The defiant boss of Goldman Sachs defended his company’s ethics and business practices during America’s financial crisis, saying customers who bought securities from the Wall Street giant came looking for risk “and that’s what they got”.
Chief executive Lloyd Blankfein was the final witness in a day-long US Congress hearing on Goldman Sachs’ behaviour, which resulted in a government civil fraud charge earlier this month.
Five present and two former Goldman officials stood their ground yesterday in hours of contentious evidence, defending their conduct and denying that the investment bank helped cause the near-meltdown of the nation’s financial system.
“Unfortunately, the housing market went south very quickly,” Mr Blankfein told sceptical senators on an investigatory panel. “So people lost money in it.”
While the firm fought for its reputation, senators said the company’s actions leading up to the financial crisis clearly demonstrated a need for stronger regulation and Democrats hoped the hearing would build support for legislation now before the Senate.
Republicans have so far succeeded in blocking debate, and did again yesterday.
But more test votes are expected and Republican politicians floated a partial alternative they said could lead to election-year compromise on an issue that commands strong public support.
But if the two parties were far apart on the terms of a regulation bill, they united in criticising Goldman in the highly charged committee room in a direct confrontation between Wall Street and Congress.
Senator Carl Levin, the panel’s chairman cited a “fundamental conflict” in Goldman’s selling securities and then betting against the same securities — and not telling the 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,” Mr Levin told Mr Blankfein.
Mr Blankfein denied such a conflict, saying: “We do hundreds of thousands, if not millions of transactions a day, as a market maker.”
He said that behind every transaction there was a buyer and a seller, creating both winners and losers.
Goldman’s chief said the company did not bet against its clients and could not survive without their trust. He repeated the company’s assertion that it lost $1.2 billion dollars in the residential mortgage meltdown in 2007 and 2008 that sparked the financial crisis and a severe recession.
He also argued that Goldman was not making an aggressive negative bet - or short - on the mortgage market’s slide. He and other officials described their use of complex trading tools as a way to reduce risks for the company and its clients.
Earlier, Mr Levin said that financial industry lobbyists “fill the halls of Congress, hoping to weaken or kill legislation” to increase regulation and accused Wall Street firms of selling securities they would not invest in themselves.
That was “unbridled greed in the absence of the cop on the beat to control it”, he said.
The Goldman witnesses strongly denied that the firm intentionally cashed in on the housing crash by crafting a strategy to bet against home loan securities while misleading its own investors.
“I will defend myself in court against this false claim,” said Fabrice Tourre, a French-born 31-year-old Goldman trader who was the only individual named in the Securities and Exchange Commission lawsuit.
“I deny - categorically - the SEC’s allegation.” The SEC says Mr Tourre marketed securities without telling buyers they had been chosen with help from a Goldman hedge fund client that was betting the investments would fail.
The commission said he told investors the hedge fund, Paulson & Co, actually bought into the investments but Mr Tourre said he did not recall saying that.
“I am saddened and humbled by what happened in the market in 2007 and 2008," he said. "But I believe my conduct was proper."
Senator John McCain said that while there may not be proof that Goldman did anything illegal, “there’s no doubt their behaviour was unethical and the people will render a judgment as well as courts”.
But Senator Tom Coburn said the blame must be shared by government regulatory agencies that did not use the powers they already had and by Congress. “In truth, we all took turns in inflating the housing bubble,” he said.
PA