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Goldman stayed on in derivatives despite mess

business Updated: Apr 22, 2010 21:38 IST
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As investigators in Massachusetts considered charging Wall Street firms for their role in the financial collapse, they focussed on Goldman Sachs because it had bundled and sold the shoddiest of sub-prime mortgage loans, setting up the housing market for a greater fall by continuing to sell shaky securities even as other banks withdrew.

Goldman last year agreed to pay up to $60 million to end that investigation, the first major settlement involving Wall Street’s role in the sub-prime crisis.

“Goldman was particularly active with respect to facilitating the lending by two of the more notorious and unsound sub-prime lenders, Fremont and New Century,” Attorney General Martha Coakley said on Wednesday. “Goldman was especially active with these companies in the latter stages of the sub-prime lending boom ... when it should have been clear to any responsible person that the sub-prime loan pools underlying securitisations suffered serious problems.”

Goldman has previously been accused of a range of misdeeds, from manipulating oil prices to using taxpayer money to pay bonuses.

“Anyone who’s ever done any investment through Goldman who’s lost a significant amount of money all the sudden starts to say, ‘Gee, I wonder if there was something else out there that they were doing, which they didn’t tell me about, which would have made me not want to invest?’ ” said Richard Scheff, chairman of law firm Montgomery, McCracken, Walker & Rhoads. “If I’m a person who’s lost money, why would I think it’s limited to this? You’re talking about someone’s duty to their clients.”

The company has maintained that it did nothing improper.

To help it cope with scrutiny, Goldman has hired former White House counsel Gregory Craig. Craig, now with the law firm Skadden Arps, said he was acting as a lawyer for Goldman, not a lobbyist.

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