Sunday, September 4, 2011


included a subsection entitled, “The Credit Protection Buyer and Senior Swap Counterparty,” in
which Goldman could have disclosed its short position. Rather than disclose that short position,
however, Goldman stated in part:
“GSI and/or any of its affiliates may invest and/or deal, for their own respective accounts for
which they have investment discretion, in securities or in other interests in the Reference
Entities, in obligations of the Reference Entities or in the obligors in respect of any
Reference Obligations or Collateral Securities (the “Investments”), or in credit default swaps
(whether as protection buyer or seller), total return swaps or other instruments enabling
credit and/or other risks to be traded that are linked to one or more Investments.”2269
This disclosure indicates that GSI or an affiliate “may invest and/or deal” in securities or other
“interests” in the assets underlying the Hudson CDO, and “may invest and/or deal” in securities that
are “adverse to” the Hudson “investments.” The Offering Circular, however, misrepresented
Goldman’s investment plans. At the time it was created in December 2006, Goldman had already
determined to keep 100% of the short side of the Hudson CDO and act as the sole counterparty to
the investors buying Hudson securities, thereby acquiring a $2 billion financial interest that was
directly adverse to theirs.
Tracking Hudson. Once it constructed the Hudson CDO, Goldman personnel were
focused on completing and selling the Hudson 1 securities as quickly as possible. At least one other
CDO was pushed back to facilitate the execution of Hudson 1.2270
Firmwide Risk Committee meetings were often chaired by David 2271 Viniar and frequently attended by Lloyd
Blankfein and Gary Cohn. See 9/20/2006 Firmwide Risk Committee Minutes, GS MBS 0000004472; 9/27/2006
Firmwide Risk Committee Minutes, GS MBS 0000004474; 10/4/2006 Firmwide Risk Committee Minutes, GS MBS
0000004476; 10/11/2006 Firmwide Risk Committee Minutes, GS MBS 0000004478; 11/1/2010 Firmwide Risk
Committee Minutes, GS MBS 0000004484. See also 10/11/2006 email from Arbind Jha to Joshua Birnbaum, GS
MBS-E-012695030 (“Sobel this morning in the firmwide risk committee mentioned that we have circled up the
junior and some of the equity tranches”).
2272 10/25/2006 email from Jonathan Sobel to David Viniar and Gary Cohn, GS MBS-E-009757821.
2273 10/12/2006 email from Thomas Cornacchia to Peter Ostrem and others, GS MBS-E-0000066413.
2274 10/26/2006 email from Arbind Jha, “MarketRisk: Mortgage Risk Report (cob 10/25/2006),” GS MBS-E-
0000056041, Hearing Exhibit 4/27-89. That same day, October 26, 2006, Mr. Swenson also described the risk
transfer to Goldman executive Bill McMahon when updating him on the trading desk’s ABX position: “In addition
to $2bb of risk that was placed into the CDO, we have sold to retail since 4pm yesterday $2bb of BBB- risk.”
10/26/2006 email from Michael Swenson to Bill McMahon, others, GS MBS-E-0000054856.
2275 10/11/2006 Goldman internal email, “FW: Hudson Mezz,” GS MBS-E-017502610, Hearing Exhibit 4/27-170c.
(A Goldman employee asked a sales associate: “what specifically did AIB say was ‘junk’ about the hudson mezz
deal?” The employee then forwarded the email to Mr. Herrick saying: “You may want to ask [the sales associate]
about this when she’s there tomorrow and Friday. ... She said ‘AIB are too smart to buy this kind of junk.’”).
2276 10/19/2006 email from Mitchell Resnick to Jonathan Egol, Darryl Herrick, and David Rosenblum, GS MBS-E-
009557391. “HGS1” refers to Abacus HGS1, a CDO2 where Goldman, as in Hudson 1, held 100% of the short
Goldman senior executives closely followed Hudson’s development and sale. Hudson was
discussed, for example, at five different Firmwide Risk Committee meetings attended by senior
Goldman executives.2271 Mortgage Department executives also sent progress reports to the senior
executives on Hudson 1. On October 25, 2006, for example, Mr. Sobel sent an email to COO Gary
Cohn and CFO David Viniar alerting them to Hudson sales efforts and the pricing of its
securities.2272 During discussions over the best price at which to market the CDO’s equity tranche, a
senior executive emailed Peter Ostrem and others: “keep in mind the overall objective - this is not
about one trade - having said that, I agree that [the proposed price] may be too low.”2273 On October
26, 2006, Mr. Jha, a Goldman risk officer, circulated a Mortgage Department Risk Report to a
number of Goldman executives, including CEO Lloyd Blankfein and COO Gary Cohn, noting in the
forwarding email: “Risk reduction [in the Mortgage Department] is primarily due to pricing of
$2bn Hudson Mez synthetic CDO.”2274
Selling Hudson. Once the Hudson CDO was ready for sale, the Goldman sales force had
difficulty selling Hudson securities to investors due to its reliance on BBB and BBB- rated
subprime RMBS securities. Allied Irish Bank (AIB), for example, apparently referred to the
Hudson securities as “junk.”2275 One Goldman employee emailed the CDO team and asked:
“[D]o we have anything talking about how great the BBB sector of RMBS is at this point in
time ... a common response I am hearing on both Hudson & HGS1 is a concern about the
housing market and BBB in particular? We need to arm sales with a bit more.”2276
10/20/2006 email from Paul Carrett to Darryl Herrick, GS MBS-E 2277 -018321286 [emphasis in original].
2278 10/11/2006 email from Darryl Herrick to Michael Swenson, David Lehman, and Josh Birnbaum, GS MBS-E-
0000030518. Mr. Swenson told the Subcommittee he had no recollection of being involved in the marketing of
Hudson 1. Mr. Swenson said he did not work on CDOs and would not typically be involved in the marketing of
CDOs. Subcommittee interview of Michael Swenson (10/8/2010).
2279 10/12/2006 email from Michael Swenson to David Rosenblum and Peter Ostrem, GS MBS-E-0000030518.
2280 10/25/2006 email from Jonathan Sobel to David Viniar and Gary Cohn, GS MBS-E-009757821.
2281 Subcommittee interview of Darryl Herrick (10/13/2010).
2282 Subcommittee interview of Darryl Herrick (10/13/2010). When asked if it was common to divide unsold
securities between the CDO Desk and the ABS Desk, Mr. Herrick said unsold securities were usually split with the
sponsor of a CDO. His response suggests that Goldman viewed the ABS Desk as the sponsor of Hudson 1, since it
was designed to offset the risk associated with the ABS Desk’s ABX assets. See also 2/28/2007 email from David
Rosenblum to Peter Ostrem, GS MBS-E-001800707 (“are we still sharing 50pct of ups and downs on [Hudson].”).
Another Goldman salesman emailed Mr. Herrick on the CDO Desk, telling him:
“The guy at Schroders looking at this deal has one main issue h[e] has to get over: He is
worried about how he is going to convince his boss to invest in a pool of sub prime
mortgages with probably their greatest exposures in California and Florida. He is nervous
on US house prices. ... Anything else we could offer? He is not a big believer in the
Moody’s data and rating system. I WANT THIS GUY THERE AND IN SIZE! Please
help if you can - just three bullet points would help.2277
Mr. Herrick kept the SPG Trading Desk posted on the progress of sales. On October 11,
2006, Mr. Herrick informed the group: “This [sale] clears the team of majority the senior risk
Equity and BBs we are hammering away on and hope to get traction tomorrow/Friday.”2278 Mr.
Swenson responded: “you are doing an awesome job, keep it up.” Mr. Swenson emailed the sales
team manager: “I am extremely impressed by darryl [a]nd the rest of your team.”2279
On October 25, 2006, Mr. Sobel sent a Hudson update to COO Gary Cohn and CFO David
Viniar: “$1.6bn of the $2bn sold, with the majority of the unsold bonds being investment grade.
Equity more than 85% sold.”2280
The Goldman sales force sold most of the Hudson securities prior to the CDO’s closing in
December 2006, and continued its sales efforts after the closing as well. Two months after the
closing, in February 2007, Goldman had $296 million in unsold Hudson securities, not including
the $6 million equity investment Goldman had announced in the Hudson marketing material that it
would purchase and hold. Over the following months, Goldman sold an additional $38 million
worth of securities to investors, and received bids on several other securities but decided the bid
prices were too low and kept the securities on its books instead.2281 The unsold Hudson securities
were split between the CDO Origination Desk and ABS Trading Desk.2282
Overall, Goldman sold Hudson securities to 25 investors. Morgan Stanley made the largest
investment, taking $1.2 billion of the super senior portion of the CDO. Other investors included the
National Australia Bank, which purchased $80 million worth of the AAA rated securities; Security
10/30/2006 email from Peter Ostrem, “Great Job on Hudson Mezz,” GS MBS-E-0 2283 000057866, Hearing Exhibit
2284 Goldman told the Subcommittee that Hudson experienced a gross gain of $1.697 billion offset by a loss of $1.39
billion (rather than $1.2 billion) in ABX assets on its balance sheet. 8/4/2010 email from Goldman to the
Subcommittee, PSI_QFR_GS0243.
2285 See Goldman response to Subcommittee QFR at PSI_QFR_GS0239.
2286 Id.
Benefit Mutual, which bought $10 million of the AA rated securities; and Bear Stearns, which
bought $5 million of the equity tranche.
Profiting from Hudson. On October 30, 2006, after Hudson 1 was presented to investors
and pre-sold most of its securities, Peter Ostrem, the head of the CDO Origination Desk, sent a
celebratory email to the ABS and CDO teams with Hudson highlights. He wrote: “Goldman was
the sole buyer of protection on the entire $2.0 billion of assets,” meaning Goldman had kept 100%
of the short position. By shorting Hudson, Goldman had transferred $1.2 billion worth of risky
ABX assets Goldman wanted off its books, and shorted another $800 million in RMBS securities.
Mr. Ostrem also listed these “highlights”:
• “P&L [Profit and Loss] booked of $8.5mm .... Plus, ongoing P&L to GS for acting
as liquidation agent equal to $2.5mm per year for the next 4 years
• Hudson Mezz went long $1.2bln of BBB/BBB- ABX from ABS trading desk at
market wides 4 weeks ago
• Fastest execution of a SP [Structured Product] CDO done at Goldman (4 weeks from
inception to pricing)
• Over half the Equity was sold by Andy Davilman
• ... Super senior note ($1.2bln in size) was executed in the first week of the
transaction and was a key driver of this deal[’]s success (covered by Nicole
Over the next year, Goldman pocketed nearly $1.7 billion in gross revenues from Hudson 1,
all of which was at the expense of the Hudson investors.2284 As the value of the RMBS securities
referenced in the ABX indices declined, Goldman, as the sole short party in Hudson, collected
$1.393 billion in gains directly from the investors to whom it had sold the Hudson securities.
Goldman’s $1.393 billion gains were, in turn, offset internally at the firm by the ABX losses
recorded on the books of its ABS Desk. Goldman made another $304 million in gains due to its
short of the other $800 million in single name CDS contracts included in Hudson 1.2285 That $304
million gain was also at the expense of the investors to whom Goldman had sold the Hudson
Goldman also profited in other ways. It received substantial fees from the roles it played in
underwriting and administering Hudson 1, including $31 million in underwriting fees, $3.1 million
for serving as the liquidation agent, and $1 million for serving as the collateral put provider.2286 The
ABS Desk warehouse account that contained both the long ABX assets and the 80 offsetting single
2287 Id.
2288 Id., at PSI_QFR_GS_0280.
2289 3/4/2006 email from Fabrice Tourre to George Maltezos, others, GS MBS-E-006638833.
2290 See Goldman response to Subcommittee QFR, at PSI_QFR_GS0211.
2291 11/21/2008 letter from Goldman to Morgan Stanley, HUD-CDO-00005125.
2292 See Goldman response to Subcommittee QFR, at PSI_QFR_GS0223 and PSI_QFR_GS0235.
name CDS contracts reported a gain of approximately $1.2 million due to the higher value of the
single name CDS compared to the ABX CDS.2287
Goldman also incurred some losses in connection with Hudson 1. Although Goldman sold
some additional Hudson securities several months after the CDO closed, it incurred a $267 million
loss from the Hudson 1 securities that it was unable to sell at the prices it wanted and instead
retained in its inventory. Goldman lost another $111 million from serving as the collateral put
provider for Hudson collateral securities which also lost value.2288 Overall, however, Goldman
recorded a profit from Hudson 1 of more than $1.35 billion.
In contrast to Goldman, Hudson 1 investors suffered substantial losses. In March 2007, less
than three months after the issuance of the Hudson securities, when asked to analyze how a holder
of Hudson securities could hedge against a drop in their value, a Goldman trader wrote: “their
likelihood of getting principal back is almost zero.”2289 Six months later, the credit rating
downgrades began. In September 2007, Moody’s downgraded several Hudson 1 securities and
followed with additional downgrades in November 2007. S&P began downgrades of Hudson 1 in
December 2007, and by February 2008, had downgraded even the AAA rated securities.2290
Morgan Stanley, the largest Hudson investor, lost $930 million.2291 As other investors
incurred increasing losses, they sold their securities back to Goldman at rock bottom prices. In
September 2007, for example, nine months after the Hudson securities were first issued, Goldman
repurchased $10 million worth of Hudson securities from Greywolf Capital at a price of five cents
on the dollar; in October 2007, another hedge fund sold $1 million in Hudson securities back to
Goldman at a price of 2.5 cents on the dollar.2292 In November 2008, Hudson 1 was completely
liquidated by Goldman. Today, Hudson securities are worthless.
Analysis. Goldman constructed Hudson 1 as a way to transfer its ABX risk to the investors
who bought Hudson securities. When marketing the Hudson securities, Goldman misled investors
by claiming its investment interests were aligned with theirs, when it was the sole short party and
was betting against the very securities it was recommending. Goldman also implied that Hudson’s
assets had been purchased from outside sources, and failed to state that it had selected the majority
of the assets from its own inventory and priced the assets without any third party participation. By
holding 100% of the short position at the same time it solicited clients to buy the Hudson securities,
Goldman created a conflict of interest with its clients, concealed the conflict from them, and
profited at their expense.
“Mezzanine” CDS assets reference securities t 2293 hat carry a credit rating of BBB or BBB-. Mezzanine assets are
riskier than AAA, AA, and A rated assets, but less risky than those that carry, for example, BB, B, or CCC ratings.
2294 Some documents indicate the CDO was slated to be Hudson Mezzanine 2006-2. But in December 2006,
Goldman delayed Anderson in favor of issuing an ABX based CDO named Hudson Mezzanine 2006-2. Several of
the documents cited in this section use the terms “Hudson” or “Hudson Mezz” when in fact they refer to Anderson.
None of the Goldman employees interviewed by the Subcommittee could recall the reason for changing the name of
the CDO to Anderson.
2295 9/25/2006 Goldman memorandum to the Mortgage Capital Committee, GS MBS-E-013475756-62 (hereinafter
“9/25/2006 MCC Memorandum”). The MCC Memorandum states that Goldman was approached by GSC, but may
be using standard language reused in many MCC Memoranda. In an interview with the Subcommittee, Edward
Steffelin, a Senior Trader at GSC, stated that Goldman approached GSC about partnering in the transaction, and the
memorandum language was “probably backward.” Subcommittee interview of Edward Steffelin (12/10/2010).
2296 9/25/2006 MCC Memorandum, GS MBS-E-013475756-62.
2297 See Goldman response to Subcommittee QFR at PSI_QFR_GS0434. Goldman noted in its QFR response that
the information used for its response had been voluntarily provided by Goldman employees.
2298 5/10/2006 email from Curtis Willing to David Solomon and Dan Holland, GS MBS-E-013870906-7. The Elliot
Bridge Fund eventually invested in Anderson.
2299 4/17/2006 email from Curtis Willing to David Solomon and Dan Holland, GS MBS-E-013870906-7.
2300 5/14/2006 and 5/10/2006 emails from Dan Sparks to Curtis Willing, GS MBS-E-013870906-7.
BB. Anderson Mezzanine Funding 2007-1
In the summer of 2006, Goldman began work on Anderson Mezzanine Funding 2007-1
(Anderson), a synthetic CDO whose assets were single name CDS contracts referencing subprime
RMBS securities with mezzanine credit ratings.2293 To execute the Anderson CDO, Goldman
partnered with GSC Partners (“GSC”), a New York hedge fund. Goldman personnel working on
the CDO included Peter Ostrem, head of the CDO Origination Desk, and Matthew Bieber, a CDO
Origination Desk employee assigned to be deal captain for the Anderson CDO.
The CDO was originally conceived as part of the Hudson series of non-managed, proprietary
CDOs in which Goldman acted as the principal.2294 But Goldman decided to enlist GSC to take part
in structuring the $500 million CDO.2295
Partnering on Anderson. GSC Partners was founded by Alfred C. Eckert, III, a former
partner and former head of private equity, distressed debt investing, and corporate finance at
Goldman.2296 Goldman had a longstanding relationship with GSC. In addition to Mr. Eckert, at
least five other former Goldman Managing Directors were employed by GSC, and at least eight
other former and current Managing Directors had invested in one or more of GSC’s funds.2297 In the
spring of 2006, GSC circulated information through Goldman about raising money for its Elliot
Bridge Fund, a “fixed income arb[itrage] fund focusing primarily on ABS using cash and synthetics,
long/short strategies.”2298 When discussing the fund with other Goldman employees, Curtis Willing,
the Goldman sales representative responsible for covering GSC wrote: “They are a strategic partner
with the Synthetic desk and have handed us multiple CDO/CLO mandates.”2299 After being
informed of the internal conversations almost a month later, Mr. Sparks informed Mr. Willing that
it was a “[m]istake not to involve me from early on,” telling Mr. Willing, “I’ve run a bunch of traps
for [GSC] in the past.”2300
9/25/2006 MCC Memorandum, G 2301 S MBS-E-013475756-62.
2302 8/8/2006 email from Edward Steffelin to Peter Ostrem and others, “GS/GSC EB Prop deal,” GS MBS-E-
000904603. 8/8/2006 email from Peter Ostrem to Edward Steffelin, Joshua Bissu and others, GS MBS-E-
000904603 (Mr. Ostrem writes: “Happy to source assets via GSC.”). See e.g., 9/26/2006 email from Mr. Bissu to
Matthew Bieber, “Names for tomorrow,” GS MBS-E-014335388.
2303 Subcommittee interview of Edward Steffelin (12/10/2010).
2304 See 3/5/2007 emails between Matthew Bieber and Joshua Bissu, GS MBS-E-014605918.
2305 See 3/6/2007 email from Joshua Bissu to Matthew Bieber and Peter Ostrem, GS MBS-E-014597705.
2306 8/8/2006 email from Edward Steffelin to Peter Ostrem and others, “GS/GSC EB Prop deal,” GS MBS-E-
000904603. GSC frequently executed trades with Goldman’s Correlation Trading Desk, and was known to have a
“long/short strategy” in which it shorted assets it considered expensive and went long assets it thought were
undervalued. See 9/15/2006 email from Geoffrey Williams to Correlation Trading Desk, GS MBS-E-009471708.
See e.g., 10/31/2006 email from Shelly Lin to Joshua Bissu, and Matthew Bieber, GS MBS-E-016473768.
2307 10/31/2006 email from Curtis Willing, GSC Trades, GSC-CDO-FCIC-0029698; 10/31/2006 email from Deeb
Salem, “Re: GSC-Hudson Mezz 2,” GS MBS-E-000905571. A former GSC employee interviewed by the
Subcommittee also indicated that the short positions were taken on Anderson assets in an effort to hedge GSC’s
warehouse risk. Subcommittee interview of Edward Steffelin (12/10/2010).
2308 10/31/2006 email from Shelly Lin to Joshua Bissu and Matthew Bieber, GS MBS-E-016473768. See also
10/31/2006 email from Shelly Lin to Deeb Salem, Edwin Chin, and Matthew Bieber, GS MBS-E-000905571 (“GSC
wants to short into the deal the amounts listed below. They’d like to trade the ones they want to hedge with your
desk as well. I think they also did this with your desk a few weeks ago.”). When Mr. Bieber was shown this
document during his 10/21/2010 interview with the Subcommittee he stated he didn’t know if GSC had shorted
assets and that he didn’t know what Ms. Lin meant by her statement. Subcommittee interview of Matthew Bieber
2309 Subcommittee interview of Matthew Bieber (10/20/2010); Subcommittee interview of Edward Steffelin
GSC agreed to partner with Goldman on the Anderson CDO and to share in the associated
risk, including by splitting the equity tranche and sharing the risk with Goldman that the Anderson
assets would lose value while being warehoused.2301 GSC also participated in selecting the assets
for the CDO.2302 Later on, Goldman consulted with GSC on whether to liquidate or underwrite
Anderson,2303 and allowed GSC to participate in pricing issues,2304 while GSC at times assisted in
marketing Anderson.2305
Goldman offered to let GSC take a short interest in the CDO by offering to “sell protection
on BBBs to GSC at market for 0.75% times notional,” and agreeing to “source assets via GSC,”
meaning GSC could propose assets for the CDO that GSC wanted to get rid of or short.2306 GSC
responded by shorting a select group of RMBS securities to hedge its risk while those assets were in
the Anderson warehouse account.2307 For instance, at one point in October 2006, GSC sought to add
$56 million in assets to the Anderson CDO, while also taking a short position on $9 million of those
assets, which it described as “GSC Hedge Amount.”2308
Designing Anderson. GSC and Goldman participated together in the selection of assets for
Anderson. Anderson was designed to be a synthetic CDO whose assets would consist solely of
CDS contracts referencing RMBS securities whose average credit ratings would be BBB or BBB-.
GSC proposed some of the referenced RMBS securities, but it is unclear how many were included
in Anderson.2309 GSC and Goldman employees interviewed by the Subcommittee had no specific
2310 Id.
2311 See Goldman response to Subcommittee QFR at PSI_QFR_GS0192.
2312 This number was compiled using a list of referenced securities supplied by Goldman at QFR_PSI_GS0192 and
registration statements available at When looking at all mortgages underlying each reference security,
New Century originated 48% by value of the underlying mortgages. However, each mortgage may have a different
weight in the Anderson CDO based on the size of the reference security it is held in. Therefore, the economic effect
of the New Century mortgages could be greater than or less than 48%. The next largest mortgage originator by value
was Countrywide at 8%.
2313 See, e.g., 1/4/2007 Goldman presentation, “Sub-Prime Mortgage Lenders - Update,” GS MBS-E-009978840-59,
Hearing Exhibit 4/27-169.
2314 See discussion of Goldman’s net short position, Section C(4), above.
recollection of the asset selection process, beyond each party selecting some RMBS securities and
the other having veto rights.2310
Anderson’s assets were purchased from 11 different broker-dealers from September 2006 to
March 2007. Goldman was the source of 28 of the 61 CDS contracts in Anderson, and Goldman
retained the short side. The next largest short party was Lehman Brothers which sold six CDS
contracts to Anderson and retained the short side. Goldman also served as the sole credit protection
buyer to the Anderson CDO, acting as the intermediary between the CDO and the various brokerdealers
selling it assets.2311
By February 2007, the Anderson warehouse account contained $305 million out of the
intended $500 million worth of single name CDS, many of which referenced mortgage pools
originated by New Century, Fremont, and Countrywide, subprime lenders known within the
industry for issuing poor quality loans and RMBS securities. Approximately 45% of the referenced
RMBS securities contained New Century mortgages.2312
Falling Mortgage Market. During the same time period in which the Anderson single
name CDS contracts were being accumulated, Goldman was becoming increasingly concerned
about the subprime mortgage market, was reacting to bad news from the subprime lenders it did
business with,2313 and was building a large short position against the same types of BBB rated
RMBS securities referenced in Anderson.2314 By February 2007, the value of subprime RMBS
securities was falling, and the Goldman CDO Origination Desk was forced to mark down the value
of the long single name CDS contracts in its CDO warehouse accounts, including Anderson.
Goldman was also aware that its longtime customer, New Century, was in financial distress.
On February 7, 2007, New Century announced publicly it would be restating its 2006 earnings,
causing a sharp drop in the company’s share price. On February 8, 2007, Goldman’s Chief Credit
Officer Craig Broderick sent Mr. Sparks and others a press clipping about New Century and
“[T]his is a materially adverse development. The issues involve inadequate [early payment
default] provisions and marks on residuals .... [I]n a confidence sensitive industry it will be
2/8/2007 email from Craig Broderick to Daniel Sparks, 2315 David Viniar, others, GS MBS-E-002201486.
2316 3/8/2007 email from Daniel Sparks to senior executives, GS MBS-E-002206279, Hearing Exhibit 4/27-75.
2317 2/23/2007 email from Daniel Sparks to senior executives, GS MBS-E-009759477.
2318 2/25/2007 email from Daniel Sparks to Tom Montag, GS MBS-E-019164799. See also 2/23/2007 email from
Daniel Sparks to senior executives, GS MBS-E-009759477 (“We liquidated 3 CDO warehouses today and started
the liquidation of another. We may liquidate one more next week.”).
2319 2/28/2007 email from David Rosenblum to Peter Ostrem, GS MBS-E-001800707.
2320 2/24/2007 email from Deeb Salem to Michael Swenson, Edwin Chin, and Josh Birnbaum, GS MBS-E-
ugly even if all problems have been identified. ... We have a call with the company in a few
minutes (to be led by Dan Sparks).” 2315
On some occasions, Mr. Sparks addressed negative news about New Century in the same
email he discussed liquidating assets in warehouse accounts for upcoming CDOs. On March 8,
2007, for example, Mr. Sparks noted in an email to senior executives: “New Century remains a
problem” due to loans experiencing early payment defaults, and informed them that the Mortgage
Department had “liquidated a few deals and could liquidate a couple more.”2316
On February 23, 2007, Mr. Sparks sent an email to senior Goldman executives estimating
that Goldman had lost $72 million on the holdings in its CDO warehouse accounts, due to falling
prices.2317 He directed Mortgage Department personnel to liquidate rather than securitize the assets
in certain warehouse accounts. Two days later, on February 25, 2007, Mr. Sparks informed senior
executives of the possibility of liquidating Anderson:
“[T]he CDO business liquidated 3 warehouses for deals of $530mm (about half risk was
subprime related). ... One more CDO warehouse may be liquidated this week -
approximately $300mm with GSC as manager.”2318
Three days later, David Rosenblum, head of Goldman’s Collateralized Loan Obligations activities,
emailed Mr. Ostrem, head of the CDO Origination Desk, stating: “Dan tells me that SP [Structured
Product] CDO desk has reported -77 [million dollars] from retained debt (Hmezz 1+2, etc), and
-129 [million dollars] from unrealized and realized CDO WH [warehouse] markdowns.”2319
On February 24, 2007, a Saturday, several persons from the Mortgage Department worked to
analyze the costs of unwinding and liquidating the assets collected for the Anderson CDO. Deeb
Salem, a trader on the ABS Desk, estimated that unwinding Anderson would result in a $60 million
loss due to the falling value of its single name CDS.2320 On the same day, Mr. Ostrem sent his
colleagues this explanation of why the losses in the CDO warehouse accounts were growing so
“Each warehouse is marked by either (a) MTM [mark-to-market] on each asset or (b) mark
to model [MTModel] which involves taking the portfolio through the expected CDO
execution and calculating Goldman’s P&L [profit and loss] given current market yields on
debt and equity. MTM is preferred if CDO execution is highly uncertain or portfolio is
2/24/2007 email from Peter Ostrem 2321 to colleagues, GS MBS-E-010383828-29.
2322 2/24/2007 email from Daniel Sparks to Peter Ostrem, others, GS MBS-E-001996601, Hearing Exhibit 4/27-95.
2323 2/25/2007 Goldman internal email chain, GS MBS-E-001996601, Hearing Exhibit 4/27-97.
2324 Id.
2325 Id.
2326 3/2/2007 email from Jon Egol to Daniel Sparks and others, GS MBS-E-010637566, Hearing Exhibit 4/27-97.
small. Both the MTM and the MTModel take into account risk sharing arrangements with
3rd parties.
As CDO execution has become more uncertain we have moved a couple warehouses closer
to their MTM which has significantly increased our losses. Also, our MTModel results have
shown losses as expected liability spreads have widened significantly and the overall
strength of the CDO market has waned due to fundamental credit decline in 06/07 in RMBS
subprime (90+% of assets) and increased co[r]relation between ABX/TABX levels and
mezz debt levels in CDOs. We expect this co[r]relation to increase volatility in our
warehouse marks for the [sic] a while (this series of events have happened quickly within
the last month and the co[r]relation is getting closer to 1 as global markets get more familiar
with fundamentals in subprime and trading levels in ABX/TABX).
Additional losses have also resulted from the liquidation of 3 warehouses. In each case, the
realized loss from the sale of assets has been higher than our MTM or MTModel. This is
attributable to both volatility in subprime markets and that our competitors are closing their
CDO warehouse accounts from buying our subprime or CDO positions. The buyer base has
suddenly shrunk significantly. As this continues, we expect this lack of liquidity to further
weaken our MTMs and feed into our losses in our remaining warehouse marks.”2321
At about 11:00 p.m. that Saturday night, February 24, 2007, Mr. Sparks seemed to reach a
decision to liquidate Anderson. He sent an email to Mr. Ostrem, Mr. Bieber, and several others
stating: “I want to liquidate Anderson Monday - we should begin the discussion with gsc asap.”2322
After Mr. Sparks relayed this decision, Mr. Ostrem and Mr. Bieber began to strategize ways
to convince Mr. Sparks to reverse his decision.2323 Messrs. Ostrem and Bieber assembled a list of
likely buyers of the Anderson securities to present to Mr. Sparks, and brainstormed about other
CDOs that could potentially buy Anderson securities for their asset pools.2324 Mr. Ostrem also
proposed allowing a hedge fund to short assets into the deal as an incentive to buy the Anderson
securities, but Mr. Bieber thought Mr. Sparks would want to “preserve that ability for Goldman.”2325
At some point, Mr. Sparks changed his mind and decided to go forward with underwriting
the Anderson CDO. None of the Goldman personnel interviewed by the Subcommittee could recall
why the final decision was made to go forward with Anderson. In one email on March 2, 2007,
Jonathan Egol, head of the Goldman Correlation Trading Desk, suggested adding $195 million
more in assets to Anderson, with Goldman selecting the assets internally and shorting them.2326 Mr.
3/2/2007 email from Daniel Sparks to Jon Egol and others, 2327 GS MBS-E-010637566, Hearing Exhibit 4/27-97.
2328 3/2/2007 email from Jon Egol to colleagues, “Re: Abacus AC1,” GS MBS-E-002676413, Hearing Exhibit 4/27-
2329 3/13/2007 email from Peter Ostrem to Scott Wisenbaker and Matthew Bieber, GS MBS-E-000898410, Hearing
Exhibit 4/27-172.
2330 In mid-March, Mr. Ostrem informed the GSI Risk Committee that Goldman’s estimated losses on the assets in
the Anderson warehouse account had reached $22.9 million. 3/16/2007 Goldman Sachs International Risk
Committee memorandum, “GSI Warehousing for Structured Product CDOs,” GS MBS-E-001806010-16.
Sparks rejected any expansion of Anderson, responding: “we are not ramping - execute deal as
The Anderson CDO closed on March 20, 2007. As finally constructed, 100% of its assets
were CDS contracts referencing $307 million in mezzanine subprime RMBS securities, meaning
RMBS securities carrying BBB or BBB- credit ratings. About 45% of the subprime mortgages in
the referenced RMBS securities were issued by New Century. Another 8% were issued by
Countrywide, and almost 7% were issued by Fremont. Goldman took about 40% of the short side
of the Anderson CDO. Ten other investors held the rest of the short interest in the CDO.
Selling Anderson. During March, selling Anderson securities became a top priority for
Goldman. Goldman even put another deal on hold, the Abacus 2007-AC1 deal with the Paulson
hedge fund, to promote Anderson. As Mr. Egol advised Goldman personnel: “Given risk priorities,
subprime news and market conditions, we need to discuss side-lining [Abacus 2007-AC1] in favor
of prioritizing Anderson in the short term.”2328
On March 13, 2007, Goldman issued internal talking points for its sales force on the
Anderson CDO. Among the points highlighted were:
“Portfolio selected by GSC. Goldman is underwriting the equity and expects to hold up to
50%. ... Low fee structure[.] ... No reinvestment risk.”2329
The talking points described Goldman as holding up to 50% of the equity tranche in the CDO –
worth about $21 million, without mentioning that Goldman would also be holding 40% – about
$135 million – of the short side of Anderson, placing its investment interests in direct opposition to
the investors to whom it was selling Anderson securities.
The large number of poor assets referenced in Anderson raised investor questions and was
an impediment to sales.2330 One potential investor wrote to a Goldman sales representative
explaining its decision not to purchase the Anderson securities:
“We’re going to pass on this deal for a number of reasons: Two bonds . . . have been
downgraded or are on negative watch; Another 12 bonds in the portfolio are negatively
impacted by the downgrades lower in the capital structure; 28% of the portfolio is failing
5/31/2007 email from Goldman client to Andrew Davilman, 2331 GS MBS-E-015550857-58. Andrew Davilman
relayed the message to Matthew Bieber, who suggested the client might be interested in higher rated securities. Mr.
Davilman responded: “I’ll check, but given the portfolio I suspect he’s looking for a cleaner start.”
2332 3/16/2007 email from Russell Brocato to Scott Wisenbaker, GS MBS-E-000902498, Hearing Exhibit 4/27-172.
Mr. Bieber and Mr. Ostrem were also informed by a salesperson that the client was “out on Anderson - they feel like
the deal will be dow[n]graded and have interest coverage issues.” Mr. Ostrem instructed the Goldman salesperson to
“[f]ix the miscommunication so the probability [of sale] goes up.”
2333 3/14/2007 email from Matthew Bieber to Scott Wisenbaker and others, GS MBS-E-000908336, Hearing Exhibit
4/27-172 (“Looking like both dcp and terwin out. New Century issues.”).
2334 3/13/2007 email from Wendy Rosenfeld at Rabobank to Olivia Ha at Goldman, GS MBS-E-000898417,
Hearing Exhibit 4/27-172.
2335 3/6/2007 email from Joshua Bissu to Matthew Bieber and Peter Ostrem, GS MBS-E-014597705.
2336 3/8/2007 email from Daniel Sparks to senior executives, GS MBS-E-002206279, Hearing Exhibit 4/27-75.
delinquency triggers; We show that a lot of these bonds will take principal hits; Not crazy
about the deal structure given the quality of the portfolio.”2331
Other investors expressed concerns that the CDO would be downgraded.2332 Goldman did not
disclose to these investors that it had almost canceled the CDO, due to its assets’ falling values.
Of particular concern for investors was the concentration of New Century mortgages in
Anderson.2333 On March 13, 2007, a potential investor, Rabobank, asked Goldman sales
representatives: “how did you get comfortable with all the new centu ry [sic] collateral in particular
the new century serviced deals - con sidering [sic] you are holding the equity and their servicing
may not be around is that concerning for you at all?”2334 Goldman and GSC prepared a list of
talking points with which to respond to the investor:
“- Historically New Century has on average displayed much better performance in terms
of delinq[uency] and default data
- Prepayments have tended to be higher lowering the extension risk
- Losses and REO [Real Estate Owned by a lender taking possession of a property] are
historically lower than the rest of the market
- Traditionally the structures have strong enhancement/subordination.”2335
The talking points did not disclose that, in fact, Goldman, too, was uncomfortable with New
Century mortgages. On March 8, 2007, five days before receiving the investor’s inquiry, Mr.
Sparks had reported to senior Goldman executives, including Co-President Gary Cohn and CFO
David Viniar, that New Century mortgages “remain[ed] a problem for [early payment default].”2336
On March 13, the same day as the investor inquiry, Goldman personnel completed a review of New
Century mortgages with early payment defaults that were on Goldman’s books and found fraud,
“material compliance issues,” and collateral problems. The review found that “62% of the pool has
not made any pmts [payments]” and recommended “putting back 26% of the pool” to New Century
3/13/2007 email from Manisha Nanik to Loren Morris, 2337 “New Century EPDs,” at GS MBS-E-002146861,
Hearing Exhibit 4/27-77. See also 2/2/2007 email from Matthew Nichols to Kevin Gasvoda and others, GS MBS-E-
005556331 (“NC is running a 10% drop rate [due diligence drop] at ~6 points / drop and 4% EPD rate at close to 20
points.”); 2/8/2007 email from John Cassidy to Joseph Ozment, others, GS MBS-E-002045021 (“Given the current
state of the company I am no longer comfortable with the practice of taking loans with trailing docs . . . that we need
in order to conduct compliance testing.”).
2338 3/1/2007 email from Scott Wisenbaker to Peter Ostrem and Matthew Bieber, GS MBS-E-000893661, Hearing
Exhibit 4/27-172.
2339 2/2007 Anderson Mezzanine Funding 2007-1, Ltd. Debt Marketing Book, GS MBS-E-000855351.
2340 2/2007 Anderson Mezzanine Funding 2007-1, Ltd. Equity Marketing Book, GS MBS-E-000892557-598 at 560,
2341 2/2007 Anderson Mezzanine Funding 2007-1, Ltd. Debt Marketing Book, GS MBS-E-000855351. Anderson
Mezzanine Funding 2007-1, Ltd. Debt Marketing Book, GSC-CDO-FCIC-0031712 at 726. Around the time
Goldman was deciding whether to underwrite Anderson, Fred Horton, head of CDOs at GSC, left the firm. While
discussing whether to issue or underwrite the CDO with Matthew Bieber, Mr. Ostrem commented: “Will need
disclosure on Horton. This looks bad.” 2/25/2007 email from Peter Ostrem to Matthew Bieber, GS MBS-E-
001996601, Hearing Exhibit 4/27-95.
2342 Subcommittee interview of Matthew Bieber (10/21/2010).
2343 Subcommittee interview of Edward Steffelin (12/10/2010). The marketing materials also stated that the
Anderson assets were “sourced from the Street.” Mr. Steffelin described this as a “weird phrase,” but felt it implied
“it would be open, sourced from all over.” See discussion of the phrase, “sourced from the Street,” in the prior
section on Hudson 1.
2344 Id. Despite GSC’s not being listed as having helped select the Anderson assets, some investors appeared to be
aware of its involvement, perhaps from talking to Goldman personnel. See 3/28/2007 email from Matthew Bieber to
Edward Steffelin, “ACA Meeting,” GS MBS-E-014419176 (“Questions on [Anderson] - but also want to do
manager due diligence. They’ve heard the GSC team shows well - so want to meet you in person.”).
for repurchase “if possible.”2337 Goldman also did not disclose to the investor that it was shorting
40% of the Anderson CDO.
Some Goldman clients also had questions about GSC’s involvement in Anderson. An
Australian sales representative wanted “more color on asset selection process, especially with
respect to GSC involvement.”2338 This clarification was necessary, because although GSC’s role
was mentioned in numerous internal Goldman documents, the official Anderson marketing
materials did not mention GSC’s role in asset selection.2339 In previous drafts of the marketing
materials, for example, Goldman stated that “Goldman Sachs and GSC Group co-selected the
assets”; “GSC pre-screens and evaluates assets for portfolio suitability”; the CDO was “cosponsored
by Goldman and GSC Eliot Bridge Fund”; and “Goldman Sachs and GSC ha[ve] aligned
incentives with Anderson Funding by investing in a portion of equity.”2340 But all of the references
to GSC were removed from the final documents.2341 Mr. Bieber told the Subcommittee that he did
not recall specifically why the references to GSC were removed, but recalled GSC having an issue
with disclosing its name in the offering documents.2342 Edward Steffelin, a Senior Trader at GSC,
also did not recall the specifics regarding why the references to GSC were removed, but told the
Subcommittee that he felt GSC’s role in the Anderson CDO did not rise to the level of “coselecting.”
2343 Mr. Steffelin said that although GSC had the ability to suggest assets and veto others,
he felt that “co-selecting” implied a level of control over the portfolio that GSC didn’t have.2344
3/12/2007 email from Robert Black to Matthew 2345 Bieber, others, GS MBS-E-000898037.
2346 Id.
2347 3/20/2007 email from Peter Ostrem to Matthew Bieber and others, GS MBS-E-000906269, Hearing Exhibit
2348 3/27/2007 email from Peter Ostrem to Matthew Bieber, GS MBS-E-000907935, Hearing Exhibit 4/27-172.
2349 See Goldman response to Subcommittee QFR at PSI_QFR_GS0223 and PSI_QFR_GS0235.
2350 GSC paid a price of 108.21% for the securities. See Goldman response to Subcommittee QFR at
PSI_QFR_GS0223 and PSI_QFR_GS0235.
2351 See Goldman response to Subcommittee QFR at PSI_QFR_GS0223 and PSI_QFR_GS0235.
2352 See Goldman response to Subcommittee QFR at PSI_QFR_GS0239.
2353 1/3/2008 email from Shelly Lin to Mr. Sparks, GS MBS-E-021880171 (attached file, “Deal Summary,” Excel
Spreadsheet showing credit ratings for Anderson).
2354 See Goldman response to Subcommittee QFR at PSI_QFR_GS0223 and PSI_QFR_GS0235.
Despite the poor reception by investors, Goldman continued “pushing the axe” with its sales
force to sell Anderson securities.2345 Mr. Bieber identified and monitored potential investors and
attempted to sell Anderson securities to pension funds and place Anderson securities in other
Goldman CDOs as collateral securities.2346 On March 20, 2007, when Mr. Bieber reported selling
$20 million in Anderson securities, his supervisor, Mr. Ostrem, responded with the single word:
“Profit!”2347 In a separate email a week later, Mr. Ostrem told Mr. Bieber he did “an excellent job
pushing to closure these deals in a period of extreme difficulty.”2348
After several months of effort, Goldman was able to sell only a third, or about $102 million
of the $307 million in Anderson securities.2349 The nine investors included Beneficial Life,
Moneygram, and GSC which purchased the entire $11 million class D portion of the CDO.2350
Losing Money from Anderson. Due to its inability to sell two-thirds of the Anderson
securities, Goldman lost money overall on the CDO. Goldman’s biggest gain came from holding
40% of the short position on certain Anderson assets, which produced a $131 million gain at the
direct expense of the investors to whom Goldman had sold the Anderson securities. Goldman was
also paid $200,000 for serving as the liquidation agent,2351 and collected $2 million in CDS
premiums while it warehoused Anderson assets.2352
Despite those gains, Goldman incurred a $185 million loss from the Anderson securities it
was unable to sell and had to keep on its books. It incurred another $122 million loss due to the
decreased value of the securities Goldman had purchased as collateral for the CDO.
Anderson’s nine investors suffered more substantial losses. Seven months after its issuance,
in November 2007, Anderson securities experienced their first ratings downgrades. At that point,
27% of the assets underlying Anderson were downgraded below a B- rating.2353 GSC then sold back
to Goldman a portion of the Anderson securities it had purchased at a price of 3 cents on the
dollar.2354 Within a year, Anderson securities that were originally rated AAA had been downgraded
to BB. In the end, the Anderson investors were wiped out and lost virtually their entire investments.
Analysis. Goldman constructed the Anderson CDO using CDS contracts referencing
subprime RMBS securities, the majority of which were issued by subprime lenders like New
2/2007 Timberwolf I, Ltd. Marketing Book, GS MBS-E-2355 000676809, Hearing Exhibit 4/27-99a.
2356 For more information about Goldman’s actions as the collateral put provider for Timberwolf, see Section
(iii)(BB), below.
2357 2/2007 Timberwolf I, Ltd. Marketing Book, GS MBS-E-000676809, Hearing Exhibit 4/27-99a.
2358 Subcommittee interview of Joseph Marconi (10/19/2010).
2359 Greywolf eventually purchased the entire equity tranche in Timberwolf. See Goldman response to
Subcommittee QFR at PSI_QFR_GS0223 and PSI_QFR_GS0235.
Century who were known for issuing poor quality loans. When potential investors asked how
Goldman was able to “get comfortable” with the New Century mortgage pools referenced in
Anderson, Goldman attempted to dispel concerns about the New Century loans, withheld
information about its own discomfort with New Century, and withheld that it was taking 40% of the
short side of the CDO, essentially betting against the very securities it was selling to its clients.
Instead, Goldman instructed its sales force to tell potential investors that Goldman was buying up to
50% of the equity tranche. Goldman also did not disclose to potential investors that it had almost
cancelled the CDO due to the falling value of its assets.
CC. Timberwolf I
Timberwolf I was a $1 billion hybrid CDO2 transaction that Goldman constructed,
underwrote, and sold. It contained or referenced A rated CDO securities which, in turn, referenced
primarily BBB rated RMBS securities. The assets in Timberwolf were selected by Greywolf
Capital Management, a registered investment adviser, with the approval of Goldman. Greywolf
served as the collateral manager of the CDO.2355 Goldman effectively served as the collateral put
provider.2356 Timberwolf was initiated in the summer of 2006, and closed in March 2007.
Partnering with Greywolf. Greywolf Capital Management was founded by a team of
former employees of Goldman’s fixed income trading division.2357 It had experience in constructing
and investing in CDOs. In the summer of 2006, Peter Ostrem, head of Goldman’s CDO Origination
Desk, approached Greg Mount, a former Goldman trader working for Greywolf, and asked if
Greywolf would be interested in managing a CDO2 transaction.2358 Goldman and Greywolf
negotiated a risk sharing agreement, and worked through the profitability of the CDO2 under
expected market conditions. Greg Mount, as well as Joseph Marconi, another former Goldman
trader, obtained approval from Greywolf’s Chief Investment Officer to manage the CDO.
Greywolf agreed to purchase half of the Timberwolf equity tranche, sharing that risk with
Goldman.2359 In addition, Greywolf agreed to share with Goldman the risk of the assets being
purchased for the CDO falling in value before the CDO issued its securities. Greywolf also
accepted the responsibility of selecting the assets with the approval of Goldman, which would then
keep them in a warehouse account for the Timberwolf CDO. Greywolf agreed to provide ongoing
surveillance of the performance of the assets in the CDO and liquidate any assets deemed to be
Constructing Timberwolf. In September 2006, Greywolf began identifying, purchasing,
and warehousing CDO securities or single name CDS referencing CDO securities for Timberwolf.
Subcommittee i 2360 nterview of Joseph Marconi (10/19/2010).
2361 In some cases, Goldman was permitted to “top-up” the deal, taking the short side on an additional $5 million in
the same CDO security at the same price paid by the auction winner. Greywolf’s goal was for each reference asset to
be $20 million in size, but often asked for bids on only $10-15 million worth of CDS protection in order to get a
better spread. Goldman would then have the option of providing the remaining $5-10 million in CDS protection at
the transaction price, resulting in a total position size of $20 million on the Timberwolf balance sheet.
2362 Joseph Marconi told the Subcommittee that well over half the assets were obtained through auctions, while just a
few were negotiated. Subcommittee interview of Joseph Marconi (10/19/2010).
2363 See Goldman response to Subcommittee QFR at PSI_QFR_GS0192.
2364 The Abacus securities were cash assets. However, due to the synthetic nature of the Abacus CDOs, Goldman
retained a short interest in $15 million in Abacus securities.
2365 Timberwolf had about one dozen short parties of which Goldman was the largest. See Goldman response to
Subcommittee QFR at PSI_QFR_GS0223 and PSI_QFR_GS0235.
2366 A total of 84 CDS contracts produced the 51 unique reference assets. See Goldman response to Subcommittee
QFR at PSI_QFR_GS0192.
2367 8/23/2007 email from Jay Lee to Matthew Bieber, David Lehman, and others, GS MBS-E-001927784.
Before selecting an asset for inclusion in Timberwolf, Greywolf did a detailed credit
analysis of the relevant CDO security, including examining its underlying mortgage portfolio, the
CDO’s cashflow structure, and the mortgage servicer.2360 Once Greywolf finished its credit
analysis, it submitted its choices to Goldman’s CDO Origination Desk for review by Mr. Ostrem
and Matthew Bieber, who was assigned to be the Goldman deal captain for Timberwolf. Goldman
had the right to approve each asset going into the Timberwolf warehouse account and thus onto
Goldman’s warehouse balance sheet.
Once an asset was approved by both Greywolf and Goldman, it was acquired in one of two
ways. In most instances, Greywolf circulated a list of the CDO securities or reference CDO
securities that it was interested in buying to the broker-dealer community to get bids. To buy a
single name CDS, Goldman wrote the CDS contract, taking the long side on behalf of Greywolf,
while the broker-dealer who provided the best bid took the short side. The CDS contract would
then be held by Goldman in the Timberwolf warehouse account until the CDO was ready to
close.2361 In some instances, after circulating a list for bids, a broker-dealer responded to Greywolf’s
request with a price for a single name CDS on a similar CDO security, which Greywolf analyzed
and sometimes agreed to acquire.2362
Timberwolf’s single name CDS and CDO securities were acquired from 12 different brokerdealers.
2363 Goldman was the single largest source of assets, providing 36% of the assets by value,
including $15 million in single name CDS contracts naming Abacus securities.2364 As a result,
Goldman held 36% of the short interest in Timberwolf.2365 Altogether, Timberwolf contained 56
different assets, of which 51 were single name CDS contracts referencing CDO securities and five
were cash CDO securities.2366 The 51 single name CDS contracts referenced both CDO and CDO2
securities, and each CDO or CDO2 security contained or referenced its own RMBS, CMBS, or CDO
securities or other assets. In total, Timberwolf had over 4,500 unique underlying securities and a
grand total of almost 7,000 securities.2367 This process was further complicated by the fact that the
CDO assets in Timberwolf were privately issued and often had little or no publicly available
information on the underlying assets they contained.
2/26/2007 email exchange between Tom Montag and Daniel S 2368 parks, GS MBS-E-019164799.
2369 2/26/2007 email exchange between Tom Montag and Daniel Sparks, GS MBS-E-010989241.
2370 3/7/2007 email from Gaelyn Sharp, GS MBS-E-001800634.
2371 3/2007 email chain, “Timberwolf I, Ltd. Preliminary Offering Circular,” GS MBS-E-001800634.
2372 3/9/2007 email from Daniel Sparks, “Re: Help,” GS MBS-E-010643213, Hearing Exhibit 4/27-76.
2373 According to Goldman personnel interviewed by the Subcommittee, the Syndicate coordinated sales efforts
between the CDO Origination Desk and the CDO sales force.
2374 See, e.g., 4/11/2007 Goldman internal email, “GS Syndicate Structured Product CDO Axes (INTERNAL),”
Hearing Exhibit 4/27-101; 4/19/2007 Goldman internal email, Hearing Exhibit 4/27-102; 6/22/2007 Goldman
internal email, Hearing Exhibit 4/27-166. These “axe sheets” contained directives for selling Goldman issued
securities and other financial products, as well as congratulatory and motivational notes. Some Goldman traders had
a negative view of the axe sheets. One trader wrote, for example, that he was “guessing sales people view the
syndicate ‘axe’ email we have used in the past as a way to distribute junk that nobody was dumb enough to take first
time around.” 10/24/2006 Goldman internal email, GS MBS-E-009557699, Hearing Exhibit 4/27-170d.
2375 2/14/2007 email from Robert Black to Matthew Bieber and others, GS MBS-E-001996121.
By the time Greywolf and Goldman were nearing completion of the acquisition of the
Timberwolf assets in the spring of 2007, Goldman was becoming increasingly concerned about the
deteriorating subprime mortgage market and the falling value of the assets in its CDO warehouse
accounts. In February 2007, Mr. Sparks, the Mortgage Department head, and Goldman senior
executive Thomas Montag exchanged emails about the warehouse risk posed by Timberwolf and
another pending CDO2 called Point Pleasant. Mr. Montag asked Mr. Sparks: “cdo squared–how
big and how dangerous?”2368 Mr. Sparks responded: “[R]oughly 2bb [billion], and they are the
deals to worry about.” Mr. Sparks also told Mr. Montag that, due to falling subprime prices, the
assets accumulated in the warehouse account for the $1 billion Timberwolf CDO had already
incurred significant losses, those losses had eaten through all of Greywolf’s portion of the
warehouse risk sharing agreement, and any additional drops in value would be Goldman’s exclusive
In March 2007, due to the falling values of subprime RMBS and CDO securities, Goldman
decided against completing several CDOs under construction, and liquidated the assets in their

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