Goldman Sachs has long been known for being notoriously silent about publicity, whether good or bad. Yet, in the wake of the credit crisis, news of federal investigations, negative publicity about executive bonuses, and rumors of double-dealing, Goldman Sachs issued a letter to its shareholders denying any wrongdoing. In addition, a story titled “Goldman Sachs: Don’t Blame Us” was published in the April 12, 2010 edition of BusinessWeek magazine and extensively quoted Goldman executives denying misconduct. Are Goldman’s attempts to revamp its image to the American public done to “set the record straight,” or out of a gnawing fear of a future day of reckoning?
The shareholder letter, released in Goldman’s 2009 annual report, is very defensive and specifically addressed allegations that Goldman bet against its shareholders who purchased subprime mortgage securities by secretly purchasing credit default swaps, hence “betting on a downturn in the housing market.” According to sources, Goldman had marketed more than $40 billion of securities tied to risky home loans in 2006 and 2007. At the same time, Goldman took out credit-default swaps worth as much as $22 billion from AIG before the housing market began its decline. When the underlying securities, often the same securities later declined in value, Goldman required AIG to post billions in cash for the credit-default swaps. Goldman has long stated that these were routine transactions done to minimize its exposure to the risk in the residential housing market. It has also denied generating “enormous net revenues or profits by betting against residential mortgage-related products, as some have speculated.”
The BusinessWeek article is equally defensive. According to the article, “Goldman’s leaders say the vilification is unjustified.” Chief Financial Officer David A. Viniar asserts that Goldman bankers merely did their jobs. He claims that conspiracy theories are not the real story and the firm had no subprime agenda motives that were at odds with those of their clients. He argues that if Goldman had been as devious as it has been made out to be by the public, it would have done far better in 2008 than it actually did. The BusinessWeek article states that Goldman allowed several of its top officials to be interviewed to address three major allegations: 1) that Goldman duped AIG and subsequently the U.S. Government (therefore, the U.S. taxpayer), into paying for credit-default swaps insuring mortgage securities, 2) it took short positions on collateralized debt obligations (CDOs) that it created and sold to clients (thereby betting against them), and 3) building these CDOs with subordinate/inferior mortgage assets that ensured their collapse.
Why is this unified defense suddenly coming from Goldman? Doth Goldman protest too loudly?