Goldman Sachs (NYSE:GS) Claims They Didn’t Bet Against Clients

Goldman Sachs (NYSE:GS) has been under fire from assertions they had bet against their clients by decreasing their own exposure to mortgage-backed securities while at the same time selling them to their clients. Goldman continues to deny the accusations.

According to Goldman, they told shareholders in their annual letter, that they were buying and selling mortgage-backed securities right up to the day the crisis started, along with other financial investments.

In the letter Goldman maintained they had been bullish overall on the housing market through 2006 until the end of the year, when they discovered mortgage-backed investments were starting to incur heavy losses. It was at that time they said they began to cut back on their exposure to the mortgage market in the United States.

The way they did that was through hedging and selling their positions in them. Hedging protects the investor if the asset held falls in value.

Contrary to their competitors, Goldman came out fairly healthy because they identified the problem and addressed it, whereas their competitors claim they never saw it coming, as the hearings with Citigroup are exposing at this time.

Goldman said this about the criticism in the annual letter: “Our short positions were not a ‘bet against our clients.’ Rather, they served to offset our long positions. Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits.”

Claims that Goldman benefited from the mortgage crisis were largely put to rest as well, as according to the company, they didn’t make money from their actions taken on the mortgage-backed securities, but rather limited losses, which would have been much larger if they hadn’t taken the steps.

Anyone who understands investing knows this is pretty much the standard practice of all investors. What differentiates Goldman from the the others wasn’t taking these steps, but identifying the problem before it devastated the company like it did their rivals.

While Goldman may be guilty of a number of things, but taking short positions is a normal practice, and the conclusion by some they were betting against their own clients is somewhat dubious.