Goldman Sachs on the defensive

GOLDMAN Sachs is to defend itself against fraud allegations by arguing it was unsure where housing prices were headed and did not act against its clients' interests.

An 11-page document has been drawn up for the testimony of Goldman chief executive Lloyd Blankfein, above, this week to the US Senate permanent subcommittee on investigations.

The investment bank has been accused of betting against the housing market while encouraging its clients to invest in securities that would grow in value only if house prices went up. The Securities and Exchange Commission has filed a fraud suit against Goldman.

In a story posted on its website on Friday, the Washington Post reported that it had obtained an 11-page document that describes how top Goldman executives debated the future of the mortgage market in 2006 and 2007.

In one meeting outlined in the document, financial officer David Viniar met with Goldman's mortgage traders and risk managers on 14 December 2006 to discuss strategy. They decided to reduce Goldman's exposure in the subprime market, the Post reported.

While Goldman did acknowledge shorting the overall market at times, the document says it was temporary and only during periods where Goldman was reshuffling its portfolio, the Post report added.

But while making this shift, critics say, Goldman continued to sell mortgage-related investments to clients interested in the sub-prime loan market.

Further, the document said Goldman seriously considered making new mortgage investments at other times. In 2007, for example, managing director Richard Ruzika argued Goldman was too pessimistic about the housing decline.