Wednesday, January 13, 2010

Is Shannon Trust Watching Lloyd Blankfein?

The Financial Crisis Inquiry Commission heard testimony from Wall Street's biggest players in the 2008 meltdown. Goldman Sachs CEO Lloyd Blankfein stood front and center, given the fact the firm shorted mortgage backed securities (a form of collateralized debt obligation), while packaging and selling the very product to clients.

One client is The Shannon Trust, the estate of J.M. and Margaret Shannon. It established a hospital for treatment regardless of ability to pay. Shannon Medical Center survives in today's difficult environment due to Trust support. The estate's investment returns have an impact on local health care. Wall Street's implosion delivered a major blow to the Trust:

Realized losses on publicly traded securities were $1.7 million, while unrealized investment losses were $9.5 million as of 9-30-08. Investments made a partial comeback since the September swoon. Unfortunately, the trust owned $9.4 million in Goldman Sachs Structured Product.

Dealbook's Andrew Ross Sorkin has a question for commission members to use with Mr. Blankfein:

Could you explain how Goldman bet against C.D.O.’s (structured product) while simultaneously trying to persuade ratings agencies and investors that they were good investments? Were they designed from the outset to be shorted by Goldman and possibly select clients? And were those clients involved in helping design these transactions? What explicit disclosures did you make to Standard & Poor’s and Moody’s about your plans to short these instruments? And should we continue to allow transactions in which you’re betting against what you’re also selling?

Are any trust members watching Lloyd Blankfein's testimony? They may want to hire Janet Tavakoli as they consider legal options.

Update: Chair Phil Angelides asked a version of Sorkin's question. On CNBC Andrew Ross Sorkin noted Blankfein's dance around the issue, essentially not answering the question. Blankfein essentially blamed the "professional" purchaser of the products. The Shannon Trust or their lawyer may have to follow up personally.

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