I've been trying not to say anything bad about Andrew Ross Sorkin. I even made a point of not watching Too Big To Fail so as not to get upset -- and when I heard from friends that the film turned Hank Paulson into Joan of Arc, that decision seemed to have been validated.
Now I’m bummed to see that Sorkin has written an elaborate defense of Goldman in the New York Times "Dealbook" section, arguing among other things that Lloyd Blankfein probably did not commit perjury and that the bank did not have a huge directional bet against mortgages in 2007. As evidence, Sorkin cites unsubstantiated Goldman documents and Goldman sources who claim, among other things, that the bank had $5 billion worth of long bets on MBS "in other parts of the company," offsetting the now-notorious "Big Short."
The Sorkin piece reads like it was written by the bank's marketing department, which may not be an accident. In November of last year, the New York Times announced that "Dealbook" was entering into a sponsorship agreement with a variety of companies, including ... Goldman, Sachs. This is from that announcement last year:
DealBook will also feature news and insights on deal-related topics from Business Day's well-known roster of leading business reporters, which includes recent hires in addition to a veteran stable of Wall Street's most highly-regarded journalists.
Barclays Capital, Goldman Sachs, Sotheby's and Tata Consultancy Services are charter advertisers for the relaunch of DealBook.
"This is the next step in the evolution of DealBook, providing a community of highly-engaged readers and busy executives with essential news and insights, and keeping them plugged in to the most important news of the day," said Andrew Ross Sorkin, DealBook editor.
Even last year I thought it was a terrible decision by the Times to take money from Goldman in the wake of an unprecedented period of financial corruption – especially to sponsor, of all things, business reporting.
But now? This looks like a joke. In Russia in the Yeltsin years, reporters had a term for selling editorial print content to mobsters. They called it "selling jeans," a play on the old Soviet-era black-marketeer practice of trading rabbit hats to tourists for their Levi's. This Sorkin piece has the unmistakable look of a brand-new set of 501s to me. Pieces like this undermine the great work that reporters like Gretchen Morgenson have done in the paper in recent years.
At the very least, Dealbook, if it was determined to take startup money from Goldman, should have stayed agnostic about the great scandals swarming round the company for a good long while. I had heard several times over the winter that some Times reporters were upset about that Dealbook sponsorship deal with Goldman, and now I can see why. If I worked at the paper and saw this Sorkin piece, I would be running through the newsroom smashing sno-globes and turning desks over. What makes it especially galling is that Sorkin neglects to mention the sponsorship situation in his piece.
As for Sorkin's actual points:
Let me say first of all that I've read the actual source material in the Levin report; anyone can, it's all there for the public to see. And there's simply no way to read all of those internal emails and not conclude that Goldman, twice in 2007, put on huge short bets against mortgages. Moreover, it is abundantly clear that the bank's senior management was more or less united in its conviction that a crisis was coming in home mortgages and that it needed to unload its bad MBS inventory as quickly as possible -- to "clean out previous positions," as CFO David Viniar put it, and "get rid of cats and dogs," as Blankfein put it.
Beyond that there is a veritable mountain of evidence showing that the bank misled investors into deals like Hudson, Anderson and Timberwolf (which helped Goldman get short of mortgages), and it is simply irrefutable that Goldman did indeed bet against its clients -- something Lloyd Blankfein stated unequivocally they did not do.
Sorkin is attempting to shift attention away from this by using Goldman-offered data to attack words like "massive" and "large.” In other words, he's trying to say that Blankfein may not have been lying because the bank did not actually have a massive short bet that summer. He’s saying that the Levin report is wrong because it failed to account for $5 billion in long bets on mortgages "in other parts of the company," and that it mistakenly added shorts on commercial mortgages, leaving the bank with a short RMBS position of just $5 billion instead of the $16 billion commonly cited in the report.
First of all, I have asked Goldman about the “Big Short” multiple times, as have other reporters, and this is the first I’m hearing about $5 billion in long bets in "other parts of the company." I believe in that magical $5 billion about as much as I believe in the mythical private-sector hedges against AIG Goldman claimed to have. You might remember those – they were the reason Goldman claimed it didn’t actually need the $12.9 billion in public money it got through the AIG bailout, because it would have been paid off by private hedges anyway had the government not bailed out AIG. Goldman took the $12.9 billion of the public’s money anyway, however, but not because it needed it – no, sir!
When Lloyd coughed up that bit about the AIG hedges in testimony before Levin last year, there wasn’t a person in Washington who didn’t know it was bullshit. I have a similar feeling about these new numbers Goldman is offering, as do most of the sources of mine who saw the Sorkin piece today. “WTF seriously?” wrote one lawyer friend of mine. “Did Lloyd send ARS a letter from his Mom verifying the data?”
But hey, let’s be generous, and say that it’s all true. Does it mean jack shit? Does it have anything to do with anything?
Absolutely not. How much money Goldman did or did not make shorting mortgages in 2007 dulls not one iota the main charges in the report, which are that Goldman management saw that it was overexposed to mortgages in late 2006 and decided to get out from under them by dumping them on unsuspecting clients, then lying to those same clients about that, and then finally betting against them.
No matter how you spin the numbers, the vast trove of emails and presentations in the Levin report tell a story of a bank that was heavily long mortgages in December 2006, saw an upcoming market downturn, and then entered into a coordinated campaign to reverse their position as quickly as possible by unloading the “cats and dogs” in their inventory on clients. “Distribute as much as possible on bonds created from new loan securitizations,” a Goldman exec wrote, “and clean previous positions.”
Did they go from being $6 billion long to $16 billion short, or was it $6 billion long to $5 billion short, as Sorkin says? That may be an interesting question for financial historians to ponder, but let’s put it this way: no matter what the answer to that question is, is summer-2007 Goldman client Basis Capital any less screwed? Are they any less out of business today for investing in Goldman’s Timberwolf deal? Whether the “Big Short” was $16 billion or $5 billion, didn’t Basis get equally fleeced out of $100 million by Goldman bankers who knew they were selling lemons?
And when Goldman told investors in the Hudson deal that their interests were “aligned with” their clients because they owned a tiny stake of a few million bucks in the deal – leaving out the fact that Goldman had a $2 billion short position against the deal – is that any less of a lie if Goldman’s “big short” was $5 billion instead of $16 billion?
All this hand-wringing over the size of Goldman’s short bet reminds me of the bank’s defense in the Abacus case, when it initially said it had lost money in the deal and therefore couldn’t have done anything wrong. But how much Goldman did or didn’t make in Abacus was never the point (in fact, it made $15 million).
The point was that Goldman sold billions in crappy MBS to a pair of European banks without disclosing that this was a deal designed to fail, that they’d let a hedge-fund viper named John Paulson who was betting billions against those same Euros pick the rotten groceries in the bag. The two banks lost over a billion dollars. Is it really a defense that Goldman only charged Paulson $15 million lousy bucks to do all that damage?
The same goes with this. The size of Goldman’s short in 2007 is barely an issue at all. The issue is that Goldman was heavily long, got heavily short, and in the process screwed lots of people out of lots of money, and committed lots of fraud along the way.
The only thing that the size of the short position has any bearing upon is the perjury issue – whether or not Lloyd Blankfein lied when he said “We did not have a massive short bet.”
And sure, I guess, if you believe Goldman’s new data, and you don’t consider a $5 billion bet “massive,” and you can believe that when Goldman executives talked internally about a “big short” that they specifically meant a “big” short and not a“massive” short – I guess, if you believe all that, then Sorkin sort of has a point, for whatever that’s worth.
But what’s that worth? Well, considering that in that same sentence of Senate testimony, Lloyd Blankfein also said that “We didn’t bet against our clients” – which we know absolutely is not true, Hudson being the best example – I would tend to say it’s not worth very much.
But the most amazing thing in Sorkin’s piece, to me, was the fact that he cited testimony by Josh Birnbaum to bolster his case. Sorkin writes:
One document the subcommittee cited as evidence that Goldman had been “massively short” was a presentation by Josh Birnbaum. Mr. Birnbaum, a Goldman trader who ran the structured products group, tried to persuade his bosses that he and his group were deserving of a bigger bonus because of their successful short positions. To make his point, Mr. Birnbaum said that “the shorts were not a hedge,” a quote that Mr. Levin’s report brandished as proof that Goldman was lying about its short position.
But it’s hard to give much weight to the quote. Left out of the subcommittee’s report was the answer Mr. Birnbaum gave under oath during his testimony. When asked whether the shorts had been hedged, Mr. Birnbaum said, “I was not aware of what the firm as a whole was — what the firm’s position on mortgages was.”
After his testimony, when he realized that the government had him saying “the shorts were not a hedge” in a presentation, he doubled back. He tried to suggest in written testimony that he believed what he had originally written in his presentation but that his other testimony had also been accurate — a hard circle to square.
Now, I wrote extensively about this and put up these documents on this same blog. It is amazing that Sorkin writes that the committee “left out” the onetime Goldman trader Birnbaum’s testimony, like it was an oversight, or that the committee left out something pertinent to shade things the wrong way. The fact is, there’s a very good reason Birnbaum’s testimony was discounted: it’s not true!
The documents clearly show that Birnbaum believed very strongly in 2007 that his group deserved a huge bonus for making a giant directional bet on mortgages. He outlined the reasons for his belief that “the shorts were not a hedge” (i.e. that they instead were a big directional bet) in the presentation cited in the report.
Then, later, when questioned by Senate investigators, he pretended not to have an opinion on the matter. Only when he and his lawyers figured out that Senate investigators had a copy of his aggressive 2007 presentation asking for a raise did he change his mind and insist that "I was not aware … what the firm’s position on mortgages was."
Birnbaum's whole performance was not only obviously bullshit, it was so totally a lie that it’s actually laugh-out-loud funny. And Sorkin is complaining that this loony perjury was “left out of the subcommittee’s report”?
How much evidentiary value did Birnbaum's "the shorts were not a hedge" quote have? I wouldn't say a lot. That quote is just a piece of the puzzle, a little corroborating tidbit of the type that you tend to find when you're on the right track, as the Levin investigators were. For Sorkin to present this as though this was a serious piece of the evidence is just wrong – if anything, it's more interesting as an example of a Goldman executive's attitude toward sworn testimony.
Anyway, lastly, Sorkin took a little shot at me in his piece, saying that "the vampire squid haters won’t like this column," implying that anyone who disagrees with his analysis is a hater. But I don’t dislike his column because I hate Goldman. I just dislike it because it’s wrong, on top of being a soft-touch take on a major issue based on material spoon-fed to him by an advertiser who's just been handed a bunch of subpoenas. Aside from that, of course, it's just fine.