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Goldman’s Blankfein, Tourre Come Before Senate Investigative Committee

At this hour, the Senate Permanent Subcommittee on Investigations, headed by Carl Levin, will welcome Goldman Sachs CEO Lloyd Blankfein and trader “Fabulous Fab” Tourre, in a hearing about the financial giant’s activities during the financial crisis [you can watch the hearing on CSPAN3]. This follows the release of emails that not only suggested that Goldman bet against the housing market (which is perfectly legal) but profited at the expense of their clients (which could be illegal if they deliberately misled investors). Blankfein, in his prepared testimony, denied this charge.

Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market. The fact is we were not consistently or significantly net “short the market” in residential mortgage-related products in 2007 and 2008. Our performance in our residential mortgage-related business confirms this.

During the two years of the financial crisis, while profitable overall, Goldman Sachs lost approximately $1.2 billion from our activities in the residential housing market.

We didn’t have a massive short against the housing market and we certainly did not bet against our clients. Rather, we believe that we managed our risk as our shareholders and our regulators would expect.

He’ll have some trouble explaining this today, given the evidence of the emails. And you cannot read Blankfein’s testimony without the annotated version from Tyler Durden. Hopefully subcommittee staffers are doing it.

Rather, the SPI alleges that Goldman had more bad mortgage deals like the one for which they’re being sued by the SEC. . . .:

Senate investigators on Monday claimed that Goldman Sachs had devised not one but a series of complex deals to profit from the collapse of the home mortgage market. The claims suggested for the first time that the inquiries into Goldman were stretching beyond the sole mortgage deal singled out by the Securities and Exchange Commission. The S.E.C. has accused Goldman of defrauding investors in that single transaction, Abacus 2007-AC1, have thrust the bank into a legal whirlwind.

But at the press briefing in Washington, Carl Levin, the Democrat of Michigan who heads the Senate committee, insisted that Goldman had bet against its clients repeatedly. He held up a binder the size of two breadboxes that he said contained copies of e-mail messages and other documents that showed Goldman had put its own interests first.

“The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients,” Mr. Levin said.

Carl Levin, in his statement, said that while Goldman and other investment banks, when they act properly, play a valuable role in the economy. “But in looking at this crisis, it’s hard not to echo the conclusion of another congressional committee, which found, ‘The results of the unregulated activities of the investment bankers … were disastrous.’ That conclusion came in 1934, as the Senate looked into the reasons for the Great Depression. The parallels today are unmistakable.”

Levin was alluding to the Pecora Commission. He’s living up to that history.

I’ll be monitoring this hearing throughout the day.

CommunityThe Bullpen

Goldman Sachs Comes Before the New Pecora Commission

At this hour, the Senate Permanent Subcommittee on Investigations, headed by Carl Levin, will welcome Goldman Sachs CEO Lloyd Blankfein and trader “Fabulous Fab” Tourre, in a hearing about the financial giant’s activities during the financial crisis. This follows the release of emails that not only suggested that Goldman bet against the housing market (which is perfectly legal) but profited at the expense of their clients (which could be illegal if they deliberately misled investors). Blankfein, in his prepared testimony, denied this charge.

Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market. The fact is we were not consistently or significantly net “short the market” in residential mortgage-related products in 2007 and 2008. Our performance in our residential mortgage-related business confirms this.

During the two years of the financial crisis, while profitable overall, Goldman Sachs lost approximately $1.2 billion from our activities in the residential housing market.

We didn’t have a massive short against the housing market and we certainly did not bet against our clients. Rather, we believe that we managed our risk as our shareholders and our regulators would expect.

He’ll have some trouble explaining this today, given the evidence of the emails. And you cannot read Blankfein’s testimony without the annotated version from Tyler Durden. Hopefully subcommittee staffers are doing it.

Rather, the SPI alleges that Goldman had more bad mortgage deals like the one for which they’re being sued by the SEC:

Senate investigators on Monday claimed that Goldman Sachs had devised not one but a series of complex deals to profit from the collapse of the home mortgage market. The claims suggested for the first time that the inquiries into Goldman were stretching beyond the sole mortgage deal singled out by the Securities and Exchange Commission. The S.E.C. has accused Goldman of defrauding investors in that single transaction, Abacus 2007-AC1, have thrust the bank into a legal whirlwind.

But at the press briefing in Washington, Carl Levin, the Democrat of Michigan who heads the Senate committee, insisted that Goldman had bet against its clients repeatedly. He held up a binder the size of two breadboxes that he said contained copies of e-mail messages and other documents that showed Goldman had put its own interests first.

“The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients,” Mr. Levin said.

Carl Levin, in his statement, said that while Goldman and other investment banks, when they act properly, play a valuable role in the economy. “But in looking at this crisis, it’s hard not to echo the conclusion of another congressional committee, which found, ‘The results of the unregulated activities of the investment bankers … were disastrous.’ That conclusion came in 1934, as the Senate looked into the reasons for the Great Depression. The parallels today are unmistakable.”

Levin was alluding to the Pecora Commission. He’s living up to that history.

I’ll be monitoring this hearing throughout the day.

UPDATE: Levin sums it up:

These findings are deeply troubling. They show a Wall Street culture that, while it may once have focused on serving clients and promoting commerce, is now all too often simply self-serving. The ultimate harm here is not just to clients poorly served by their investment bank. It’s to all of us. The toxic mortgages and related instruments that these firms injected into our financial system have done incalculable harm to people who had never heard of a mortgage-backed security or a CDO, and who have no defenses against the harm such exotic Wall Street creations can cause.

Running through our findings and these hearings is a thread that connects the reckless actions of mortgage brokers at WaMu with market-driven credit rating agencies and the Wall Street executives designing the next synthetic. That thread is unbridled greed, and the absence of a cop on the beat to control it.

UPDATE II: Interestingly, we have strong bipartisan criticism of Goldman on the panel so far; nobody’s daring to speak up for them. Even John McCain – John McCain! – admitted that what Goldman did was unethical, and that “the American people would make a judgment.”

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David Dayen

David Dayen