Goldman Sachs is preparing to defend itself against US government allegations by arguing it was unsure where housing prices were headed and did not act against its clients' interests, the Washington Post reported.
Goldman Sachs Group Inc has been accused of betting against the housing market while encouraging its clients to invest in securities that would grow in value only if housing prices went up.
The Securities and Exchange Commission has filed a fraud suit against Goldman.
In a story posted on its website yesterday, the Washington Post reported that it had obtained an 11-page document that describes how top Goldman executives debated the future of the mortgage market in 2006 and 2007.
The document was drawn up as part of preparation for Goldman chief executive Lloyd Blankfein's testimony next week to the Senate Permanent Subcommittee on Investigations.
In one meeting outlined in the document, financial officer David Viniar met with Goldman's mortgage traders and risk managers on 14 December 2006, to discuss strategy. They decided to reduce Goldman's exposure in the subprime market, the Post reported.
While Goldman did acknowledge shorting the overall market at times, the document says it was temporary and only during periods where Goldman was reshuffling its portfolio, the Post reported.
But while making this shift, critics say, Goldman continued to sell mortgage-related investments to clients interested in the subprime loan market, the Post said.
Further, the document said that Goldman seriously considered making new mortgage investments at other times. In 2007, for example, managing director Richard Ruzika argued that Goldman was too pessimistic about the housing decline. Another executive made a similar statement as late as August 2007.
Also in the document, Goldman argued that it was a relatively small player in mortgages, making only $500m from the residential mortgage business in 2007 - about 1% of the firm's revenues.
While the SEC probe continues, a US government watchdog said yesterday that it would investigate the SEC's fraud lawsuit.
Republicans have implied political motives were behind the SEC's decision to sue Goldman.