A world in economic crisis

Goldman Sachs is accused of misleading investors by U.S. Senate

Posted in dodgy swaps and derivatives, Goldman Sachs by Aussie on April 15, 2011

According to this BBC report, a US Senate probe says that Goldman Sachs had misled investors selling mortgage-backed investments it knew would fail.

The name Goldman Sachs has cropped up in a number of different places when it comes to the provision of misleading information. Greece comes to mind, because it was Goldman Sachs who helped the Greek government prepare reports that were meant to fool the European Economic Community so that they could gain access to the Euro zone.

The Senate Permanent Subcommittee on Investigations claims that Goldman Sachs lied in a testimony given in 2010.

Goldman had marketed four sets of complex mortgage securities to banks and other investors, but failed to tell them that the investments were risky.

According to Carl Levin the Democrat who heads the subcommittee Goldman had exploited the clients.

This might be true with regard to Goldman Sachs, and there is evidence that this is the case because Goldman Sachs settled a civil lawsuit relating to a large deal known as Abacus to the tune of $550 million,  but it seems that there are also a number of other issues that were not explored by this subcommittee, for example:

1. What was the impact of the act that removed the requirement to have a deposit before lending was approved?

2. What was the impact of lending to people who could not pay or would not pay back the mortgage?

In other words, it is more than likely that Goldman Sachs deserves to be called out for possibly lying to clients about the risk involved in taking on those investments.




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