GOLDMAN Sachs has hit back at allegations that its actions caused the collapse of two key mortgage hedge funds in 2007 at the onset of the financial crisis.
In letters now published, Goldman told the US agency investigating the credit crunch it did not intend to force two funds run by Bear Stearns Asset Management to fail when it drastically lowered the valuation of their sub-prime assets in early 2007.
The Financial Crisis Inquiry Commission had suggested that Goldman’s valuations of the securities were deliberately low and led the funds to fail. Their collapse ultimately led to the fall of Bear Stearns.
Goldman said its markdown would not have materially altered the funds’ valuation, which was instead “attributable to the market-wide decline in prices of mortgage-backed securities during this period,” its letter to the FCIC’s Christopher Seefer said.
Goldman had loaned the funds $453m (£286m) with only mortgage-backed securities as collateral, so stood to lose out if they failed, it said.
“It was against the financial interest of Goldman Sachs to cause the failure of the fund and it did not do so,” the letter from 1 November said.