More details emerged as Goldman Sachs (GS) executives faced the Senate subcommittee. Sen. Claire McCaskill (D-MO) grilled Fabrice Tourre on specifics of the Abacus 2007 AC1 transaction with ACA Management and German bank, IKB. Tourre didn’t tell IKB about the involvement of John Paulson and his hedge fund in Abacus, but claims he did tell ACA. Later, Sen. Tom Coburn (R-OK) also raised the issue. He asked Tourre about an email from Laura Schwartz of ACA who casually met one of Paulson’s portfolio managers at a restaurant and their conversation concerning Paulson buying protection on Abacus. Tourre continued to assure that he did tell ACA that Paulson was ‘short’ on Abacus. Sen. Carl Levin (D-MI) again asked Tourre if ACA knew that Paulson had participated in the selection of the mortgage tranches for Abacus. Tourre did not recall if he had told them that little gem.

Sen. McCaskill also brought up Timberwolf, a hybrid CDO based partly on Abacus. A company called Greywolf CLO, bought 50% of Timberwolf. McCaskill listed several executives at Greywolf, who’s 24 directors had 17 former Goldman Sachs employees. Former managing director of GS’s Mortgage Department, Daniel Sparks, defended the deal, saying that they, Greywolf, got what they wanted. Basically, Greywolf wanted assets on their book, so they bought shares of Timberwolf. She asked another former GS director, Michael Swenson, about an email exchange between GS and Greywolf, concerning a dispute in the value of Timberwolf. A salesman from GS pointed to an analyst’s claim that Timberwolf was worth 650 a share while the Greywolf buyer countered that it was worth about 10. A modest disagreement? McCaskill also referred to emails from May, 2007 between Sparks and Donald Mullen, also of GS, about concerns of how GS salesmen were representing Timberwolf to clients. Sales were pushed despite the concerns of the product’s real value.

The senators continued to push the executives on what impact Goldman Sachs had on the Crash of 2008? Sparks told Sen. Jon Testor (D-MT) that Goldman Sachs did nothing inappropriate, though they did make mistakes. Joshua Birnbaum told Sen. Testor that Goldman Sachs made it’s decision to go ‘short’ on mortgage-backed securities in late 2006 due to public information on the housing/mortgage market. He asked Birnbaum who does he work for? The client or the firm? Sparks answered for him, saying that if Goldman Sachs did not manage it’s risk prudently, they’d have no clients.

Sen. Levin went after Sparks again over another product GS sold called Hudson One. The senator showed and read from an executive summary from Goldman Sachs informing clients that GS was ‘long’ on Hudson. Another internal email from a GS salesman called Hudson One “junk”. Levin then asked Sparks about an email he sent praising two Goldman Sachs employees who design and put together their synthetic CDO products, saying they are making GS profits by creating “lemonade out of big old lemons”. Levin then went after Birnbaum over another internal email where Birnbaum addressed GS’s shift to going short. Birnbaum says in the memo that thanks to himself, GS must now “…get VERY short”.

Levin went on to read from a letter from Goldman Sachs to the SEC from October, 2007. The letter declared to the SEC that GS may make a “directional shift”. It adds that “Most of 2007, we (Goldman Sachs) maintain a net short position in the mortgage market.”. Another letter from GS CFO, David Vinair, in September, 2007, brags about how, “we (GS) took significant mark-downs on long positions…”. The letter from Vinair also said that, “short position was profitable”. All of the panel was asked if Goldman Sachs had any policy concerning censoring emails and not discussing any ethical improprieties. All said they were not aware, except for Birnbaum, who claims he does not recall any GS policies in general. The first panel was dismissed as the main event, a panel with Goldman Sachs Chairman, Lloyd Blankfein, will appear later today.