[Congressional Record (Bound Edition), Volume 156 (2010), Part 4]
[House]
[Page 5811]
[From the U.S. Government Publishing Office, www.gpo.gov]




             GOLDMAN SACHS: CLEARLY WRONG AND THEY SAID SO

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Mr. Speaker, last Friday, the Securities and Exchange 
Commission (SEC) filed fraud charges against investment bank Goldman 
Sachs for misleading and defrauding investors through their selling of 
a complex financial product based on toxic subprime mortgages. These 
charges are serious, but the SEC should have been investigating the 
abusive practices that contributed to our financial crisis much sooner.
  American taxpayers could see past Goldman Sachs' smoke and mirrors. 
American taxpayers could see past Lloyd Blankfein's defense of his 
company when he said such things as ``We're very important.'' He went 
on to say, ``I'm doing God's work.'' Americans could see that there 
were problems on Wall Street well before the SEC was willing to 
publicly acknowledge it.
  Now, according to the SEC, Goldman Sachs was approached by one of the 
world's largest hedge funds, Paulson & Co., which asked the firm to 
create and market collateralized debt obligations (CDOs) whose values 
were linked to the value of toxic home loans. With billions being 
offered, Goldman Sachs obliged and created ABACUS, which the hedge fund 
then placed bets against, knowing that this new financial instrument 
was certain to lose value. Then, Goldman Sachs failed to tell ABACUS 
investors that the very hedge fund that helped to create and assemble 
the toxic CDOs, was betting against it.
  ``The product was new and complex but the deception and conflicts are 
old and simple.'' That's what the SEC's Director of Division 
Enforcement said. ``Goldman wrongly permitted a client that was betting 
against the mortgage market to heavily influence which mortgage 
securities to include in an investment portfolio, while telling other 
investors that the securities were selected by an independent, 
objective third party.''
  The Goldman Sachs-Paulson & Co. deal closed on April 26, 2007, with 
the hedge fund paying Goldman Sachs $15 million for structuring and 
marketing ABACUS to unknowing investors. Unfortunately, however, by 
October 24 of that same year, 83 percent of the residential mortgage-
backed securities in the ABACUS portfolio had been downgraded, and 17 
percent were on negative watch. Less than a year later, on January 28, 
2008, 99 percent of the ABACUS portfolio had been downgraded. Those who 
invested in ABACUS lost more than $1 billion.
  Goldman Sachs' official statement that ``the SEC charges are 
completely unfounded in law and fact, and we will vigorously contest 
them and defend the firm and its reputation,'' contrasts greatly with 
the words of Goldman's CEO Lloyd Blankfein when he publicly apologized 
in November of last year for the bank's role in some of the activities 
leading up to the financial crisis. This is what he said: ``We 
participated in things that were clearly wrong and have reason to 
regret. We apologize.''
  Unfortunately, however, it appears the senior leadership at Goldman 
Sachs knew months before they even marketed ABACUS to investors that 
the housing market was about to crash. Goldman's vice president, 
Fabrice Tourre, who was said to be the man who structured the toxic 
financial instrument, prepared the marketing materials, and 
communicated directly with investors, sent an e-mail stating, ``the 
whole building is about to collapse anytime now.'' He is now taking a 
break from his position at the firm.
  The allegations against Goldman Sachs are very serious, and Goldman 
Sachs has the right to challenge the SEC's civil fraud charges. But the 
SEC also has a duty to American taxpayers to get the bottom of this and 
continue to investigate any abusive practices employed by all financial 
institutions, not just Goldman Sachs.
  Mr. Speaker, the American people recall that Goldman Sachs was a TARP 
bailout recipient and one of the few big Wall Street banks that managed 
to not only benefit from the taxpayer bailout but also to emerge 
stronger than before. Goldman Sachs received $10 billion in TARP funds, 
was allowed to convert to a bank holding company in order to gain 
additional support from the Federal Reserve, and was one of the largest 
recipients from the $180 billion AIG bailout when it received 100 cents 
on the dollar in payouts in public funds from the insurance giant.
  The American public is now an unwilling majority owner in AIG. And 
with Goldman having received a backdoor bailout with public funds 
through AIG, it would only be fair to make all of AIG's counterparties, 
including Goldman Sachs, buy back the CDOs at full price. Goldman Sachs 
could use the profits they gained from the AIG payments to pay down the 
billions in public debt still held by AIG.
  If Goldman Sachs truly has regret for participating in activities 
leading up to the financial crisis that were ``clearly wrong'' as their 
CEO has said and apologized, then Goldman Sachs should step up to the 
plate and make reparations that are owed to American taxpayers.

                          ____________________