Goldman Sachs executives on Tuesday strongly resisted attempts by a Senate investigative subcommittee to use the storied Wall Street firm as “Exhibit A” in the Democrats’ drive to enact a sweeping reform of Wall Street practices.
Members of the Senate Homeland Security and Governmental Affairs permanent subcommittee on investigations repeatedly accused the firm of working against its own clients as well as creating the housing and credit disaster that brought down the global economy in the fall of 2008.
The legislators waved sometimes damning internal e-mails and thumbed through a thick volume of documents that the panel obtained from Goldman in charging that the leading investment house greatly profited from a strategy of betting that the housing market would collapse — an accusation the firm stoutly denied.
“We did not cause the financial crisis. I do not think we did anything wrong,” said Michael Swenson, a Goldman executive whose job was to try to counterbalance the firm’s growing exposure to risky subprime mortgage securities it was holding in 2006 and 2007 by placing bets against the subprime and housing market in derivatives markets.
“Unfortunately, the housing market went south very quickly. So people lost money in it,” Goldman Chief Executive Officer Lloyd Blankfein said later in the afternoon, stressing that each transaction that the firm brokered had a buyer and a seller, a winner and a loser — a feature of every market. “We do hundreds of thousands, if not millions, of transactions a day.”
Josh Birnbaum, a former Goldman trader who now runs the Tilden Park hedge fund, said Goldman was one of many participants in a global industry that offered subprime loans to people who sometimes lied about their ability to repay, and then engineered and securitized those loans into complex products that were bought by investors around the world.
“We participated in an industry that got loose,” he said.
“We may have contributed to a bubble,” he said. “We’re all sympathetic to the negative impact of that bubble,” including people losing their homes and jobs in the deep housing bust and recession that followed the collapse of the bubble.
The sometimes rowdy crowd at the hearing mostly sided with Goldman’s critics. At one point, a few members from Code Pink, dressed in mock jail suits, yelled, “We want these guys in jail” and “We want our jobs back.”
Intimidated by the approach of a Capitol Police officer, the women sat down, to the applause of other spectators. They sometimes hissed as the Goldman executives defended themselves.
But in the face of stinging criticism from legislators from both parties, the Goldman executives insisted that they for the most part did their jobs legally and ethically by assisting clients who wanted to profit from both the upside and downside of the market bubble.
In a grueling, daylong barrage of questioning, legislators persistently grilled the firm over individual deals that went sour, sometimes exhibiting fluency on the highly complex subject of derivatives transactions but other times fumbling over the many technicalities.
At one point, Sen. Carl Levin, Michigan Democrat and the subcommittee chairman, held up a chart that supposedly showed that Goldman held overwhelming “short” positions betting on the demise of the housing market in 2007. A Goldman executive said the figures represented only one part of the firm’s mortgage portfolio and did not include the firm’s many “long” holdings of subprime holdings that lost money.
Mr. Levin, sometimes reverting to coarse language, aggressively demanded details on intricate transactions that were completed years ago, pressing repeatedly for admissions of wrongdoing.View Entire Story
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