US senators were to grill Goldman Sachs chief Lloyd Blankfein and other executives, including French national Fabrice Tourre, on Tuesday on the investment giant's alleged role in the 2008 financial crisis.
AFP - US senators demanding answers on what caused the 2008 global economic meltdown were to grill Goldman Sachs chief Lloyd Blankfein Tuesday on the investment giant's alleged role in the collapse.
The US Senate Permanent Subcommittee on Investigations was to question Blankfein and other executives including Fabrice "Fabulous Fab" Tourre, the London-based French national at the heart of US fraud charges against the firm.
Democratic Senator Carl Levin, the panel's chairman, assailed Goldman on the eve of the hearing as "a gambling house" and a "conveyor belt" that trucked toxic securities based on risky mortgages, sickening the US economy.
And Levin accused the firm of making a fortune by selling such securities to its clients while betting against the US housing market by taking a "big short" position that bet -- correctly -- on its collapse.
"The ultimate harm here is not just to clients that were not well served by their investment bank. The harm here is to all of us," he charged. "The toxins that Goldman Sachs and others helped inject into the system have done incalculable harm."
Blankfein said in prepared testimony that Goldman "didn't have a massive short against the housing market and we certainly did not bet against our clients."
"If our clients believe that we don't deserve their trust, we cannot survive," he said. "We believe that we managed our risk as our shareholders and our regulators would expect."
Blankfein also said that, "while profitable overall," Goldman lost about 1.2 billion dollars from investments tied to the residential housing market.
Levin and aides pointed to Goldman e-mail messages he said refuted the firm's claims that it lost money because of mortgage-related securities and that it did not move in 2007 to invest in a way to make money from the housing collapse.
In one November 2007 message from Blankfein, he says: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts," which are essentially bets that the market will drop.
"They misled the country," charged Levin.
Other emails made clear Goldman faced unhappiness from clients over allegedly putting its fortunes before theirs.
In one message to Daniel Sparks, the former head of Goldman's mortgages department, a Goldman employee cites clients "upset that we are delaying their deal" in favor of a Goldman deal.
In another, a Goldman employee tells Sparks of "real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant."
And in another blow to the company, a group of 60 US lawmakers urged the US Securities and Exchange Commission (SEC) to widen its fraud investigation into Goldman.
Earlier this month, the SEC announced it was charging the company with fraud, accusing it of "defrauding investors by misstating and omitting key facts" about a product based on subprime, or higher-risk mortgage-backed securities.
"While we strongly disagree with the SEC's complaint, I also recognize how such a complicated transaction may look to many people," said Blankfein, who called the SEC announcement "one of the worst days in my professional life."
"We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky," said Blankfein.
"The SEC and the courts will resolve the legal question of whether Goldman's actions broke the law," said Levin.
"The question for us is whether Goldman's actions in 2007 were appropriate and whether we should act legislatively to bar similar actions in the future," he said.
The hearing comes as US lawmakers grapple with sweeping legislation to rein in Wall Street and prevent another worldwide collapse, amid smoldering US public anger at big banks months before November midterm elections.
Date created : 2010-04-27