Goldman Sachs Grilled But Not Burned by Senate Committee

For more than 10 hours yesterday, six current or former Goldman Sachs executives defended their bank against withering criticism from the Senate Permanent Subcommittee on Investigations. At one point during the long day of witch hunting, Senator Susan Collins (R-Maine) said, "I cannot help but get the feeling that the strategy of the witnesses is to try to burn through the time of each questioner." (She then went to the Senate floor and voted to block debate on a bill that would increase regulation of the financial system.) Despite all the bad air, Goldman still came out smelling like a rose on Wall Street.

Goldman's stock rose $1.01 per share, to $153.04, on Tuesday, a "day in which the Dow had its worst drop in nearly three months." Asked how much impact the Goldman Sachs bashing was having on the regulatory reform debate, a financial lobbyist told Politico, "Much less than I had originally thought." As a handful of protesters dressed in prison stripes with Goldman officials' names around their necks stood behind them, the executives repeatedly denied profiting from the housing collapse. Goldman CEO Lloyd Blankfein, the final witness, pointed out that the bank lost $1.2 billion in the residential mortgage meltdown.

But Senator Carl Levin (D-Mich.), the panel's chairman, cited a "fundamental conflict" in Goldman's practice of selling home-loan securities to clients while deriding them as "junk" and "crap" in e-mails, while also betting against the same securities without telling buyers. "They're buying something from you, and you are betting against it. And you want people to trust you. I wouldn't trust you," Levin told Blankfein. Levin read one e-mail between Goldman executives describing one product called Timberwolf as "one shitty deal." (Video below:)

"Your top priority is to sell that shitty deal," Levin said. "Should Goldman Sachs be trying to sell a shitty deal?" Blankfein responded, "I didn't use that term." When asked how he felt about the e-mails, Executive V.P. David A. Viniar replied, "I think that’s very unfortunate to have on e-mail." This answer prompted "a collective gasp," according to the Times, with Senator Levin going on to berate Viniar "for not saying that he was appalled that Goldman employees even thought their deals were of poor quality, much less put it in e-mail. Mr. Viniar later apologized."

The SEC has filed a civil lawsuit against Goldman, accusing the bank of defrauding investors by selling mortgage bonds chosen by a client who bet against them, "earning" an estimated $3.7 billion when the housing bubble burst. Yesterday the Goldman V.P. named in the lawsuit, Fabrice Tourre—he prefers "Fabulous Fab"—denied any illegality. "I deny, categorically, the S.E.C.’s allegation. And I will defend myself in court against this false claim." On his way out, a protester yelled, "How do you live with yourself, Fab?"

Senator Claire McCaskill (D-Mo.) noted that Goldman was hardly alone in betting against the housing bubble, declaring, "They were all doing this. This was lemminglike." But she also accused Goldman of playing the market "like a casino, pure and simple. You are the bookie and you are the house. You had less oversight than a Las Vegas pit boss." But Senator John Ensign, a Nevada Republican, disagreed with that analogy: "In Vegas people know the odds are against them. They play anyway. On Wall Street, they manipulate the odds while you're playing the game."

After the hearing was all over, Senator Byron Dorgan, Democrat of North Dakota, told reporters, "If the disclosures at these hearings are not the final nail that persuades the American people to demand this be done now, I don’t know what would be. To bet against your clients, to bet against your country, all for the sake of big profits. The timing is serendipitous but it should increase the pressure on Republicans." Meanwhile, across the Atlantic...