The Real Deal Miami

Goldman Sachs’ shorting of mortgage assets was not a hedge: report

April 14, 2011 03:06PM

Goldman Sachs’ short position on mortgage-related assets that helped them profit during the financial crisis, was not a hedge against other, long positions, but rather the firm’s stance on the market, according to a Senate Investigations report cited by CNBC. At the time, Goldman CEO Lloyd Blankfein wrote that “the short position wasn’t a bet. It was a hedge; ie, the avoidance of a bet,” but by June 2007 Goldman Sachs had no mortgage position to hedge, according to testimony presented to the Senate investigations committee. The $13.9 billion short position on mortgages, therefore, was not a hedge, but rather the firm’s market position, and in keeping with that position the mortgage desk’s value at risk was nearly $113 million — far beyond the typical $35 million limit. CNBC said these new facts demonstrate the firm’s attempts to embrace a conservative narrative, rather than one that shows they put a lot of money at risk, but outsmarted the competition to the tune of huge profits. [CNBC]