Goldman Urged Clients to Bet Against Bonds It Sold for Calif.

Could have cost taxpayers millions
By Kevin Spak,  Newser Staff
Posted Nov 11, 2008 2:19 PM CST
Goldman Urged Clients to Bet Against Bonds It Sold for Calif.
Lloyd C. Blankfein, CEO of Goldman Sachs, speaks at a luncheon on gender equality and empowerment of women Thursday, Sept. 25, 2008 at United Nations headquarters in New York.   (AP Photo/David Karp)

Goldman Sachs charged the state of California millions of dollars to handle a bond issue, then told big clients to bet against those bonds, a move that could have cost taxpayers millions, according to a confidential report the company sent out in September. While the advice isn’t illegal, it’s “not a good way to do business,” one business prof told the Los Angeles Times and ProPublica. “You act in the interests of your clients. You don’t screw them, to put it bluntly.”

Goldman told institutional investors to bet against the bonds with credit default swaps, which may have made would-be investors question the state’s creditworthiness. If such fears moved interest a single percentage point, it would cost taxpayers $10 million a year. Goldman is a major seller of municipal credit default swaps and hoped to expand the niche market into a bigger one. (More Goldman Sachs stories.)

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