Tuesday, December 4, 2007

Senator Dodd Asks Paulson About Goldman Subprime Role (Update1)

By Christine Harper

Dec. 4 (Bloomberg) -- U.S. Senate Banking Committee Chairman Christopher Dodd called on Treasury Secretary Henry Paulson to answer questions about Goldman Sachs Group Inc.'s role in the collapse of the subprime mortgage market.

Dodd, a Democratic presidential candidate, said in a statement today that he was ``deeply concerned'' by questions about New York-based Goldman Sachs that were raised in a column by Ben Stein in the New York Times on Dec. 2.

The column asserted that Goldman, the world's biggest securities firm, sold bonds backed by subprime mortgages and also profited from bets that the value of the securities would drop. Paulson was chairman and chief executive officer of Goldman from 1999 until he became Treasury Secretary last year.

``It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question, addresses the concerns raised by Mr. Stein's article,'' Dodd's statement said. ``Failure to do so may be cause for a more formal investigation.''

U.S. home foreclosures almost doubled in October from a year earlier as the least-creditworthy borrowers failed to make higher payments on adjustable-rate mortgages, Irvine, California-based RealtyTrac Inc. said on Nov. 29. Unlike rivals such as Morgan Stanley and Merrill Lynch & Co., Goldman said it profited in the third quarter from investments that gained in value as the mortgage market declined.

`Flat-Out Wrong'

Paulson is ``working with members of both parties to develop solutions for struggling homeowners,'' said Michele Davis, a spokeswoman for the Treasury Department. ``This is where all of us need to focus our attention.''

Goldman is the only one of the five biggest U.S. securities companies that has climbed in New York Stock Exchange composite trading this year. The firm set aside $16.9 billion for the first nine months of the year to pay employees, more than the full-year total for 2006, according to the company's third-quarter earnings report.

``The premise that this firm acted inappropriately is flat- out wrong,'' said Michael DuVally, a spokesman for Goldman Sachs, in response to Dodd's request. He declined to elaborate.

Other securities firms and banks including Merrill Lynch and Citigroup Inc. have announced about $66 billion of losses and writedowns this year on assets linked to subprime home loans.

Paulson, 62, is negotiating a deal among banks, mortgage servicers and securities-industry lobbyists to freeze some subprime mortgage rates before they reset higher and trigger a new wave of defaults.

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