Sunday, September 4, 2011


originated by the Correlation Trading Desk, which was a sub-desk of the SPG Trading Desk. The
Correlation Trading Desk specialized in arranging customized trades for investors and used the
Abacus series of CDOs as one of its investment alternatives. The Correlation Trading Desk was
headed by Jonathan Egol. The CDO Origination and Correlation Trading Desks were located on the
same floor as the other SPG Trading Desks.
RMBS securitizations were handled by the Residential Whole Loan Trading Desk, headed
by Kevin Gasvoda. Sub-desks within the Residential Whole Loan Trading area oversaw the
purchase of residential loan pools, constructed the RMBS securitizations, and worked with the
Goldman sales force to sell the resulting securities to investors.
After a desk originated a CDO or RMBS securitization and sold the Goldman-originated
securities for the first time, all secondary trading of the securities was handled by the Structured
Products Group’s Asset-Backed Security (ABS) Desk. In mid-2007, Goldman shut down its CDO
Origination Desk and directed the ABS Desk to sell all remaining Goldman-originated CDO
securities, in addition to conducting the secondary trading it normally handled.
Daniel Sparks, as head of the Mortgage Department, oversaw all of Goldman’s CDO and
RMBS origination activities. Mr. Sparks reported at times to Jonathan Sobel, the prior department
head, and Richard Ruzika, then head of Commodities Trading. He also worked with Justin
Gmelich, a managing director asked to help him run the Department on a short term basis. Mr.
Sparks also had frequent contact with more senior Goldman executives, including Thomas Montag,
then global co-head of Securities Trading, and Donald Mullen, then head of Credit Trading. On
occasion, he also received directives from Chief Financial Officer David Viniar and Co-Presidents
Gary Cohn and Jon Winkelried.
See 12/7/2006 email from Daniel Sparks to Tom Montag, “Subprime Volatility,” 2009 GS MBS-E-010931233.
2010 12/13/2006 Firmwide Risk Committee December 13 Minutes, GS MBS-E-009582963-64.
2011 For more information about this December 14 meeting, see discussion in Section C(4)(b), above.
(ii) Goldman’s Negative Market View
As established earlier in the Report, all of Goldman’s securitization activities from 2006 to
2007 took place against the backdrop of a subprime mortgage market that, in Goldman’s view, was
in distress and worsening.
On December 7, 2006, for example, Mr. Sparks sent this gloomy assessment to senior
executive Thomas Montag:
“Generally, originators are struggling with EPDs [early payment defaults] which require
them to buy back loans and take losses – thinly capitalized firms can’t take much of it.
Lower margins and volumes are also causing pain. Ownit [a mortgage originator] ... closed
Monday. Premiums for these originators – all of whom are for sale – are rapidly falling. ...
Likely fall-out – more originators close and spreads in related sectors widen.”2009
A week later, on December 13, 2006, Mr. Sparks repeated his negative view of the subprime
mortgage market before senior Goldman executives on the Firmwide Risk Committee. The
committee minutes described his report as follows:
“Dan Sparks: Noted the stress in the subprime market; Concern around ‘06 originators, as
two more failed last week; Concern around early payment defaults, $5BN in loans to
subprime borrowers, warehouse lines to 6 subprime lenders, and $16MM in ‘06 residual
positions and alt-a and subprime residual positions from ‘04-‘05; Street aggressively putting
back early payment defaults to originators thereby affecting the originator’s business.
Rumors around more failures are in the market.”2010
On December 14, 2006, CFO David Viniar held a meeting with senior Mortgage
Department executives, reviewed their mortgage related holdings, and directed them to offset the
risk posed by declining values.2011 The Mortgage Department then initiated its first multi-billiondollar
net short positions in 2007, essentially betting that subprime mortgage related assets would
fall in value.
In early 2007, Mr. Sparks made increasingly dire predictions about the decline in the
subprime mortgage market and issued emphatic instructions to his staff about the need to get rid of
subprime loans and other assets. On February 8, 2007, for example, Mr. Sparks wrote:
2/8/2007 email from Daniel Sparks, 2012 “Post,” Hearing Exhibit 4/27-7.
2013 2/14/2007 email from Daniel Sparks to himself, “Risk,” GS MBS-E-002203268.
2014 2/21/2007 email exchange between Daniel Sparks and Jon Winkelried, “Mortgages today,” GS MBS-E-
010381094, Hearing Exhibit 4/27-10.
2015 2/26/2007 emails between Tom Montag and Daniel Sparks, “Questions you had asked,” GS MBS-E-019164799.
“Subprime environment – bad and getting worse. Everyday is a major fight for some aspect
of the business (think whack-a-mole). . . . [P]ain is broad (including investors in certain GSissued
On February 14, 2007, Mr. Sparks wrote some notes to himself:
“Bad week in subprime
collateral performance on loans was poor – we took a write-down on second lien deals and
on the scratch and dent book last week . . . .
Synthetics market got hammered – around 150 [basis points] wider . . . .
Originators are really in a bad spot. Thinly capitalized, highly levered, dealing with
significant loan putbacks, some with retained credit risk positions, now having trouble
selling loans above par when it cost them 2 points to produce.
What is the next area of contagion.”2013
That same day, February 14, 2007, Mr. Sparks exchanged emails with Goldman’s Co-
President Jon Winkelried about the deterioration in the subprime market:
Mr. Winkelried: “Another downdraft?”
Mr. Sparks: “Very large – it’s getting messy . ... Bad news everywhere. Novastar bad
earnings and 1/3 of market cap gone immediately. Wells [Fargo] laying off 300 subprime
staff and home price appreciation data showed for first time lower prices on homes over year
broad based.”2014
On February 26, 2007, when Mr. Montag asked him about two CDO2 transactions being
assembled by the CDO Origination Desk, Timberwolf and Point Pleasant, Mr. Sparks expressed his
concern about both:
Mr. Montag: cdo squared–how big and how dangerous
Mr. Sparks: Roughly 2bb, and they are the deals to worry about.2015
3/3/2007 email from Daniel Sparks, 2016 “Call,” Hearing Exhibit 4/27-14.
2017 3/12/2007 Goldman Firmwide Risk Committee, “March 7th FWR Minutes,” GS MBS-E-00221171, Hearing
Exhibit 4/27-19; see also 3/7/2007 email from Daniel Sparks to himself, “Risk Comm,” GS MBS-E-002212223.
2018 3/8/2007 email from Daniel Sparks, “Mortgage risk,” Hearing Exhibit 4/27-75.
2019 1/29/2007 email from Jon Egol to Fabrice Tourre, GS MBS-E-002620292. Mr. Tourre responded: “‘The
market is dead’??? Ouahhh, what do you mean by that? Do you have any insight I don’t?” Mr. Egol replied: “LDL
[let’s discuss live] tomorrow.” Id. Mr. Egol later wrote: “This is not my personal opinion – just a synopsis of the
views of the customers we have seen today.” 1/29/2007 email from Jon Egol to Daniel Sparks, GS MBS-E-
2020 2/11/2007 email from Jon Egol, “Index Tranche Pricing Study - 08Feb07.xls,” GS MBS-E-002640951. See also
2/20/2007 email from Fabrice Tourre to Jon Egol, GS MBS-E-009332408 (Mr. Tourre: “By the way, quote from an
ABS correlation trader (non-GS): “the mezz ABS CDO business is dead.” Mr. Egol responded: “who.” Mr.
Tourre replied: “LDL.” “LDL,” which means “let’s discuss live,” is an abbreviation that appears throughout the
Goldman documents produced to the Subcommittee.); 3/27/2007 email from a Goldman analyst, GS MBS-E-
009685430 (“The housing slowdown has the risk now not be[ing] offsetting [sic] by stronger capital spending. Both
On March 3, 2007, Mr. Sparks made notes after a telephone call: “Things we need to do ....
Get out of everything.”2016 On March 7, 2007, Mr. Sparks again reported to Goldman’s Firmwide
Risk Committee on accelerating problems in the subprime mortgage market:
“– ‘Game Over’ – accelerating meltdown for subprime lenders such as Fremont and New
– The Street is highly vulnerable . ... Current strategies are to ‘put back’ inventory and
liquidate positions.
– The Mortgage business is currently closing down every subprime exposure possible.”2017
On March 8, 2007, Mr. Sparks emailed several senior executives, including Mr. Viniar and Mr.
Cohn about “Mortgage Risk”: “[W]e are trying to close everything down, but stay on the short
Other Mortgage Department personnel gave similarly bleak assessments of the subprime
mortgage market. As early as January 2007, Jonathan Egol, head of the Correlation Trading Desk,
wrote to a colleague expressing his clients’ views: “The mkt is dead.”2019 In February 2007, when
discussing plans to issue an Abacus CDO with a Correlation Desk Trader, Fabrice Tourre, Mr. Egol
repeated that assessment as his own:
Mr. Egol: [T]he paulson trade may already be dead (although given it is baa2 it may still
have a decent shot).
Mr. Tourre: Don’t think the Paulson trade is dead. Supersenior pretty much done with
ACA, AAAs could be placed in 2 shots, this is sufficient. Remember we make $$$ per
tranche placed. ...
Mr. Egol: You know I love it all I’m saying is the cdo biz is dead we don’t have a lot of
time left.2020
growth and the market are DEAD if that’s the case.”) [emphasis in original].
3/8/2007 email from Daniel Sparks, “Mortgage 2021 risk,” Hearing Exhibit 4/27-75.
2022 See also emails expressing concerns about the CDO market in particular. 6/27/2007 email from Jonathan Sobel,
“Citi feedback on debt mkts,” GS MBS-E-010807091 (reporting a conversation with the head of the mortgage desk
at Citibank: “He is very nervous. ... Some Citi people think the CDO market is dead - a potential result of
[subprime] contagion.”); 8/30/2007 email from Daniel Sparks, “RAIT,” GS MBS-E-010626401 (“the business
model pursued by these guys (taking junior parts of the . . . capital structure and obtaining further leverage via the
CDO market) is dead for the foreseeable future.”).
2023 See also Section C(4)(b) of this chapter, above.
2024 12/14/2007 email from Kevin Gasvoda, “Retained bonds,” GS MBS-E-010935323, Hearing Exhibit 4/27-72.
See also 2/8/2007 email from Kevin Gasvoda to Tom Montag, “Mortgage risk – credit residential,” at 2, GS MBS-E-
010372233, Hearing Exhibit 4/27-74 (seven weeks later, Mr. Gasvoda reported transferring the remaining Goldmanoriginated
RMBS securities to the mortgage trading desk to sell: “moving retained bonds out of primary desk hands
and into 2ndry desk.”).
On March 8, 2007, in an email to senior management, Mr. Sparks listed a number of “large
risks I worry about.”2021 At the top of the list was “CDO and Residential loan securitization
stoppage – either via buyer strike or dramatic rating agency change.” Mr. Sparks was referring to
the possibility that Goldman would be unable to securitize and sell its remaining subprime mortgage
related inventory by repackaging it into RMBS and CDOs for sale to customers. His concern was
either that buyers would refuse to purchase such products (“buyer strike”), or that the ratings
agencies might realize the poor quality and high risks associated with these products and downgrade
them so they could not be sold with AAA ratings (“dramatic rating agency change”). In essence,
Mr. Sparks was worried about Goldman’s being left with a large inventory of unsold and unsaleable
subprime mortgage related assets when the market finally collapsed.2022
At the same time Goldman personnel were expressing these negative views of the
securitization business, the Mortgage Department was building its large net short positions in the
first and third quarters of the year.
(iii) Goldman’s Securitization Sell Off
In response to the December 14, 2006 meeting at which CFO David Viniar ordered the
Mortgage Department to offset the risk associated with its mortgage related holdings, the
Department initiated an intensive effort to sell off the subprime RMBS and CDO securities and
other assets in its inventory and warehouse accounts.2023
AA. RMBS Sell Off
As described earlier, on the same day as the Viniar meeting, December 14, 2006, Kevin
Gasvoda, head of the Mortgage Department’s Residential Whole Loan Trading Desk, instructed his
staff to undertake an immediate, concerted effort to sell the whole loans and RMBS securities in
Goldman’s inventory and warehouse accounts, focusing on RMBS securities from Goldmanoriginated
securitizations.2024 By February 9, 2007, the Goldman sales force reported a substantial
2/9/2007 email exchange between Kevin G 2025 asvoda and sales syndicate, “GS Syndicate RMBS Axes
(INTERNAL),” GS MBS-E-010370495, Hearing Exhibit 4/27-73.
2026 2/23/2007 “Significant Cash Inventory Change (Q1’07 vs. Q4’06),” datasheet prepared by Goldman, GS MBSE-
010037311, Hearing Exhibit 4/27-12.
2027 See, e.g., 3/8/2007 email from Daniel Sparks, “Mortgage risk,” GS MBS-E-002206279, Hearing Exhibit 4/27-
75 (“[f]or residential loans, we have not bought much lately”); 3/26/2007 Goldman presentation to Board of
Directors, “Subprime Mortgage Business,” GS MBS-E-005565527, Hearing Exhibit 4/27-22 (reporting that
Mortgage Department is using “conservative bids” on loans); 3/14/2007 Goldman Presentation to SEC, “Subprime
Mortgage Business 14-Mar-2007,” at 7, GS MBS-E-010022328; 3/2/2007 email to Craig Broderick, “Audit
Committee Package_Feb 21_Draft_Mortgage_Page.ppt,” GS MBS-E-009986805, Hearing Exhibit 4/27-63 (we are
“lowballing” bids on loans).
2028 2/8/2007 email from Kevin Gasvoda to Daniel Sparks,“Post,” GS MBS-E-002201668, Hearing Exhibit 4/27-7
(“monthly performance analysis completed this morning on what can be securitized vs will be foreclosed tells us we
should mark down around $22mm”). See also 2/2/2007 email from Daniel Sparks, “Second lien deal performance
and write-down,” GS MBS-E-002201050, Hearing Exhibit 4/27-92 (“Gasvoda alerted me last night that we will take
a write-down to some retained positions next week as the loan performance data from a few second lien sub-prime
deals just came in (comes in monthly) and it is horrible.”); 2/8/2007 email from Kevin Gasvoda to Tom Montag,
“Mortgage risk – credit residential,” at 2, GS MBS-E-010372233, Hearing Exhibit 4/27-74. Mr. Gasvoda
summarized the other write-downs as follows:
“– 2nd lien residual – took $20-25mm write-downs over last 3 months (could lose $5-15 mm more)
– 2nd lien retained bonds–took $18mm write-down this week (could lose $5-15 more)
– Subperforming loan book – taking $28mm write-down this week (could lose $20-40mm more)
What do all these areas have in common? – most HPA [housing price appreciation] sensitive sectors.
They’ve crumbled under HPA slowdown as these are the most levered borrowers.
What have we done to mitigate?
– we stopped buying subprime 2nd liens in the summer of ‘06 and have focused on alt-a and prime.”
2029 2/9/2007 email from Daniel Sparks, “Scratch & dent loan write down $30mm,” GS MBS-E-009760380.
2030 Id.
number of sales,2025 and by the end of February, Goldman’s controllers reported that Goldman’s
inventory of whole loans had “decreased from $11bn to $7bn” with “subprime loans decreased from
$6.3bn to $1.5bn,” a reduction of more than two-thirds.2026
In addition, during the first quarter of 2007, the Mortgage Department drastically slowed its
RMBS origination business and its purchase of whole loans and RMBS securities.2027 Those actions
meant that Goldman was not only reducing its inventory, but also reducing its intake of what had
previously been a constant inflow of billions of dollars in whole loans and RMBS securities
purchased as part of its securitization business.
In addition to selling whole loans and RMBS securities, the Mortgage Department wrote
down the value of its remaining subprime mortgage portfolio. On February 8, 2007, for example,
Mr. Gasvoda recommended that certain whole loan pools and RMBS securities be marked down by
$22 million.2028 On February 9, 2007, Mr. Sparks reported a $30 million writedown on non
performing loans.2029 Mr. Ruzika responded: “Ok, you’ve been communicating the write down was
coming. Let’s go through the residual risk and make sure we get to the correct number for the
quarter.”2030 Residual risk referred to the non rated equity tranches that underwriters like Goldman
often retained from the RMBS securitizations they originated; those tranches were also written
2/13/2007 email from Richard Ruzika to Gary Cohn, “Catch Up,” G 2031 S MBS-E-019794071. Mr. Cohn forwarded
Mr. Ruzika’s report to Messrs. Blankfein and Winkelried. Id. See also 6/8/2007 email from Kevin Gasvoda,
“Project Omega - Mortgages MTM of Resids,” GS MBS-E-013411815 (working on potential deal to sell markeddown
mortgage residuals).
2032 See Goldman Sachs response to Subcommittee QFR at PSI_QFR_GS0039.
2033 Id.
2034 Using loan data, the U.S. mortgage industry had developed anticipated default rates, including EPDs, for
different mortgage classes, such as subprime, Alt A, and prime loans. These default rates, however, were based in
large part on past loan underwriting practices and loan types that bore little resemblance to the loans issued in the
years leading up to the financial crisis, as explained in Chapter V of this Report. In 2006, subprime loans began to
experience higher than anticipated EPD rates, and lenders were hit by unanticipated repurchase demands they could
not afford to pay. The first EPD-related mortgage lender failures occurred in late 2006, and bankruptcies continued
throughout 2007.
2035 See, e.g., 3/26/2007 “Subprime Mortgage Business,” Goldman presentation to Board of Directors, at 3-5, GS
MBS-E-005565527 at 532, Hearing Exhibit 4/27-22 (timeline showing Ownit, a subprime lender, filed for
bankruptcy on December 28, 2006, and list of subprime related businesses bankrupted, suspended, closed, sold, or
put up for sale).
down in value. Those writedowns not only implemented Goldman’s policy of using current market
values for its assets, but also effectively reduced the size of Goldman’s “long” position in subprime
mortgage related assets. As Mr. Ruzika wrote to Mr. Cohn: “working with Dan to uncover exactly
what else needs to be written down so that we can pnl [profit and loss] it this quarter and be clean
going into next quarter.”2031
Loan Repurchase Campaign. In addition to its sales and writedowns, the Mortgage
Department intensified its efforts to identify and return defaulted or otherwise deficient loans to the
originating lender from which they had been purchased in exchange for a refund of the purchase
price. Altogether in 2006 and 2007, Goldman made about $475 million in repurchase claims for
securitized loans, and recovered about $82 million.2032 It also made about $40 million in repurchase
claims for unsecuritized loans, and recovered about $17 million.2033
In the years leading up to the financial crisis, most subprime loan purchase agreements
provided that if a loan experienced an early payment default (EPD), meaning the borrower failed to
make a payment within three months of the loan’s purchase, or if the loan breached certain
representations or warranties, such as representations related to the loan’s characteristics or
documentation, the loan could be returned or “put back” to the seller which was then obligated to
repurchase it. In late 2006, as subprime loans began to experience accelerated rates of EPDs and
fraud,2034 Wall Street firms began to intensify their efforts to return those loans for refunds. Some
subprime lenders began to experience financial distress due to unprecedented waves of repurchase
requests that drained their cashflows.2035
Although Goldman, either directly or through a third party due diligence firm, routinely
conducted due diligence reviews of the mortgage loan pools it bought from lenders or third party
brokers for use in its securitizations, those reviews generally examined only a sample of the loans
Goldman or a third party due diligence firm it hired typically 2036 examined a sample of the loans. Based on the
number of problem loans found in the sample, Goldman or the due diligence firm extrapolated the total percentage of
problem loans likely to be contained in the pool. This information was then factored into the price Goldman paid for
the pool. Any specific loans identified in the sampling process as deficient were generally returned to the lender for
repurchase, but it was rare for an investment bank to review 100% of a pool to identify all of the deficient loans and
return them. Subcommittee interview of Clayton Holdings (11/9/2010).
2037 See, e.g., 1/8/2007 email from Daniel Sparks, “Color on the Sub Prime Market,” GS MBS-E-002195434 (after
receiving a report on potential EPD problems, Mr. Sparks wrote: “I just can’t see how any originator in the industry
is worth a premium. I’m also a bit scared of accredited and new century, and I’m not sure about taking on a bunch of
new exposures.”); 2/8/2007 email from FICC analyst to Mr. Sparks, Mr. Gasvoda, and others, “2006 Subprime 2nds
Deals Continue to Underperform,” GS MBS-E-003775340, Hearing Exhibit 4/27-167d (“2006 vintage Subprime
closed-end seconds (CES) issuance has continued to deteriorate. ... [N]on-GS Subprime CES deals are categorically
experiencing similar negative behavior across shelves, originators, and servicers. ... Outlook: 2006 vintage ... could
eventually reach 4-5+ times that of 2004/early 2005 vintages (more than double that of RA expected losses).”).
2038 2/2/2007 email from Daniel Sparks to Messrs. Montag, Ruzika, and Viniar, GS MBS-E-002201050, Hearing
Exhibit 4/27-92. See also 2/2/2007 email from Michelle Gill, “Warehouse policy,” GS MBS-E-005556331
(discussing proposal to charge higher warehouse fees to mortgage originators with higher EPD and “drop-out” rates,
including Fremont and New Century).
and did not attempt to identify and weed out all deficient mortgages.2036 Instead, Goldman
purchased loan pools with the expectation that they would incur a certain rate of defaults. In late
2006, however, like other Wall Street firms, Goldman began to see much higher than anticipated
delinquency and default rates in the loan pools in its inventory and warehouse accounts, and in the
subprime RMBS and CDO securitizations it originated.2037 Defaulted loans generally could not be
sold or securitized, and had to be terminated through foreclosure proceedings or sold in so-called
“scratch and dent” pools that generally produced less money than the loans cost to buy. In addition,
defaulted loans meant that the borrowers who took out those loans stopped making loan payments
to the securitized loan pool, reducing the cashflow into the related securities. RMBS and CDO
securities whose underlying assets incurred high rates of loan delinquencies and defaults
experienced reduced cashflows, lost value, and sometimes failed altogether, resulting in substantial
losses for investors.
In early 2007, Goldman’s Mortgage Department initiated an intensive review of the loans in
its inventory, warehouse accounts, and RMBS and CDO securitizations, to identify deficient loans
and return them for refunds. On February 2, 2007, Mr. Sparks reported to senior Goldman
executives Messrs. Viniar, Montag, and Ruzika that obtaining refunds from the loan originators
would be “a battle”:
“The team is working on putting loans in the deals back to the originators (New Century,
WAMU, and Fremont – all real counterparties), as there seem to be issues potentially
including some fraud at origination, but resolution will take months and be contentious. ...
The put backs will be a battle.”2038
2/27/2007 email from Christopher Gething, “Our Expansion,” GS MBS-E 2039 -010387242 (expansion of St.
Petersburg office to accommodate staff for loan repurchase effort).
2040 See, e.g. 3/2007 Goldman email chain, “RE: NC Visit,” GS MBS-E-002048050 (mentioning four different third
party “vendors” conducting loan reviews for the loan repurchase effort and stating: “We’re off to other vendors at
this point.”).
2041 See 3/9/2007 email from Kevin Gasvoda, “priorities,” GS MBS-E-002211055 (listing priority mortgage
originators as Accredited, Fremont, New Century, and Novastar); 3/14/2007 Goldman email, “NC Visit,” GS MBSE-
002048050 (identifying New Century, Fremont and Long Beach); 6/29/2007 email from Ed Chavez,
“Countrywide Investigation Review Update,” GS MBS-E-002134411.
2042 3/2/2007 email to Craig Broderick, “Audit Committee Package_Feb 21_Draft_Page.ppt,” GS MBS-E-
009986805, Hearing Exhibit 4/27-63.
2043 3/7/2007 email from Daniel Sparks, “Originator exposures,” GS MBS-E-002206279, Hearing Exhibit 4/27-75.
2044 3/12/2007 email from Daniel Sparks, “Subprime Opportunities,” GS MBS-E-004641002. See also 4/15/2007
email, “March 2007 Counterparty Surveillance,” GS MBS-E-002135667 (forwarding report to loan repurchase team,
“Please find attached the March counterparty surveillance report (and boy, is it a doozy).”); 3/26/2007 “Subprime
Mortgage Business,” Goldman presentation to Board of Directors, at 5, GS MBS-E-005565527, Hearing Exhibit
4/27-22 (list of subprime related businesses bankrupted, suspended, closed, sold, or put up for sale).
2045 3/13/2007 email from Manisha Nanik, “New Century EPDs,” GS MBS-E-002146861, Hearing Exhibit 4/27-77.
The review of the New Century loan pool found:
“– approx 7% of the pool has material occupancy misrepresentation where borrowers took out anywhere
from 4 to 14 loans at a time and defaulted on all. ...
– approx 20% of the pool has material compliance issues. These are mainly missing HUDs. ...
– approx 10% of the pool is flagged as potential REO [Real Estate Owned by lender] or potential unsecured
To manage its loan repurchase campaign, Goldman expanded an operations center in St.
Petersburg, Florida,2039 and made extensive use of third party due diligence firms hired to review its
securitized loan pools.2040 Goldman instructed the firms to “re-underwrite” every loan in pools of
mortgages purchased from specific lenders, including New Century, Fremont, Long Beach, and later
By March 2007, the average EPD rate for subprime loans in Goldman’s inventory had
climbed from 1% of aggregate volume to 5%, a dramatic increase.2042 On March 7, 2007, Mr.
Sparks described Goldman’s exposure as follows:
“As for the big 3 originators – Accredited, New Century and Fremont, our real exposure is
in the form of put-back claims. Basically, if we get nothing back we would lose around
$60mm vs loans on our books (we have a reserve of $30mm) and the loans in the [CDO and
RMBS] trusts could lose around $60mm (we probably suffer about 1/3 of this in ongoing
exposures). ... Rumor today is that the FBI is in Accredited.”2043
Five days later, on March 12, 2007, Mr. Sparks wrote: “The street is aggressively putting things
back, like a run on the bank before there is no money left to fulfill the obligations.”2044
One of the lenders that was an initial focus of Goldman’s loan repurchase effort was New
Century, a subprime lender whose loans Goldman had used in many Goldman-originated RMBS
securitizations. After completing a review of one New Century loan pool, an analyst recommended
“putting back 26% of the pool ... if possible.”2045 A putback rate of 26% meant that about one in
(if 2nd liens). ...
– approx 5% of the pool was possibly originated fraudulently based on the dd [due diligence] results. Main
findings: possible ID theft, broker misrepresentations, straw buyer, and falsification of information in
origination docs. ...
“approx 62% of the pool has not made any payments (4% were reversed pymts/nsf [non-sufficient funds]) ...
“approx 38% of the loans are out of [loan to value] tolerance.”
2046 See Goldman Sachs response to Subcommittee QFR at PSI_QFR_GS0040.
2047 3/14/2007 Goldman email, “NC Visit,” GS-MBS-E-002048050. See also 3/21/2007 email from Daniel Sparks
to Tom Montag, GS MBS-E-002207114 (noting progress in cutting down funding commitments to mortgage
originators to $300 million, including closeout of all funding to New Century in exchange for loans).
2048 See Goldman Sachs response to Subcommittee QFR at PSI_QFR_GS0040.
2049 3/14/2007 Goldman email, “NC Visit,” GS-MBS-E-002048050; see also 8/10/2007 email from Michelle Gill,
“Fremont - Incremental Information,” GS MBS-E-009860358 (Goldman’s repurchase claims against Fremont would
have amounted to a 9% ownership stake in Fremont after a proposed buyout by investor group; Goldman was not the
largest purchaser of Fremont loans but its repurchase claims were 3-4 times larger than the claims of the nearest
four of the loans in the New Century pool had EPDs, were fraudulent, or otherwise breached New
Century’s contractual warranties. It also implied that about 25% of the expected mortgage
payments might not be made to the relevant RMBS securitization. Unless the problem loans could
be successfully “put back” to New Century in exchange for a refund, a fail rate of that magnitude
would likely impair the performance of all of the securities dependent upon that pool of mortgages.
Goldman made a total of about $67 million in repurchase requests to New Century, which
was among the five mortgage originators to whom Goldman directed the most repurchase requests
in 2006 and 2007.2046 In March 2007, however, New Century stopped paying Goldman’s claims due
to insufficient cash, and the loan repurchase team sought advice from Mr. Gasvoda:
“As you know, we have an extensive re-underwrite review underway on 06 NC2 [New
Century second lien loans] and also other NC loans in the 2nds deals that are in the pipeline
for scrubs. Should we change course at all here given the fact NC can’t pay?”2047
Mr. Gasvoda responded:
“Yes .... I think priority s/b [should be] on Fremont and Long Beach on 2nd lien deals.
Fremont first since they still have cash but may not for long. ... [O]n NC2 we need not halt
that entirely but should pull back resources there. We should also move 06FM2 [Fremont
second lien loans] up the priority list.”
Goldman made a total of about $46 million in repurchase requests to Fremont, another
subprime lender for whom Goldman had underwritten multiple securities and which was also
among the five mortgage originators to whom Goldman made the most repurchase requests in 2006
and 2007.2048 When Goldman personnel reviewed a loan pool purchased from Fremont, the results
were even worse than for the New Century loans. Goldman concluded that “on average, about 50%
of about 200 files look to be repurchase obligations.”2049 Later, Goldman came to a similar
6/29/2007 email from Ed Chavez, “Countrywide Investigation 2050 Review Update,” GS MBS-E-002134411.
2051 See Goldman Sachs response to Subcommittee QFR at PSI_QFR_GS0040. The five mortgage originators to
which Goldman directed the most repurchase requests were First Franklin, New Century, Fremont, Greenpoint, and
Long Beach. Id.
2052 2/15/2007 email from Loren Morris of Goldman Sachs to David Schneider of WaMu and others, GS MBS-E-
002142424, Hearing Exhibit 4/13-69b.
2053 See, e.g., Goldman response to Subcommittee QFR at PSI_QFR_GS0040; 3/8/2007 email from Daniel Sparks to
Jon Winkelried and others, “Mortgage risk,” GS_MBS-E-002206279, Hearing Exhibit 4/27-75 (“Accredited ... plan
to send us $21mm”); 6/25/2007 email from Deana Knox, “Option One,” GS MBS-E-019645932 (“Option One has
agreed to settle the entire claim, paying $2.5M (repurchase and monitor) and $3M will be rescinded.”).
2054 New Century, for example, declared bankruptcy in April 2007. In re New Century TRS Holdings, Inc., Case
No. 07-10416 (KJC) (US Bankruptcy Court, District of Delaware). See also 6/7/2007 email from Loren Morris,
“WFALT 05-2 Repurchase demand,” GS MBS-E-002131857.
2055 See, e.g., 1/3/2011 Bank of America press release, “Bank of America Announces Fourth-Quarter Actions,” (announcing agreements to pay $3 billion to Freddie Mac and Fannie Mae to resolve residential
mortgage repurchase claims related to loans originated by Countrywide).
2056 See 2/2/2007 Goldman memorandum to the Mortgage Capital Committee, “Agenda for Monday, February 5,
2007,” GS MBS-E-002201064; 2/5/2007 Mortgage Capital Committee Memorandum regarding GSAMP Trust
2007-FM2, GS MBS-E-002201055-58.
conclusion after reviewing certain loans purchased from Countrywide, again finding that about 50%
of the loans reviewed were candidates for return to the lender.2050
Goldman made a total of about $34 million in repurchase requests to Long Beach, a
subprime lender for whom Goldman had underwritten billions of dollars in RMBS securities and
which was also among the five mortgage originators to whom Goldman made the most repurchase
requests in 2006 and 2007.2051 Goldman pressed both Long Beach and its parent Washington
Mutual for repayment of millions of dollars in refunds. At one point, a Goldman executive
involved in the repurchase effort sent an email to the head of Washington Mutual Home Loans
Division, David Schneider. After noting that Long Beach second lien loans were “performing
dramatically worse” than other 2006 RMBS securities, the Goldman executive wrote: “As you can
imagine, this creates extreme pressure, both economic and reputational, on both organizations.”2052
Goldman’s loan repurchase campaign recovered substantial funds from some lenders,2053
but little or none from others.2054 Non performing loans that were not repurchased by the lender
generally remained in Goldman’s inventory or the relevant securitized loan pool. Many other
securitizers engaged in similar loan repurchase efforts which continued in 2011.2055
Poor Quality RMBS Securities. As a result of its loan repurchase and writedown efforts,
the Mortgage Department was keenly aware of the poor quality of many of the loan pools in its
warehouse accounts. Nevertheless, during this time period, Goldman continued securitizing many
of those loans and selling the resulting RMBS securities to clients.
In March 2007, for example, Goldman securitized over $1 billion in subprime loans that it
had purchased from Fremont, originating an RMBS securitization called GSAMP Trust 2007-
FM2.2056 Goldman underwrote the security in the same month that it was attempting to return
See discussion of Goldman’s loan repurchase effort, 2057 above. In addition, in the prior month, a Goldman
employee in the mortgage credit trading department sent senior Mortgage Department officials a lengthy email on
the deteriorating subprime mortgage market and observed: “Subprime originators, large and small, ha[ve] exhibited
a notable increase in delinquencies and defaults, however, deals backed by Fremont and Long Beach collateral have
generally underperformed the most.” 2/8/2007 email from Fabrice Tourre, “FW: 2006 Subprime 2nds Deals
Continue to Underperform **INTERNAL ONLY**,” at GS MBS-E-003775340, Hearing Exhibit 4/27-167d.
2058 In re Fremont Investment & Loan, Docket No. FDIC-07-035b, Order to Cease and Desist (March 7, 2007).
2059 See Standard & Poor’s
2060 3/23/2007 Goldman memorandum to members of the Mortgage Capital Committee, “Agenda for Monday,
March 26, 2007,” Hearing Exhibit 4/27-79 (“GSAMP 2007-HE2 – Goldman to securitize $960 million of subprime
mortgage loans purchased by Goldman Sachs from New Century (71.9%)” and other mortgage originators. “The
securitization is scheduled to be completed by April 12, 2007.”).
2061 See discussion of Goldman’s loan repurchase effort, above. Earlier in March, a Goldman review of a different
New Century loan pool had found that 26% of the loans were deficient and ought to be returned to New Century for
a refund. 3/13/2007 email from Manisha Nanik, “New Century EPDs,” GS MBS-E-002146861, Hearing Exhibit
4/27-77. In addition, New Century had already informed Goldman that it had insufficient cash to pay any loan
repurchase requests. 3/14/2007 Goldman email, “NC Visit,” GS-MBS-E-002048050.
2062 In re New Century TRS Holdings, Inc., Case No. 07-10416 (KJC) (US Bankruptcy Court, District of Delaware).
2063 See Standard & Poor’s
millions of dollars in deficient loans to the lender,2057 and regulators ordered Fremont to stop issuing
subprime loans.2058 Goldman marketed and sold the RMBS securities to clients. Within seven
months, by October 2007, the rating downgrades began; by August 2009, every tranche of the
GSAMP securities had been downgraded to junk status.2059
On March 26, 2007, the Mortgage Department sought permission from Goldman’s
Mortgage Capital Committee to securitize and underwrite a new RMBS called GSAMP Trust 2007-
HE2, which contained nearly $1 billion in subprime mortgage loans in a Goldman warehouse
account, over 70% of which had been purchased from New Century.2060 Goldman approved this
securitization even though it knew at the time that New Century’s subprime loans were performing
poorly, many of the New Century loans in Goldman’s inventory were problematic, and New
Century was in financial difficulty.2061 The securitization was approved for issuance in April 2007,
the same month New Century declared bankruptcy.2062 Goldman marketed and sold the RMBS
securities to its clients. The securities first began to be downgraded in October of 2007, and all of
the securities have since been downgraded to junk status.2063
Had Goldman not securitized the $2 billion in Fremont and New Century loans, the
Mortgage Department would likely have had to liquidate the warehouse accounts containing them
and either sell the loan pools or keep the high risk loans on its own books.
On April 11, 2007, a Goldman salesman forwarded to Mr. Egol a scathing letter from a
customer, a Wachovia affiliate, which had purchased $10 million in RMBS securities backed by
Fremont loans and underwritten by Goldman. The client wrote that it was “shocked” by the poor
performance of the securities “right out of the gate,” and concerned about Goldman’s failure to have
disclosed information about the poor quality of the underlying loans in the deal termsheet:
4/11/2007 email to Jon Egol, “GSAMP 2006-S3 – Computational Materials for 2064 Wachovia (external),” GS MBSE-
003322028 [emphasis in original].
“ As you know, we own $10mm of the GSAMP 06-S3 M2 bond . ... We are shocked by
how poorly this bond has performed right ‘out of the gate’ and had asked [Goldman] to send
us the attached ProSupp [Prospectus Supplement]. After having read the ProSupp and
compared it to the termsheet we have several concerns:
* According to the Prosupp, approximately $2.2mm ... of loans were delinquent when
they were transferred to the trust. However, there is no mention of delinquent loans
anywhere in the termsheet that was sent to investors when the deal was priced.
* According to the Prosupp, approximately $3.3mm ... are re-performing loans.
However, there is no mention of reperforming loans anywhere in the termsheet.
* Approx. 53.14% of the loans in the deal allow for a Prepayment Premium and that all
Prepayment Premiums collected from borrowers are paid to the Class P certificateholders.
None of this was disclosed in the termsheet and my concerns are two-fold: (1) The presence
of Prepayment Premiums effects prepayment speeds which affects ... [the deal’s
performance]; (2) Prepayment Premiums are not staying inside the deal for the benefit of all
investors but are being earmarked for the Class P holder (which is not mentioned in the
termsheet). Note that ... $1.2mm in Prepayment Premiums has already been paid out to the
Class P holder.
* ... [T]he servicer must charge off any loan that becomes 180 days delinquent, giving
rise to a Realized Loss inside the deal. Currently losses are at 9.71% of the original deal
balance, or approximately $48mm despite the fact that the deal is only 11 months old (note
that this figure already exceeds Moody's expec[ta]tion for cumulative losses for the deal
over the ENTIRE LIFE of the deal). I will also note that there are an additional $57.5mm of
loans in the delinquency pipeline. This seems to indicate significant fraud at either the
borrower or lender level ....
* ... [A]ny subsequent recoveries on the charged-off loans do not inure to the benefit of
all investors in the deal but ONLY to the Class X1 certificateholder. This is not mentioned
anywhere in the termsheet. Who owns the Class X1 notes? Is that Goldman or an affiliate?
How much has been recovered so far? This is a material fact to me especially considering
that loss severities are coming in at around 105% on the charged-off loans.”2064
Reduced RMBS Business. By the end of 2007, Goldman had substantially reduced its
RMBS securitization business. In November 2007, in response to a request, Goldman provided
specific data to the SEC about the decrease in its inventory of subprime mortgage loans and RMBS
securities. Goldman informed the SEC that the value of its subprime loan inventory had dropped
from $7.8 billion on November 24, 2006, to $462 million on August 31, 2007. Over the same time
period, the value of its inventory of subprime RMBS securities had dropped from $7.2 billion to
11/7/2007 letter from Sarah Smith, Controller and Chief Accounting 2065 Officer to SEC, at 5, GS MBS-E-
015713460, Hearing Exhibit 4/27-50. Goldman issued its final RMBS securitization for the year in August 2007.
2066 4/2010 “Goldman Sachs Long Cash Subprime Mortgage Exposure, Investments in Subprime Mortgage Loans,
and Investments in Subprime Mortgage Backed Securities November 24, 2006 vs. August 21, 2007 in $ Billions,”
chart prepared by the Subcommittee, Hearing Exhibit 4/27-163.
$2.4 billion, a two-thirds reduction.2065 The graph below, which was prepared by the Subcommittee
using the data provided by Goldman to the SEC, illustrates the rapid decline in Goldman’s subprime
[SEE CHART NEXT PAGE: Goldman Sachs Long Cash Subprime
Mortgage Exposure, prepared by the Permanent Subcommittee on
Investigations, Hearing Exhibit 163.]
Goldman Sachs Long Cash Subprime Mortgage Exposure,
Investments in Subprime Mortgage Loans, and
Investments in Subprime Mortgage Backed Securities
November 24, 2006 vs. August 31, 2007 - in $ Billions
Investments in Subprime
Mortgage Loans
Investments in Subprime
Mortgage Backed Securities
Long Cash Subprime Mortgage
Exposure of Prepared by the U.S. Senate Permanent Subcommittee on Investigations, April 2010.
Data from Nov. 7, 2007, letter from Goldman Sachs to the Securities and Exchange Commission, GS MBS‐E‐015713460, at 5 (Exhibit 50).
(Total Loans and
1/31/2007 email from Daniel Sparks to Tom Montag, 2067 “MTModel,” Hearing Exhibit 4/27-91.
2068 See, e.g., 2/25/2007 emails between Daniel Sparks and Tom Montag, “Questions you had asked,” GS MBS-E-
2069 See 2/23/2007 email from Daniel Sparks, “Mortgages today,” GS MBS-E-009759477 (“We liquidated 3 CDO
warehouses today and started the liquidation of another.”); 2/26/2007 emails between Daniel Sparks and Tom
Montag, “Questions you had asked,” GS MBS-E-019164799; 2/22/2007 email from Peter Ostrem to David
Rosenblum, “League Tables,” GS MBS-E-001800683 (“FYI Liquidating 3 warehouses tomorrow. And Dan
[Sparks] wants to liquidate Greywolf.”).
2070 2/25/2007 emails between Daniel Sparks and Tom Montag, “Questions you had asked,” GS MBS-E-019164799.
2071 See, e.g., 3/8/2007 email from Daniel Sparks to Mr. Winkelried and others, GS MBS-E-002206279, Hearing
Exhibit 4/27-75 (Mortgage Department is “rushing to get deals rated”). See also discussions of Anderson and
Timberwolf CDOs, below.
2072 See 6/1/2007 email from David Lehman, “CDO Update,” GS MBS-E-001866889 (referring to “liquidated
warehouses”); 5/30/2007 email from David Lehman, “ABX hedges – Buy order,” GS MBS-E-011106690 (directing
trading desk to unwind hedges for CDO warehouse accounts). Some of the assets were accounted for in a separate
“CDO Transition book,” but the sale of the assets became the responsibility of the SPG trading desk.
2073 6/22/2007 email from David Lehman, “Few trade posts,” GS MBS-E-010848985.
BB. CDO Sell Off
Goldman reduced its inventory of subprime loan pools and RMBS securities through
outright sales, writedowns, and its loan repurchase campaign. It was equally aggressive in reducing
its subprime CDO warehouse inventory.
In January 2007, after the CDO Origination Desk worked to sell securities from a CDO
called Camber 7, Mr. Sparks wrote to Mr. Montag: “Need you to send message to peter ostrem and
darryl herrick telling them what a great job they did. They structured like mad and traveled the
world, and worked their tails off to make some lemonade out of some big old lemons.”2067
In February 2007, the Mortgage Department conducted a review of the CDOs in its
origination pipeline.2068 As part of that review, Mr. Sparks cancelled four pending CDOs that had
acquired some but not all of the assets needed for the CDOs to go to market.2069 On February 25,
2007, Mr. Sparks reported to Mr. Montag and Mr. Ruzika:
“The CDO business liquidated 3 warehouses for deals of $530mm (about half risk was
subprime related). Business also began liquidation of $820mm [redacted] warehouse – all
synthetics done, cash bonds will be sold in the next few days.”2070
The Mortgage Department rushed several remaining CDOs to market, including Anderson,
Timberwolf, and Point Pleasant, which issued their securities in March and April 2007.2071 In May
and June 2007, the Mortgage Department began closing all of its remaining CDO warehouse
accounts and transferring the assets to the SPG Trading Desk for sale.2072 On June 22, 2007, Mr.
Lehman reported that the ABS Desk had just sold another $50 million in RMBS securities from the
CDO warehouse accounts for a profit of $1 million, and that: “[o]nly 40mm RMBS A3/A- remain
in the WH [warehouse] accounts, ½ of which is Long Beach paper - continue to work.”2073
Between the fall of 2006 and mid-2007, Goldman o 2074 riginated 14 CDOs, which included or referenced many
assets that were from or similar to Goldman’s own inventory. The Subcommittee examined seven of those CDOs,
and found that 57% of the CDO assets had come from Goldman, including over $3 billion in synthetic assets in
which Goldman was the short party, and therefore stood to profit from a decline in the value of the underlying assets.
Goldman had unsold securities from a number of these CDOs on its books.
2075 3/9/2007 email exchange between Daniel Sparks and sales managers, “help,” GS MBS-E-010643213, Hearing
Exhibit 4/27-76.
2076 Id.
2077 Id.
2078 Id.
2079 3/12/2007 email from David Lehman, “**Internal** Three focus axes for SP CDOs/SPG Trading,” GS MBS-E-
2080 Id.
Throughout 2007, Goldman sought to sell all of its remaining subprime assets from the CDO
warehouse accounts as well as the new securities issued by Goldman-originated CDOs.2074
Aggressive Sales Efforts. On March 9, 2007, Mr. Sparks emailed a call for “help” to
Goldman’s top sales managers around the world to “sell our new issues – CDOs and RMBS – and
to sell our other cash trading positions.”2075 In response, Mr. Sparks and key sales managers had a
dialogue about “reaching the next wave of players here and abroad.”2076
The Goldman sales manager for Europe and the Middle East suggested that Mr. Sparks
focus the CDO sales efforts abroad, because the clients there were not involved in the U.S. housing
market and therefore were “not feeling pain”:
“The key to success in the correlation melt-down 2 years ago was getting new clients/capital
into the opportunity quickly. Saved/made us a lot of money. Lots of banks and real money
clients in Europe and middle east and lots of macro hedge funds are not involved and not
feeling pain. In Europe we need a summary of key opportunities/axes and I will get the team
to focus on. 2-3 most important things plus sales talking points rather than laundry list.”2077
Mr. Ostrem, head of the CDO Origination Desk, agreed with expanding Goldman’s CDO sales
efforts in Europe and the Middle East: “I agree with [sales manager’s] comments on new clients.
Middle east, french banks, macro hedge funds could and are making these deals ‘work’
currently.”2078 The following week, Mr. Lehman issued three new sales directives or “axes” to the
Goldman sales force placing a priority on selling securities from the Anderson, Timberwolf, and
Hudson CDOs:2079
“As per [European/Middle East sales manager’s] suggestion last Friday, below are the three
main focus areas for SP CDOs/SPG Trading, including Anderson Mezzanine, Timberwolf
CDO^2 and secondary CDO positions (Hudson Mezzanine and high grade BBBs).”
Goldman’s New York sales office forwarded the axe sheet to the European/Middle East sales office
saying: “London – this is for you.”2080
3/21/2007 email from syndicate, “Non-traditional 2081 Buyer Base for CDO AXES,” GS MBS-E-003296460,
Hearing Exhibit 4/27-78.
2082 3/30/2007 email from Fabrice Tourre to Daniel Sparks, David Lehman, and others, GS MBS-E-002678071,
Hearing Exhibit 4/27-80.
2083 4/11/2007 email from syndicate, “GS Syndicate Structured Product CDO Axes (INTERNAL),” GS MBS-E-
010533482, Hearing Exhibit 4/27-101. Mr. Sparks forwarded the directive to global senior sales executives with a
note: “Your focus on this ax would be very helpful – we are trying to clean up deals and this is our priority.”
2084 4/19/2007 email from Daniel Sparks to Bunty Bohra, GS MBS-E-010539324, Hearing Exhibit 4/27-102. Mr.
Sparks authorized large sales credits on at least one other occasion as well – for sales to cover the Department’s $9
million AAA ABX net short position in September 2007. See 9/27/2007 email from Tom Montag to Daniel Sparks,
GS MBS-E-010703744 (Mr. Montag asked: “Did we really pay sixty million in gcs [gross credits] on the aaa short
covering? Why so high?” Mr. Sparks responded: “It was a very big ax, but sales credits have become such a
contentious point that trading team doesn’t debate it anymore. The politics around sales credits had become
unbelievable and were a hinderance [sic] to business.” Mr. Montag replied: “so you overpay?”).
In an additional effort to expand Goldman’s sales effort, the Mortgage Department’s sales
syndicate provided a list of “non-traditional buyers” to the CDO and SPG Trading Desks:
“We have pushed credit sales to identify accounts in the credit space that would follow yield
into the ABS [asset-backed security] CDO market, and tried to uncover some non-traditional
buyers. ... Below is a list of higher delta accounts uncovered so far; and we continue to push
for leads. We are working with sales on these accounts to push our axes.”2081
Goldman personnel worked diligently to pitch CDO securities to various clients, internal
documents show. On March 30, 2007, for example, Fabrice Tourre reported to senior Mortgage
Department executives about his efforts and plans to sell the CDO securities:
“This transaction [Abacus 2007-AC1] has been showed to selected accounts for the past few
weeks. Those selected accounts had previously declined participating in Anderson mezz,
Point Pleasant and Timberwolfe. ... Plan would still be to ask sales people to focus on
Anderson mezz, Point Pleasant and Timberwolfe, but if accounts pass on these trades, steer
them towards available tranches in ABACUS 07-AC1 since we make $$$ proportionately
with the notional amount of these tranches sold. Wanted to make sure everyone is
comfortable with this plan.”2082
In April 2007, the Mortgage Department issued a new directive to its sales force with a list
of new and old CDO securities in its inventory that it wanted sold, including Timberwolf and
Anderson as well as CDOs known as Point Pleasant and Altius.2083 Dissatisfied with the pace of
sales, Mr. Sparks suggested issuing a separate axe for each CDO and offering additional sales
credits: “Why don’t we go one at at a time with some ginormous credits - for example, let’s double
the current offering of credit for timberwolf.”2084 A sales manager responded: “We have done that
with timberwolf already. Don’t want to roll out any more focus axes until we get some traction
there but at the same time, don’t want to stop showing inventory.”
“Gameplan” for CDO Valuation Project. By May 2007, CDO sales had slowed
significantly. Goldman executives became concerned about the lack of sales prices to establish the
See, e.g., 5/11/2007 email from Tom Montag to Daniel S 2085 parks, GS MBS-E-019648100.
2086 5/11/2007 email from Daniel Sparks to Richard Ruzika, “You okay?,” GS MBS-E-019659221.
2087 Id. (“We had a meeting today with viniar, don [Mullen], mcmahon, my team, controllers, gary [Cohn] on the
phone to walk through situation. The market has seized up so much that levels are very hard to determine for the
complex products – which also are difficult to model for value due to market changes.”); 5/14/2007 email from
David Lehman, “Gameplan – asset model analysis,” GS MBS-E-001865782 (last email in a longer email chain).
2088 5/14/2007 email from David Lehman, “Gameplan – asset model analysis,” GS MBS-E-001865782 (last email in
a longer email chain) (“Following up from this afternoon’s meeting. We are going to better evaluate the CDO^2 risk
using three distinct frameworks: 1) Blended scenario analysis using HPA [housing price appreciation;] ... 2) Risk
neutral/correlation framework, consistent with our current synthetic ABS CDOs[;] 3) Simplistic loss assumptions on
the underlyings / Market Value Coverage”); 5/14/2007 email from Elisha Weisel, “Modelling Approaches for Cash
ABS CDO/CDO^2,” GS MBS-E-001863618. See also 3/6/2007 email from Elisha Weisel to Daniel Sparks,
“Property Derivs,” GS MBS-E-010649734 (discussing lack of model or models to consistently value subprime
2089 5/14/2007 email from Tom Montag to Daniel Sparks, GS MBS-E-019642797.
2090 5/20/2007 email from Lee Alexander to Daniel Sparks, Donald Mullen, Lester Brafman, and Michael Kaprelian,
“Viniar Presentation - Updated,” GS MBS-E-010965211 (attached file “Mortgages V4.ppt,” “Mortgages
Department, May 2007,” GS MBS-E-010965212). This document is identified in the relevant correspondence as
“v.4,” and appears to be the final version of a draft presentation prepared earlier that day, “Mortgages Department,
May 2007,” GS MBS-E-001863651, which bears a time and date stamp of May 20, 2007, 2:58 p.m. See also
5/20/2007 Goldman document, “Mortgage Presentation to David Viniar – Dial In Information,” GS MBS-Evalue
of its CDO holdings.2085 Goldman needed accurate values, not just to establish its CDO sales
prices, but also to value the CDO securities for collateral purposes and to comply with Goldman’s
policy of using up-to-date market values for all of its holdings. Mr. Sparks expressed concern that
the value of the remaining CDO assets were rapidly declining, warning one senior executive: “We
are going to have a very large mark down – multiple hundreds. Not good.”2086
On May 11, 2007, Goldman senior executives, including Mr. Cohn and Mr. Viniar, held a
lengthy meeting with Mortgage Department personnel, their risk controllers, and others to develop a
“Gameplan” for a CDO valuation project.2087 The Gameplan called for the Mortgage Department,

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