Goldman messages show it thrived as economy fell

In the e-mails,Lloyd C Blankfein,the bank’s chief executive,acknowledged in November of 2007 that the firm indeed had lost money initially. But it later recovered from those losses by making negative bets,known as short positions,enabling it to profit as housing prices fell and homeowners defaulted on their mortgages. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money,then made more than we lost because of shorts.”

In another message,dated July 25,2007,David A Viniar,Goldman’s chief financial officer,remarked on figures that showed the company had made a $51 million profit in a single day from bets that the value of mortgage-related securities would drop. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary Cohn,now Goldman’s president.

The messages were released ahead of a Congressional hearing on Tuesday in which seven current and former Goldman employees,including Blankfein,are expected to testify. The hearing follows a recent securities fraud complaint that the SEC filed against Goldman and one of its employees,Fabrice Tourre,who will also testify on Tuesday. Actions taken by Wall Street firms during the housing meltdown have become a major factor in the contentious debate over financial reform. The first test of the administration’s overhaul effort will come on Monday when Senate majority leader,Harry Reid,is to call a procedural vote to try to stop a Republican filibuster.