Tags: US | Scapegoat | Showdown

Contrition Not an Option in Financial Blame Game

Wednesday, 28 April 2010 11:09 AM

Two deeply unpopular U.S. institutions — Congress and Wall Street — slung blame for the shaky economy around a Senate hearing room Tuesday, none of it landing among the dark suits at the witness table or the politicians behind the dais.

Senators, several up for re-election this fall, prosecuted their scapegoats of the moment for peddling toxic investments without disclosing their risks.

The Goldman Sachs executives who had raised their hands and sworn to tell the truth, gave up nothing. Their reward: Goldman's stock rose 0.7 percent, to $153.04, despite the nine-hour grilling.

Chairman Carl Levin led the charge: Didn't Goldman have a moral obligation to tell clients that the securities it was selling were deemed "crap" by the banking giant's own people, he asked CEO Lloyd Blankfein.

"No, I don't think we would have to tell them," said Goldman CEO Lloyd Blankfein, alone at the witness table.

His underlings explained, repeatedly through the nine-hour hearing: Goldman's sellers were acting as "market makers," not investment advisers.

And no, Goldman's executives don't feel responsible for helping drive the nation into an economic recession.

"Regret to me means something that you feel like you did wrong," said Daniel Sparks, the former head of Goldman's mortgages department. "I don't have that."

"We did not cause the financial crisis," said Michael Swenson, who ran structured products group trading at Goldman Sachs, Wall Street's premier banking house. "I do not think that we did anything wrong."

"I believe my conduct was proper," said Fabrice Tourre, a 31-year-old Goldman trader named as a defendant in a civil suit filed by the Securities and Exchange Commission. He insisted he didn't mislead investors.

Questions of risk and trust — political, financial, personal — coursed through the proceedings that gathered some of the nation's financial rulemakers and players in the same room, kept cold to balance the heat from the television lights.

All had much to gain from credible performances. Recent polls show that less than 30 percent of the public hold favorable opinions of Congress and Wall Street.

Levin, D-Mich., glared over his eyeglasses as he made much of an internal, expletive-laden Goldman e-mail:

"'Boy, that Timberwolf was one s——y deal,'" Levin read into the microphone. Goldman Sachs nonetheless continued selling that investment.

"You knew it was a s——y deal," Levin scolded, using the expletive a dozen times during the daylong hearing. "Should Goldman Sachs be trying to sell a s——y deal?"

The executives, in turn, blamed investors.

The clients "should look at the assets themselves," said Sparks. Didn't the company have a moral obligation to disclose to clients that it was making bets against the same risky investments it was selling, Levin asked?

"Clients who did not want to participate in that deal did not," Sparks said.

"Your clients are not paying you big fees just to efficiently conduct transactions," said Sen. Susan Collins, R-Maine. "They're paying you for (your) judgment as well."

Republicans and Democrats criticized the executives with equal enthusiasm and similar metaphors, casting them as gamblers with other people's money. Rising anger at Wall Street, perhaps, might dilute public anger at Congress.

"You're market-makers, but you're also playing in that market," said Sen. Mark Pryor, D-Ark. "Instead of Wall Street, it looks like Las Vegas."

"You're the bookies," said Sen. Claire McCaskill, D-Mo.

No, said Sen. John Ensign, R-Nev., it's worse.

"In Wall Street, people manipulate the odds while you're playing the game," Ensign said. "It's much more dishonest."

Democrats hoped to turn the emotion into momentum for their legislation regulating the financial industry that has stalled in the Senate. The committee had a sheaf of internal Goldman e-mails to make its case that Wall Street cannot be trusted to police itself.

To help make its case, Goldman hired a team of longtime experts on Washington and Democratic politics, including Mark Fabiani, nicknamed the "Master of Disaster" for his handling of crises during the Clinton administration; and former Obama White House Counsel Greg Craig.

The grilling didn't do Goldman much damage. The banking giant was one of the relatively few winning stocks Tuesday. Analysts said investors were reassured by the fact there were few new details in the testimony.

"Two things I'm getting out of these hearings: No. 1, nobody's done anything wrong, this was a natural disaster like a hurricane hit," said Sen. Ted Kaufman, D-Del., "And the second thing is, these things, were just something that happened."

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Two deeply unpopular U.S. institutions Congress and Wall Street slung blame for the shaky economy around a Senate hearing room Tuesday, none of it landing among the dark suits at the witness table or the politicians behind the dais.Senators, several up for re-election...
Wednesday, 28 April 2010 11:09 AM
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