Goldman Sachs executives face senators investigating role in financial crisis
Wednesday, April 28, 2010
It was a day of public flogging for Goldman Sachs.
Summoned to a Senate panel examining the firm's role in the financial crisis, Goldman executives endured a 11-hour excoriation that crystallized the wide gulf between Washington's view of the storied investment bank and Goldman's view of itself.
The seven men, including chief executive Lloyd C. Blankfein and Executive Director Fabrice Tourre, subject of a fraud lawsuit by the Securities and Exchange Commission, at times struck a humble tone with the committee but gave no ground on the concerns raised by senators, offering technical responses and eating up time looking for documents in a 900-plus-page binder.
But for the lawmakers, who seldom engaged the finer points the executives made about the markets, the question of Goldman's conduct on the eve of the financial crisis was not primarily one of law or finance.
"The SEC and the courts will resolve the legal question of whether Goldman's actions broke the law. The question for us is one of ethics and policy," said Sen. Carl M. Levin (D-Mich.), chairman of the Senate Permanent Subcommittee on Investigations. "Were Goldman's actions in 2007 appropriate? And if not, should we act to bar similar actions in the future?"
But for Goldman's executives, it was a narrower question of what the firm was legally required to do to serve its clients and protect itself as the financial markets declined.
Blankfein, the public face of Goldman, began his testimony more than seven hours into the hearing, receiving a more gentle line of questioning than several of his lieutenants. First to testify were four current and former mortgage executives -- Tourre, Daniel Sparks, Michael Swenson and Joshua Birnbaum -- who all wore dark jackets and white shirts and had worked extensively to prepare for questions the committee might ask.
Goldman hired lawyers who formerly worked on the committee to prepare the executives; one of those lawyers once told a trade journal that the best strategy is "long, thoughtful pauses followed by rambling non-responsive answers." The executives practiced the technique.
At one point, Sen. Susan Collins (R-Maine) asked Tourre about an e-mail he wrote that suggested he was looking to sell mortgage-backed investments only to unsophisticated investors. But, taking his time, he asked her three times to identify which e-mail she meant and to repeat her question.
"I cannot help but get the feeling that a strategy of the witnesses is to try to burn through the time of each questioner," Collins responded in an exasperated tone.
The Senate panel released a report this week, based on millions of pages of internal Goldman documents, that accuses the firm of assembling risky mortgage-backed investments, making huge and profitable bets against the housing market and acting against the interest of its clients.
It was this last charge that provoked the strongest protests from Blankfein as Levin pressed it. Referring to evidence collected by his committee, Levin asked the chief executive how Goldman could sell securities to clients without telling them that it was betting against those very investments on the side.