On August 21, 2007, Chief Financial Officer of Goldman Sachs, David Viniar, received an e mail from a trader in the Mortgage Department of Goldman. In the e-mail, addressed also to Goldman Co- Jon Winkelreid and Presidents Gary Cohn, Joshua Birnbaum outlined a suggestion for the business to go from net short position to net long position in mortgage securities and derivatives.
Birnbaum maintained that the net long position will not only be profitable but also reduce business and Mortgage Department and the entity-wide threat. This proposal arrived in a crucial time for the subprime mortgage markets in the U.S. and around the world. Subprime mortgage originators including New Century had filed for bankruptcy. Two Bear Sterns hedge funds that traded subprime mortgages had failed. The chaos had also propagated to global markets. Goldman Sachs, distinctive among New York investment banks, had expected the downturn in the subprime mortgage marketplaces and had placed itself to profit from the disaster.
Now, in a critical juncture, and traders on the front lines of the subprime mortgage markets desired to revoke Goldman's net short position and go net long. David Viniar would have major implications for the total degrees of danger of the company, the business and perhaps the business survival and knew that the decision to go long could not be taken. Goldman’s key board members and directors were monitoring the company's subprime exposure and would likely wish to be consulted regarding this kind of consequential decision.
PUBLICATION DATE: April 01, 2014 PRODUCT #: NA0284-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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