Goldman execs tell skeptical senators they did no wrong

WASHINGTON — Defending his company under blistering criticism, the CEO of Goldman Sachs testily told skeptical senators Tuesday that customers who bought securities from the Wall Street giant in the run-up to a national financial crisis came looking for risk "and that's what they got."

Lloyd Blankfein and other Goldman executives were lambasted by lawmakers for "unbridled greed" in an often-electric daylong showdown between Wall Street and Congress — with expletives frequently undeleted. Unrepentant, five present and two past Goldman officials unflinchingly stood by their conduct before a Senate investigatory panel and denied helping to cause the financial near-meltdown that turned into the worst recession since the Great Depression.

"Unfortunately, the housing market went south very quickly," Blankfein told skeptical senators. "So people lost money in it."

There was hour upon hour — into the night — of combative exchanges, occasional humor and long stretches of senators and Wall Street insiders speaking past each other. There was talk of ethical obligations versus financial transactions so complex they all but defy explanation. And there were a half-dozen protesters dressed in prison stripes with Goldman officials' names around their necks.

Senators from both parties verbally pounded the Goldman executives, accusing them of a financial version of rigged casino gambling that they said endangered the entire U.S. economy.

That drew a protest from Sen. John Ensign, the Nevada Republican. In Las Vegas, he said, "People know the odds are against them. They play anyway. On Wall Street, they manipulate the odds while you're playing the game."

Outside the hearing room, analysts and investors suggested the firm was surviving with its reputation intact, something its stock performance may have underscored. Goldman's stock rose $1.01 per share, to $153.04, on Tuesday, a day in which the Dow Jones industrials had their worst drop in nearly three months, down 213 points.

Blankfein was the final witness in a daylong hearing on Goldman conduct that resulted in a Securities and Exchange Commission civil fraud charge earlier this month against the firm and one of its traders.

A "fundamental conflict"

Sen. Carl Levin, D-Mich., the Senate panel's chairman, cited a "fundamental conflict" in Goldman's selling to clients home-loan securities that company e-mails showed its own employees had derided as "junk" and "crap" — 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," Levin told Blankfein.

Blankfein denied such a conflict in a combative exchange. "We do hundreds of thousands if not millions of transactions a day, as a market maker," he said, noting that behind every transaction there was a buyer and a seller, creating both winners and losers.

Levin vigorously pressed about an e-mail between Goldman executives describing one product called Timberwolf as "one shitty deal."

"Your top priority is selling that," Levin said, repeating the e-mail wording, and asking if that's what Goldman Sachs should be doing.

I didn't use that term, the executive responded.

Other senators repeated the language in their questioning.

Goldman's chief said the company didn't bet against its clients — and can't survive without their trust. He repeated the company's assertion that it lost $1.2 billion in the residential-mortgage meltdown in 2007 and 2008 that touched off the financial crisis and a severe recession. He also argued that Goldman wasn't 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, Levin said that financial-industry lobbyists "fill the halls of Congress, hoping to weaken or kill legislation" to increase regulation. He accused Wall Street firms of selling securities they wouldn't invest in themselves. That's "unbridled greed in the absence of the cop on the beat to control it," he said.

A categorical denial

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 SEC suit. "I deny — categorically — the SEC's allegation."

The SEC says 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 alleged that Tourre told investors the hedge fund, Paulson & Co., actually bought into the investments. Tourre said he didn't recall telling investors that.

Tourre said: "I am saddened and humbled by what happened in the market in 2007 and 2008. ... But I believe my conduct was proper."

Was Goldman harmed by the hearing?

"Despite the interrogation, the Goldman team hasn't really provided any new information," market analyst Edward Yardeni said. "And the [senators] aren't creating a more damaging view than already existed."

"Right now, it looks like the PR battle has been fought to a draw," Yardeni added.