Senate Grills Goldman for MBS Sale Practices

To read about the industry’s concerns and response to the Goldman hearings click here

WASHINGTON, DC-As the Senate Governmental Affairs Subcommittee on Investigations grilled Goldman Sachs Tuesday about the sales of residential and commercial mortgage-backed securities, the senators agreed they will amend pending legislation to include conflict-of-interest wording based on the testimony. The company, which earned $500 million in 2007 by balancing long investments on these securities with short sales against the securities’ success, has been charged by the SEC with fraud regarding MBS sales.

Through 11 hours of testimony from Goldman executives, the subcommittee accused the company of selling securities to some companies without telling the buyers that Goldman planned to sell short on those securities–basically betting against the product. “You have salespeople saying they think these products are crap, yet they still sell them while your company bets against them,” said committee chairman Sen. Carl Levin. “You shouldn’t be selling junk, and you shouldn’t be betting against your own customer the same time you’re selling to him.”