, the journal reported.

Five senior executives at Goldman sold company stock after
the firm received notice from the SEC in July of possible fraud
charges, the journal also reported.

The sales, totaling $65.4 million between October 2009 and
February 2010, were made by co-general counsel Esta Stecher,
vice chairmen Michael Evans and Michael Sherwood, principal
accounting officer Sarah Smith and board member John Bryan, it
said.
(Reporting by Dan Margolies, Karey Wutkowski, and Steve Eder
in New York; Editing by Tim Dobbyn)

UPDATE-3 Goldman CEO lauded profit from subprime shorts