Goldman Sachs 2009 Annual Report Download - page 11

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The markets for residential mortgage-related products, and
subprime mortgage securities in particular, were volatile and
unpredictable in the  rst half of 2007. Investors in these markets
held very different views of the future direction of the U.S.
housing market based on their outlook on factors that were
equally available to all market participants, including housing
prices, interest rates and personal income and indebtedness
data. Some investors developed aggressively negative views
on the residential mortgage market. Others believed that any
weakness in the residential housing markets would be relatively
mild and temporary. Investors with both sets of views came
to GoldmanSachs and other  nancial intermediaries to establish
long and short exposures to the residential housing market
through RMBS, CDOs, CDS and other types of instruments
or transactions.
The investors who transacted with GoldmanSachs in CDOs
in 2007, as in prior years, were primarily large, global  nancial
institutions, insurance companies and hedge funds (no pension
funds invested in these products, with one exception: a
corporate-related pension fund that had long been active in this
area made a purchase of less than $5 million). These investors
had signi cant resources, relationships with multiple  nancial
intermediaries and access to extensive information and research
 ow, performed their own analysis of the data, formed their
own views about trends, and many actively negotiated at arm’s
length the structure and terms of transactions.
We certainly did not know the future of the residential
housing market in the  rst half of 2007 any more than we can
predict the future of markets today. We also did not know
whether the value of the instruments we sold would
increase or decrease. It was well known that housing prices
were weakening in early 2007, but no one — including
GoldmanSachs — knew whether they would continue to fall or
to stabilize at levels where purchasers of residential mortgage-
related securities would have received their full interest and
principal payments.
Although GoldmanSachs held various positions in residential
mortgage-related products in 2007, our short positions were not
a “bet against our clients.” Rather, they served to offset our long
positions. Our goal was, and is, to be in a position to make markets
for our clients while managing our risk within prescribed limits.
LOOKING AHEAD
We want to recognize the extraordinary focus and commitment
of our people despite the turbulence and challenges of the past
year. In many ways, our  nancial performance masks the
considerable pressures and distractions that we had to confront.
Of course, in this way, we are no different from many other
organizations that are coping with a complex and dif cult
environment. But, our people stayed focused, they worked
together, and, today, we are well-positioned to continue delivering
strong returns for our shareholders.
Heading into 2010, we are grati ed that our core constituencies
—
our shareholders, our clients, and our people — remain close
and committed to GoldmanSachs. Our shareholders continue
to convey a strong belief in our business model and strategy,
and in the importance of protecting the quality of our franchise.
Our clients look to us to advise, execute and co-invest on
their most signi cant transactions, translating into strong market
shares. And our people remain as committed as ever to our
culture of teamwork, to the belief in their responsibility to
help allocate capital for the bene t of clients, and to the  rm’s
tradition of service and philanthropy.
As the last two years demonstrated, no one can predict
the future. While we are encouraged by the prospects for a
sustainable economic recovery, we continue to place a premium
on conservatism and prudence. At the same time, we are
focused on opportunities that can continue to grow our business
and generate industry-leading returns through the strength of
the  rm’s core attributes. We have a clear strategy to integrate
advice and capital with risk management for our clients.
We have a diverse set of businesses. We have an expanding
global footprint. We have established a proven culture of risk
management. And, we have deep client relationships with a
broad range of companies, institutions, investing organizations
and high-net-worth individuals.
We are keenly aware that our legacy of client service and
performance, which every person at GoldmanSachs is charged
with protecting and advancing, must be continually nurtured
and passed on from one generation to the next. To our fellow
shareholders, we are pleased to report that we have never
been more con dent of that commitment or long-term outcome.
Lloyd C. Blankfein
Chairman and Chief Executive Of cer
Gary D. Cohn
President and Chief Operating Of cer
Goldman Sachs 2009 Annual Report