Goldman Sachs Executives Lambasted By Senate Panel
RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Good morning. In the Senate yesterday, something rare happened. Democrats and Republican found something they could agree on. Lawmakers from both parties ripped into Goldman Sachs.
A subcommittee led by Democrat Carl Levin of Michigan repeatedly admonished Goldman Sachs executives, saying they sold risky securities and deceived their clients.
Senator CARL LEVIN (Democrat, Michigan): Do you think they know that you think something is a piece of crap when you sell it to them and then bet against it? Do you think they know that?
INSKEEP: The day-long hearing came as the Senate works on a bill that would set new rules for the financial industry.
Heres NPR's Yuki Noguchi.
YUKI NOGUCHI: Over an 11-hour stretch, senators pointed to internal Goldman emails as evidence and demanded explanations. Each of the executives in turn soberly turned to the chin-high stacks of papers before them to try to answer the questions.
Here was Daniel Sparks, former head of the bank's mortgage division, trying to respond to Senator Levin.
Mr. DANIEL SPARKS (Goldman Sachs): I mean, again, these aren't my words. I didnt...
Sen. LEVIN: I'm just asking you if the darn statement is true that Goldman Sachs made to the SEC. Thats all I'm asking you.
Mr. SPARKS: Well, this is a long document. I mean I haven't even...
Sen. LEVIN: I'm asking you if that statement at the bottom of page three...
NOGUCHI: And so it went. Executives disputed the senators charts and parsed words to correct the politicians understanding of how these complex markets work. All the while, the executives tried to tread a fine line, expressing regret that some investments had gone bad without admitting that they or the bank were responsible for bringing about the collapse.
Goldman Sachs CEO Lloyd Blankfein.
Mr. LLOYD BLANKFEIN (CEO, Goldman Sachs): We did not know that the housing market was going to - was going to happen like that.
NOGUCHI: But by late 2006, some Goldman executives believed mortgage securities were in trouble. The firm took short positions, betting the value of those securities would fall. Even as they did so, lawmakers noted, Goldman continued to sell mortgage-related investments with names like Hudson and Timber Wolf to its clients. To the extent there was any humor, it came at Goldmans expense.
Here again, Senator Levin grilling Danielle Sparks.
Sen. LEVIN: Look what your sales team was saying about Timber Wolf. Boy, that Timber Wolf was one (bleep) deal. How much of that (bleep) deal did you sell to your clients after June 22, 2007?
Mr. SPARKS: Mr. Chairman, I dont know the answer to that.
NOGUCHI: A similar investment is at the center of a civil fraud suit against the bank brought earlier this week by the Securities and Exchange Commission. The SEC said Goldman failed to disclose a possible conflict of interest to investors who ended up losing money. Goldman's response is that investors wanted to buy securities that only later turned out to be bad investments.
But Republican Senator Susan Collins of Maine said the fact that Goldman found buyers for investments it was shorting was beside the point.
Senator SUSAN COLLINS (Republican, Maine): Could you give me a yes or no to whether or not you considered yourself to have a duty to act in the best interest of your clients?
NOGUCHI: After a long uncomfortable pause, former executive Sparks offered this...
Mr. SPARKS: I believe that we have a duty to serve our clients well.
NOGUCHI: If at times it seemed as though the senators had the benefit of hindsight, Delaware Democrat Ted Kaufman denied it.
Senator TED KAUFMAN (Democrat, Delaware): And I hate Monday morning quarterback and I hate connecting the dots. I really dont feel in this one that I'm up here, you know, using a morality that was developed in the last 15 minutes in order to ask you questions about this thing and embarrass you. Thats not what I'm about at all.
NOGUCHI: But Democrats are hoping the hearing advanced the effort to re-regulate Wall Street, which they say is key to preventing another financial crisis. Goldman stock was one of the few financial companies that closed up yesterday. But Charles Elson says long-term this hearing was not a plus for Goldman.
Mr. CHARLES ELSON (John L. Weinberg Center for Corporate Governance): Any time you go before Congress, it is a PR disaster.
NOGUCHI: Elson is director for the Weinberg Center for Corporate Governance. He says the hearing exposed that Goldman is so large it cannot always act in the best interest of all of its clients. And...
Mr. ELSON: If you act contrary to the interest of your customer, long-term, you won't make a profit, because you won't have any customers.
NOGUCHI: But for now, Goldman is still one of the most profitable firms in the world.
Yuki Noguchi, NPR News, Washington.