Wall Street & the Financial Crisis - Anatomy of a Financial Collapse by Permanent Subcommittee on Investigations - US Senate

Author:Permanent Subcommittee on Investigations - US Senate [Senate, Permanent Subcommittee on Investigations - US]
Language: eng
Format: epub
Published: 2011-04-12T21:00:00+00:00

Goldman’s net short position in February 2007 was

Profiting from the First Net Short. In February 2007, Goldman’s senior management decided that the $10 billion net short position had become too risky, and ordered the Mortgage Department to cover a portion of the short. Covering some of the short not only reduced the risk, but also locked in some of the profit associated with the position.

In late February 2007, the Mortgage Department’s net short position, coupled with added volatility in the subprime mortgage market, caused a sharp increase in the Department’s risk profile, as measured by Value at Risk or “VAR.” Goldman had assigned a VAR limit of $35 million to the Mortgage Department.1679 In November 2006, the Department’s reported VAR was $13 million, well below its limit.1680 By late February 2007, however, its VAR had reached $85 million – an increase of over 550%.1681

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