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Goldman's Apologia

Goldman Sachs defended its business model and its actions ahead of the 2008 financial crisis in a lengthy letter to shareholders published Wednesday.
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Goldman's annual letter link, latest share price added in this update.



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Goldman Sachs

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defended its business model and its actions ahead of the 2008 financial crisis in a lengthy letter to shareholders published Wednesday.

Goldman Sachs CEO Lloyd Blankfein

>>>Goldman Sachs Letter to Shareholders

Goldman Letter Has Whiff of Fear

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The letter defended Goldman's compensation practices and explained steps the firm has taken to ensure its soundness, while devoting little space to discussing business successes during the year or opportunities it is targeting.

The letter also devoted considerable space to addressing two hot-button issues for the securities firm: its relationship with


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and its successful bet against the U.S. housing market that allowed it to avoid the multibillion dollar write-downs taken by competitors such as

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in late 2007 and through 2008.

With regard to AIG, Goldman critics in Congress and in the media have said Goldman should not have been repaid at 100 cents on the dollar on its exposures to the giant insurer after its massive government bailout, which


puts at $182 billion. Goldman got $14 billion from the

Federal Reserve

after the government decided to prevent AIG from defaulting on its debts.

Goldman has consistently said it wouldn't have suffered significant losses if the government had not stepped in to support AIG. For example, $4.8 billion of that Goldman got from AIG after its bailout was for "highly marketable U.S. Government Agency securities," which Goldman held as collateral in exchange for a loan.

"If AIG hadn't repaid the loan, we would have simply sold the securities and received the $4.8 billion of value that way," the letter states.

Nonetheless, while the letter argues Goldman's "direct exposure to AIG was minimal," it acknowledges that "Goldman Sachs and every other financial institution and company benefitted from the continued viability of AIG."

Goldman may be ceding new ground here. It's hard to say, because the bank has addressed the issue so often it is virtually impossible to keep track of everything Goldman's top officials have said on the subject. It's also hard to care, since the fact has been obvious to everyone (except, apparently, Goldman executives) since AIG was initially bailed out.

Goldman's bets against the residential mortgage market have gotten less attention and the arguments felt fresher in that part of the letter, though I imagine they aren't new. The letter, addressing criticisms that Goldman bet against mortgage products it was selling, states that Goldman was merely offsetting exposures.

"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," the letter argues.

Goldman, which earned $22.13 a share in 2009, is scheduled to report first-quarter results before the market opens April 20. The bank's shares and those of rival Morgan Stanley were both up more than 2% Wednesday afternoon, meaningfully outpacing most other large financials.

-- Written by Dan Freed in New York.