Goldman in DC: A blogger round-up | FT Alphaville

Goldman in DC: A blogger round-up

US Senators spent a full ten hours grilling Goldman executives on Tuesday over their role in mortgage markets.

Thankfully, bloggers had a much snappier take on proceedings. Here are the best.


A quick recap

First, John Gapper’s FT blog had the best live record of the main Goldman panels — plus one specially focused on CEO Lloyd Blankfein’s cross-examination.

As Gapper noted, Blankfein resisted the charge that his bank had massively shorted subprime to the very end of his appearance, quoting him thus:

“We did not know what subsequently occurred in the housing market. We didn’t behave like we knew it … Had we known, we would have been massively short the market instead of just getting short about equal to what our longs were.”

Nothing compares to Dealbreaker’s (sadly fictionalised) live-blogging of the key CDO trader Fabrice Tourre’s questioning, though:

Apparently Goldman didn’t just hurt its clients, it hurt everyone in the world. Take a moment right now to show us on the doll where Goldman touched you.

(Dealbreaker also covered Blankfein’s appearance slightly more seriously).

Of course, if you want the really short version — well, the many faces of Lloyd Blankfein said it all.


The word, America, is ‘shitty’

And so from faces to faeces.

‘Should Goldman Sachs be trying to sell a s***ty deal?’, Senator Carl Levin asked in the best exchange of the hearing, with Goldman CFO David Viniar.

Levin was drawing on emails which showed a trader’s rather poor opinion of the value of the Timberwolf CDO, as reported by the FT. Via NPR’s Planet Money, here is that exchange:

LEVIN: And when you heard that your employees, in these e-mails, when looking at these deals said, God, what a s***y deal, God what a piece of crap — when you hear your own employees or read about those in the e-mails, do you feel anything?

VINIAR: I think that’s very unfortunate to have on e-mail.

(The gallery bursts out laughing.)

LEVIN: On an e-mail?

VINIAR: Please don’t take that the wrong way. I think it’s very unfortunate for anyone to have said that in any form.

LEVIN: How about to believe that and sell them?

VINIAR: I think that’s unfortunate as well.

LEVIN: That’s what you should have started with.

VINIAR: You’re correct. It is.

Note the asterisks. Senator Claire McCaskill promptly came over all prudish over her use of the S-word — as Business Insider noted.

There might have been a lot of s**ty in the hearing, but not much s**ry. As Talking Points Memo observed, none of the testifying executives offered an apology:

“Regret to me means something that you feel that you did wrong,” said former Goldman partner Dan Sparks. “And I don’t have that.”


Where next for Goldman?

Even after surviving the Senate hearing, Goldman’s reputation remains, well, pretty shitty, as the SEC presses on with its fraud case against the bank.

But all is not lost, the Baseline Scenario’s Simon Johnson argues — presenting three ‘modest proposals’ for how Goldman can claw back its dignity:

1. Come out in support of some form of financial reform. The really clever move would be to support something that is not likely to pass, such as size restriction on the biggest banks – keeping in mind that this would hinder JP Morgan Chase and Citigroup much more than Goldman (which was a much safer size not so long ago). Almost as smart would be to endorse the consumer protection agency for financial products – given that Goldman does not deal with many retail investors. In any case, surprise us with support for something that the administration in general or Mr. Volcker in particular is proposing.

2. Create a corporate pledge not to use “astro turf”/fake grass-roots organizations to spread disinformation, then invite other leading firms to sign on. The current leading fraud in this area is incredibly embarrassing for the financial sector; in the language of Jamie Dimon, it self-demonizes the entire industry. Why would you, Goldman Sachs, want this? This is not a good trade and it is getting worse; the traditional deniability claims will not help against the coming backlash. Close the position – and make sure you get maximum public relations points for doing so.

3. Settle the SEC case as soon as possible. Pay whatever it takes. Agree to change the nature of your business, if necessary. You know that the next crazy boom will take a different form in any case. All the feds really want to do is to bolt the stable door after the horse is long gone; at least allow them that face-saving measure.

We somehow doubt Lucas van Praag is listening.

In the mean time, Erik Gerding of business law blog The Conglomerate contends that the Senate hearing may have already made an impact on US financial reform legislation:

Perhaps the most interesting signal came during Senator Collins (R-Me) questions during the first panel.  Her questions of the Goldman employees (as well as her opening statement) suggested she is considering whether SEC regulated broker-dealers ought to be subject to fiduciary duties for clients.  She contrasted investment advisers, which are subject to fiduciary duties and must therefore act in the best interests of clients, with broker dealers, which are not under such duties but do have more limited suitability requirements.  Her press statement also signals that she is interested in exploring fiduciary duties for broker dealers.

This may seem like a small detail, but if this idea from a senior Republican gains any traction it could dramatically change the way broker dealers and Wall Street firms do business.  The Goldman employees and former employees in the first panel took pains to characterize their roles as “market makers.”  If fiduciary duties apply to broker dealers, that role might no longer be possible.

Just for reference — Republicans once again blocked moves to debate the Democrats’ own finance reform bill on Tuesday night, and published their own proposals.

It seems things other than Goldman-bashing sometimes happen on Capitol Hill.