Goldman Sachs (NYSE: GS) on Defense, Denies Betting Against Clients

Goldman Sachs (NYSE: GS) is on the defense in the court of public opinion and has denied that it has bet against its own clients by selling them mortgage-backed securities while reducing its own exposure to similar investments just before the U.S. housing market bubble burst.

In the company’s annual letter to shareholders on Wednesday, Goldman Sachs said that it purchased mortgage-backed securities and other financial instruments on a daily basis prior to the financial crisis as part of its role as one of Wall Street’s top financial firms.

The company said that it had remained generally positive on the housing market through 2006 until it began seeing some initial losses related to mortgage-related investments at the end of the year. In response, Goldman Sachs began reducing its exposure to the mortgage market by selling positions or buying hedges, which would insure them against losses.

Goldman Sachs’ hedges, in the form of short positions, prevented it from taking significant losses from the mortgage market relative to its competitors. Goldman’s relatively minor losses has lead to significant criticism that the bank had benefited at the expense of clients who purchased mortgage-backed securities which later became toxic investments.

Goldman Sachs has denied the allegations in its annual letter to shareholders.

“Our short positions were not a ‘bet against our clients,'” Goldman said in the letter. “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.”