A major new government report on the causes of the financial crisis reiterates the controversial role John Paulson, Greg Lippmann and other hedge fund figures played in some of the largest bets on the housing market.
Released late Wednesday, the 635-page report from the Senate Permanent Subcommittee on Investigations concludes a two-year bipartisan inquiry led by Senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.). The process included the much-followed testimony of Goldman Sachs mortgage traders in April 2010 about potential conflicts of interest and interviews with banking executives like Lippmann, then the top global CDO trader at Deutsche Bank and predictor of the housing crash (he now runs a $600 million hedge fund, LibreMax Capital).
Among other subjects, the report examines how investment banks like Goldman Sachs and Deutsche Bank created and sold structured financial products that “foisted billions of dollars of losses on investors,” while they profited from simultaneous betting against the mortgage market. The report is backed by more than 700 supporting documents, including, for example, emails from Lippmann on poor quality RMBS securities he called “crap” and “pigs” and PowerPoint presentations made by Paulson & Co. showing the likelihood of a housing bubble.
The report finds fault with Goldman’s less than transparent market-making practices, but not Paulson’s involvement on one side of them. And while Deutsche permitted Lippmann to sell securities that would profit if home prices fell, it was also substantially long the housing market through other bets. Spokesmen for Lippmann and Paulson declined to comment.
“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” said Coburn in a statement. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”
