Halfway through the Goldman Sachs grilling Tuesday, Sen. Carl Levin (D-Mich.), scowled at former trader Dan Sparks and unleashed a barrage of questions centered around an infamous CDO called Timberwolf.
That’s the one that had been described in an email sent by another former Goldman staffer as “shitty.”
“You sold hundreds of millions of that deal after your people knew it was a shitty deal,” Levin said. “Does that bother you at all?”
Sparks, seemingly miffed, hemmed, hawed and then murmured, then evaded the question before shuffling some papers, and finally avoiding the question altogether.
“Your top priority is to sell that shitty deal!” Levin emphasized, holding up a phone book sized dossier of exhumed emails.
“Come on, Mr. Sparks! Would Goldman Sachs be trying to sellâ€”and by the way, it sold it, a lot of it, after that dateâ€”should Goldman Sachs be trying to sell the shitty deal? Well, can you answer that one yes or no?”
The room was silent, save for a faint chorus of Meatloaf’s “Paradise by the Dashboard Light” running collectively through the audience’s subconscious. Let me sleep on it, baby, baby, let me sleep on it …
“There are prices in the market [at which] people want to invest in things,” Sparks answered. “I didn’t use that term with respect to that deal.”
That deal: Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other CDOs. A CDO squared, the financial engineering equivalent of a KFC doubledown sandwich. Timberwolf’s manager was Greywolf. Greywolf was co-founded by a former staffer at Goldman.
In an email in June 2007 to Sparks, Tom Montag, Goldman’s former head of sales and trading, wrote:
“Boy that Timberwolf was one shitty deal.”
Montag, who would go on to join Merrill Lynch, would prove prescient.
Within five months, Timberwolf lost 80 percent of its value.
One firm that bought pieces of Timberwolf from Goldman was Bear Stearns Asset Management, specifically two of BSAM’s credit hedge funds.
Those funds eventually went belly up, as did Bear, sparking the wider credit crisis resulting in a near systemic failure of the financial system and the worst recession in a generation.
Levin, later, to Sparks: “You’ve got no regrets? You ought to have plenty of regrets. I don’t think you’re willing to acknowledge them, but you ought to have them.”