Tuesday, September 26, 2023
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Goldman Execs Say They Didn’t Bet Against Clients

WASHINGTON (CN) - A largely unrepentant group of Goldman Sachs executives insisted in a Senate hearing Tuesday they did not bet against their clients when they shorted mortgage-related investments and profited billions as the housing market fell. "We did not cause the financial crisis," said Michael Swenson, managing director at Goldman Sachs. "I do not think that we did anything wrong."

Swenson testified before the Senate Permanent Subcommittee on Investigations along with Goldman executives Joshua Birnbaum, former managing director of the structured products group, Daniel Sparks, former head of the mortgage department, Fabrice Tourre, executive director of the structured products group, David Viniar, executive vice president, Craig Broderick, chief risk officer, and CEO Lloyd Blankfein.

The hearing was held one day after the committee issued a report revealing "overwhelming" evidence that the firm bet against its own clients.

"We were a participant in an industry that got loose," Sparks said. "When I left [in 2008], I was proud of what the people in the mortgage department had accomplished during a difficult period and I remain so today."

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

Tourre, a defendant in the April 16 fraud suit filed by the Securities and Exchange Commission against Goldman Sachs, used his opening statement to defend against allegations that the firm designed certain securities to fail, saying he had experienced "unfounded attacks on my character and motive" over the past week.

He insisted that the firm's controversial ACA transaction "was not designed to fail" and Goldman had "no economic motive" in making the deal.

Senators seemed relieved when Viniar made some acknowledgment of the firm's contribution to the crisis. "We share responsibility," Viniar said. Sen. John Ensign, R-Nev., said, "I appreciate you taking responsibility because this morning's panel would not."

The witnesses claimed that they were never instructed by senior management to take a short position against the subprime market, but only to "get closer to home."

"The constant theme from senior management was to reduce risk," Sparks said.

Sen. Carl Levin, D-Mich., quoted an internal e-mail addressed to Sparks that said, referring to one Goldman portfolio, "Boy, that Timberwolf was one shitty deal." Four days later, Levin said, the firm instructed its sales force to make Timberwolf its top sales priority. "You didn't tell your clients it was a shitty deal," Levin said. "You knew it was a shitty deal. You sold hundreds of millions of that deal after knowing it was shitty. Should Goldman Sachs be trying to sell a shitty deal?" Levin asked angrily.

"There are prices in the market that people want to invest in things," Sparks responded cooly. "I didn't use that term with respect to the deal. ... At the time we made those deals, we expected them to perform."

Levin cited another internal e-mail that congratulated employees who had "structured like mad" and were "makin' lemonade from some big ol' lemons."

"From some big ol' Goldman Sachs lemons," Levin added. "You have no regrets?" Levin asked rhetorically to the line of witnesses. "You should have plenty of regrets."

Sparks also firmly defended Goldman's decision to securitize $600 million in residential loans, a majority of which were stated income loans that allowed for people to list their own income when they applied for the funds. "There were a lot of investors who had a lot of appetite," Sparks said.

Blankfein also deflected the blame to investors. "They are buying exposure," Blankfein said. As for Goldman's practices, he said, "I don't think our clients care."

Levin pressed Blankfein about Goldman employees using the terms "junk," "crap" and "shitty" to describe Goldman products, asking, "When you hear that your employees are saying this, do you feel anything?"

"I think it's very unfortunate to have on e-mail," Blankfein said to a gasp of surprise in the room. He quickly added, "I think it's unfortunate to say that in any form."

The executives insisted that bonus payouts, made even while clients were losing money, were ethical. "It's a function of performance," Birnbaum said, "I think we're aligning incentives correctly."

Sen. John McCain, R-Ariz., pointed out Blankfein's $9 million stock bonus in 2009 and said, "You're doing pretty well this year."

"Financially, yes," Blankfein said.

The hearing, which stretched on for nearly eleven hours, incited impatience from several committee members.

"I cannot help but get the feeling but a strategy of the witnesses is to try and burn through the time," Sen. Susan Collins, R-Maine, said while Tourre was leafing through a massive binder of exhibits.

Levin told the panel that their strategy would not work. "We're going to stay here as long as it takes to get these answers to the public," Levin said.

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