Goldman Sachs fights criticism over Bear Stearns collapse

Goldman Sachs today denied responsibility for the demise of the mortgage hedge funds that spurred a run on the bank at Bear Stearns.

Two mortgage hedge funds managed by Bear Stearns Asset Management failed in mid-2007, signalling to many investors that the subprime mortgage crisis could be more serious than thought.

According to critics, Goldman Sachs told a Bear Stearns fund in June 2007 that many of the fund's assets had plunged in value. Critics have said these lower valuations were responsible for the demise of the fund, and ultimately of Bear Stearns.

But in a series of letters posted on its website, Goldman said the Bear Stearns hedge fund suffered from market-wide declines in the prices of mortgage-backed securities and the fact that the fund had borrowed so much for its investments.

Goldman also said it did not tell the Bear Stearns fund that most of its assets had declined in value. The assets that had declined in value were not enough to hit the fund materially, Goldman said.

Comments from other dealers forced the write-downs, Goldman added.

The letters were posted in response to questions from the Financial Crisis Inquiry Commission, which is investigating the causes of the financial system's collapse in 2008 and 2009.