Goldman Executives Deny Misleading Investors

Goldman Sachs CEO Lloyd Blankfein and banker Fabrice "Fab" Tourre shared the hot seat on Tuesday before the Senate Permanent Subcommittee on Investigations, which is investigating the causes of the economic meltdown. The government sued the financial behemoth this month for misleading investors in a collateralized debt obligation. The Securities and Exchange Commission says the bank and Tourre failed to disclose that the hedge fund manager who helped put together the CDO did so to short it — or bet against it. Goldman rejects the SEC's charges.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

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And I'm Melissa Block.

If the financial meltdown produced any winners on Wall Street, it was the giant investment house Goldman Sachs. Now, Goldman is being sued by the Securities and Exchange Commission on charges of misleading clients so the bank could profit from market losses.

And today on Capitol Hill, some of the firm's officials who were most intimately involved in this controversial trading found themselves in the hot seat.

NPR's David Welna reports.

DAVID WELNA: As four current or former Goldman managers sat stiffly at the witness table, permanent investigation subcommittee chairman Carl Levin came off more judge than moderator at a hearing he scheduled weeks before the SEC sued the firm.

Levin gave this verdict on the reams of internal Goldman emails his panels subpoenaed last year...

Mr. CARL LEVIN (Chairman, Permanent Investigation Subcommittee): The evidence shows that Goldman repeatedly put its own interest in profits ahead of the interests of its clients in our communities. Its misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse.

WELNA: The words betting and gambling were both used at the hearing to describe Goldman's business dealings. Nevada Republican John Ensign took umbrage.

Senator JOHN ENSIGN (Republican, Nevada): I think most people in Las Vegas would take offense at having Wall Street compared to Las Vegas because in Las Vegas, actually, people know that the odds are against them. They play anyway. On Wall Street, they manipulate the odds while you're playing the game.

WELNA: Rising to Goldman's defense was the managing director of its Structured Products Group, Michael Swanson, who insisted he and others were not told to bet on the housing market falling.

Mr. MICHAEL SWANSON (Managing Director, Structured Products Group): We were instructed to reduce risk and get the position closer to home. We were not told what direction to take, just to get there.

WELNA: Also at the witness table was Fabrice Fab Tourre. He set up a synthetic collateralized debt swap at Goldman's London office that prompted the SEC to sue Goldman. Tourre insisted he'd done nothing wrong.

Mr. FABRICE FAB TOURRE (Trader, Goldman Sachs): Mr. Chairman, the last week has been challenging for me and my family, as I have been the target of unfounded attacks on my character and motives. I appreciate the opportunity to appear before the subcommittee to answer these false charges. I wish to repeat, I did not mislead (unintelligible), two of the most sophisticated institutional investors in these products anywhere in the world.

WELNA: A particular subject of senatorial ire was how some of the products Goldman was selling were scorned in its internal communications. Chairman Levin pointed out to Goldmans chief financial officer, David Viniar, emails describing one of Goldmans security products with a six-letter word rhyming with pretty.

Sen. LEVIN: When you heard that your employees, in these emails, and looking at these deals said, God what a (beep) deal, God what a piece of crap - when you hear your own employees or read about those emails, do you feel anything?

Mr. DAVID VINIAR (Former CFO, Goldman Sachs): I think thats very unfortunate to have on email.

Sen. LEVIN: Are you on (unintelligible)?

Mr. VINIAR: And very unfortunate...

Sen. LEVIN: On emails?

Mr. VINIAR: (unintelligible)...

Sen. LEVIN: ...feeling that way.

Mr. VINIAR: I think its very unfortunate for anyone to have said that in any form.

Sen. LEVIN: How about to believe that and sell that?

Mr. VINIAR: I think thats unfortunate, as well.

Sen. LEVIN: Well, thats what you shouldve started with.

Mr. VINIAR: Youre correct. It is.

WELNA: The final witness was Goldmans chairman and CEO, Lloyd Blankfein. He told the panel the day the SEC sued his firm was one of the worst of his professional life. He said if Goldman doesnt have its clients trust it cant survive. Levin pressed the point.

Sen. LEVIN: Is there not a conflict when you sell something to somebody and then are determined to bet against that same security and you disclose that to the person youre selling? Do you see a problem?

Mr. LLOYD BLANKFEIN (CEO, Goldman Sachs): In the context of market-making, that is not a problem.

WELNA: Blankfein added he does not think a client needs to know when a client is betting against a product its selling.

David Welna, NPR News, the Capitol.

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