'Sorry' still seems to be the hardest word on Wall Street

By Dana Milbank
Thursday, January 14, 2010; A02

Goldman Sachs Chairman Lloyd Blankfein still doesn't get it.

Unemployment is at 10 percent and Americans are suffering because of the meltdown he and his colleagues helped create. But Blankfein's firm, generously bailed out by taxpayers, has already returned to its ways of greed.

Next week, Goldman, the most powerful firm on Wall Street, will report its bonuses for 2009, and through the first nine months of the year it had set aside nearly $17 billion for compensation -- roughly on par with 2007, when Blankfein was paid a record $68 million as his firm led the country off an economic cliff.

Blankfein, called to Washington on Wednesday to testify before the federal Financial Crisis Inquiry Commission, made it plain that he was done apologizing.

"Would you look back on some of the financings as negligent or improper?" asked the commission chairman, former California state treasurer Phil Angelides.

"I think those were very typical behaviors in the context that we were in," Blankfein replied.

Angelides pointed out that others regarded Goldman's behavior -- in which the firm sold mortgage securities to customers and then placed bets against those same securities -- was "the most cynical" of practices. "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars," observed the chairman.

Blankfein treated the chairman to a patronizing account of Goldman's function. "That's what a market is," the CEO explained.

"I do know what a market is," Angelides replied sourly. He tried again to get Blankfein to acknowledge that "excessive risk was being taken."

"Look, how would you look at the risk of a hurricane?" the man from Goldman retorted.

"Acts of God we'll exempt," Angelides said. "These were acts of men and women."

But Blankfein seems to exempt himself from the rules of man. Last month, he blew off a meeting with President Obama at the White House because his plane was delayed by fog in New York; evidently he couldn't bring himself to fly in the night before.

When Wall Street collapsed 16 months ago, Goldman benefited from multiple forms of government bailouts: $10 billion in TARP money from the Treasury, billions more in payments to Goldman as part of the AIG bailout, and much more in the form of federal government lending programs. Regulators also allowed Goldman to convert itself into a bank holding company, an extension of federal backing that let the firm avoid the fate of Lehman Brothers. Without the federal government propping up Wall Street, Goldman, like most firms, probably would have failed.

But in the House Ways and Means Committee hearing room Wednesday, Blankfein acted as if he had been little more than a bystander during the crisis and bailout. He argued that "key attributes of our strategy, culture and processes were validated" during the crisis. Self-congratulation was woven through the testimony: "We have due diligence practices that we think were robust. . . . We had tremendous liquidity. . . . We never anticipated the government help. . . . We do a very, very good job."

Angelides asked Blankfein to elaborate on his statement last year that "we participated in things that were clearly wrong, and we have reasons to regret and apologize for."

Blankfein was not inclined to revisit this subject. He acknowledged that the firm "contributed to elements of froth in the market."

The executive offered frequent displays of low regard for his questioners. He smirked as they spoke, challenged the premises of their questions, offered frequent lectures of "let me be clear," and often responded to questions by asking questions of his own.

One commissioner, Heather Murren, said "it doesn't sound like there was a lot of challenge" to the valuations Goldman was giving assets.

"Oh, I'm sorry," Blankfein corrected her. "There is huge challenge in our organization."

Murren asked Blankfein how the nation's economic misery would be reflected in his pay.

Blankfein informed her that "we haven't announced our compensation yet."

The questions and answers continued in a similar style for two hours, and at the end, the chairman of the commission was not impressed with the Goldman boss's grudging admissions.

"I'm troubled by your inability to accept the probability or certainty that your firm would not have made it through the storm but for the vast array of federal assistance," Angelides said. Beyond that, "you were securitizing and underwriting packages of mortgages, and when it was clear the market was going bad . . . you kept moving this product."

"I know it's become part of the narrative to some extent that people knew what was going to happen," Blankfein replied. "We did not know at any minute what would happen next."

That's why they pay him $68 million a year.