Fab looks at Swenson (glasses) during Senate testimony last Summer.
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Goldman Sachs mortgage traders tried to manipulate prices of derivatives linked to subprime home loans in May 2007 for their own benefit, according to a U.S. Senate report.
Company documents show traders led by Michael J. Swenson sought to encourage a “short squeeze” by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to the report yesterday by the Permanent Subcommittee on Investigations. The idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help Goldman Sachs traders buy at reduced prices, according to the report.
“We began to encourage this squeeze, with plans of getting very short again,” Deeb Salem, a trader in the structured product group, said in a 2007 self-evaluation excerpted in the report. Swenson, Salem’s supervisor, sent e-mails in May 2007 urging traders to offer prices that will “cause maximum pain” and “have people totally demoralized.” In interviews with the committee, Salem and Swenson denied attempting a short squeeze, the report said.
Salem “claimed that he had wrongly worded his self- evaluation,” the report said. “He said that reading his self- evaluation as a description of an intended short squeeze put too much emphasis on ‘words.’”
The subcommittee cited the episode as an example of how Goldman Sachs traders placed the firm’s interests ahead of its clients’ as the value of mortgage-linked investments tumbled in 2007.
“We need to go to magnetar and see if we can buy a bunch of cdo protection… Can tell them we have a protection buyer, who is looking to get into this trade now that spreads have tightened back in.”
Swenson expressed “no concerns about the proposed deception” and responded to Salem that it was a “great idea,” according to the report.
The report comes almost a year after the committee spent more than 10 hours grilling Lloyd C. Blankfein, Goldman Sachs’s chairman and chief executive officer, and six current and former employees in one of the most hostile political showdowns in the aftermath of the financial crisis.
Continue reading at Bloomberg...
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Video - Fab grilled for fraud - April 2010
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More detail on the damning emails.
Here is the complete report from Sen. Levin and staff:
Further reading:
Goldman Sach's Power Players - Michael Swenson Profile - CNN