There was an interesting tidbit in recent testimony before the Senate Permanent Investigations Subcommittee on how aggressive Goldman Sachs was in pushing for Wall Street debt ratings agencies to give loosen their standards.

It was in testimony by Richard Michalek, a former senior credit officer for structured derivatives for Moody's Investors Service.

In his prepared testimony, Michalek paints Goldman as having a reputation for being perhaps the most aggressive of the investment banks in pressing the agencies to use the analyses of new packages of mortgage-backed securities and that most downplayed the risks associated with those investments.

Speaking of Goldman's reputation among Moody's lawyers who participated in the ratings process and who typically relied on outside legal analyses to help their decisions, Michalek said:

Goldman Sachs was well known by the lawyers in the Group for consistently producing as their "preferred form of document" the most "risk seller friendly" precedent, even if it had been drafted by a law firm other than the firm working for Goldman at the time.

In other words, it didn't matter where the most positive analysis came from — that was the analysis Goldman wanted the ratings agencies to go with.

In a footnote, Michalek added:

While Goldman Sachs was not the only investment bank that used the practice of rotating law firms, in part to gain access to the broadest selection of precedent documentation and thereby the greatest potential for finding a precedent that supported Goldman's preferred language, they were the only bank I knew of that employed someone whose primary job was — to put it politely — arbitrage the rating agencies. It was not difficult to know where Moody's stood in terms of the relative conservatism of our modeling assumptions and drafting requests; Goldman was very prompt when informing us that "S&P doesn't require that".

Goldman officials are due to testify on Capitol Hill Tuesday before the investigations subcommittee. They presumably will be counseled by their lawyers to avoid issues related to the SEC's fraud lawsuit against the investment bank. Conceivably, this practice described by Michalek could fall into that category.

Still, it would be useful to hear how Goldman officials would respond to this particular description by Michalek that the investment bank was the most aggressive in pushing the ratings agencies into a race to the bottom.