Goldman Sachs Group's (GS, news, msgs) mortgage traders, under the spotlight because of the U.S. government's fraud lawsuit against the company, made markets in more than just bonds during the real-estate bubble.
They also cast bets on a White Castle hamburger-eating contest.
In December 2007, after the company distributed multimillion-dollar bonus checks in part thanks to bets on a mortgage meltdown, about 10 Goldman mortgage traders, surrounded by dozens of cheering colleagues, wolfed down the burgers, according to attendees. Bystanders wagered cash on how many burgers the traders could eat.
The annual event resembled a scene out of "Liar's Poker," a book depicting bawdy antics of bond traders at Salomon Brothers in the 1980s. In fact, the 2007 contest was held just a few floors away from where the Salomon traders worked when that firm leased space in the same Manhattan building.
It was a lower-stakes version of what went on every day in the group: aggressive, take-no-prisoners trading. Mortgage-backed bonds, including complex derivatives that tracked pools of risky loans, were traded for big money in Goldman's 400-person mortgage unit.
In 2007, the group wagered that mortgage prices would plunge, creating a nearly $4 billion windfall, according to people familiar with the matter at the time. Goldman now says net revenue from residential-mortgage-related products was less than $500 million -- perhaps reflecting losses from other areas.
Still, the traders hoped their big returns would lead eventually to a ticket to "Hitters Row," the 50th-floor enclave in Goldman's One New York Plaza building where the company's top securities-business executives worked.
Recently, the group's profile has risen. The financial world is riveted on the Securities and Exchange Commission lawsuit filed this month against Goldman, which is accused with one of its traders in the mortgage group of creating a product unlikely to succeed, for the benefit of a favored hedge-fund client.
Goldman has repeatedly denied any wrongdoing. The unit was the focus of testimony this week before the Senate's Permanent Subcommittee on Investigations, which is examining the causes of the financial crisis.
But there was little time for watching sports in chaotic 2007, when mortgage bonds melted down and paved the way for 2008's full-blown financial panic. Traders worked punishing hours in a drab office space with long rows of computer terminals and phones.
Daniel Sparks, the Houston-born Goldman lifer who ran the mortgage department, usually arrived by 7:30 a.m. Michael Swenson and David Lehman, co-heads of the structured-products group, arrived shortly afterward, say people who were there at the time.
Sparks, Swenson and Lehman declined to comment for this article.
Late nights were frequent. "I'm still stuck at work at 10PM, but it's been six years since I've been functioning on this @!$#@!$@$# schedule, so who cares," wrote trader Fabrice Tourre in a Jan. 31, 2007, e-mail to a friend. "I feel like I'm losing my mind and I'm only 28!!" wrote Tourre, who is a defendant in the SEC's lawsuit. Tourre and his lawyers have declined to comment and are fighting the regulatory charges.
Short and bespectacled, the France-born Tourre, who worked with hedge funds and banks in trading complex bond products, didn't especially stand out, say people who were there at the time. Like other traders, he wore khaki or dark pants and button-down shirts, these people say. His background, which included a master's degree in engineering from Stanford University, was typical of the quantitative leanings of many co-workers.
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"Is this the big one?" traders asked, say people who were there at the time, as they watched Sparks confer with Swenson, known as "Swenny," at his computer terminal.
In the months that followed, as more lenders filed for bankruptcy and hedge funds appeared troubled, the notion of "the big one" -- a major event that would crack the market -- became fodder for dark humor, these people say.
If a struggling asset manager posted a low-quality bond as collateral for quick cash, the Goldman traders would dub it a "hairy security," these people say. Sparks, they say, was relieved to have sold many of his group's riskiest holdings in the spring, albeit at a loss.
Continued: A thing 'which has no purpose'
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