In prepared testimony for a Senate hearing, Tourre said the Abacus bonds the Securities and Exchange Commission allege were hand-picked by a hedge fund manager who bet against them were "not designed to fail," The Wall Street Journal reported Tuesday.
Goldman's Chief Executive Officer Lloyd Blankfein in a prepared statement said Goldman "didn't have massive shorts against the housing market."
The controversy turns on what Goldman told investors who were purchasing the Abacus bonds but also on the impression of a financial firm betting both ways in a market that burst two years ago, sending the economy into a massive recession, costing the U.S. economy millions of jobs.
In an early round of comments, U.S. Sen. John McCain, R-Ariz., said: "I don't know if Goldman Sachs has done anything illegal. From the reading of these e-mails, and from information this committee has uncovered, there's no doubt their behavior was unethical."
With the financial reform bill at the forefront of the Senate's agenda, Sen. Claire McCaskill, D-Mo., said, "It's gambling, pure and simple, raw gambling."
The size of the derivative market has exploded in recent years, as it includes huge bets investors make on the direction a market will take, even if they have no particular stake in that market.
"They're called synthetic because there's nothing there," McCaskill said.