Goldman Execs Lambasted for "Unbridled Greed"
Last updated at 12:22 a.m.
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."
Democrats hoped the hearing would build momentum for legislation, now before the Senate, to increase regulation of the nation's financial system. That legislation would crack down on the kind of lightly regulated housing market investments that helped set off the crisis in 2007.
Goldman executives argued they did not place a massive bet against the housing market but conceded in 2007 they made a half a billion dollar profit on their mortgage investments, CBS News correspondent Anthony Mason reports (video).
Live Blog: Goldman Sachs Hearing
Blankfein Uses Don't Ask, Don't Tell Defense
Key Moments from Hearing
Inside the Goldman Sachs Hearing Room
Levin Repeatedly Cites "Sh**ty Deal" at Goldman Hearing
Levin's Expletive-Laden Prosecution of Goldman
Goldman Sachs Defends "Sh**ty Deal"
"Sh**ty Deal": The T-Shirt
CBSNews.com Special Section: Wall Street Under Fire
Elsewhere at the Capitol, Republicans succeeded for a second day in blocking efforts to move toward debate and a vote on that bill. At the same time, they floated a partial alternative that they said could lead to election-year compromise on an issue that commands strong public support.
Both sides are trying to harness voter anger toward Wall Street. Unlike with the health care debate, both Democrats and Republicans say they want tighter regulations passed - but they disagree on timing and significant details.
At the hearing, there was hour upon hour - nearly 11 hours in all, winding up just before 9 p.m. EDT - 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 head to toe 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, a 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 the hearing with its reputation intact, something its stock performance for the day 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.
Sen. Carl Levin, D-Mich., the 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 s----y deal."
"Your top priority is to sell that s----y deal," Levin said. "Should Goldman Sachs be trying to sell a s----y deal?"
I didn't use that term, the executive responded.
Other senators repeated the language in their questioning.
Watch CBS News Videos Online
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.
Testimony of CEO Lloyd Blankfein
Testimony of Fabrice Tourre
Testimony of Michael Swenson
Testimony of Josh Birnbaum
Testimony of Daniel Sparks
Testimony of Craig Broderick
Testimony of David Viniar
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.
Whether Tuesday's hearing would help Democrats win Republican converts on the legislation remained an open question. "It's too soon to tell," Levin said in a brief interview outside the hearing. "We'll have to wait until the dust settles."
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.
Sen. John McCain, R-Ariz., said that while there may not be proof that Goldman did anything illegal, "there's no doubt their behavior was unethical and the people will render a judgment as well as courts."
Sen. Tom Coburn, R-Okla., said the blame doesn't fall on Goldman alone. "There's numerous causes to the financial crisis, not just one." He said the blame must be shared by federal regulatory agencies who didn't use the powers they already have and by Congress. "In truth, we all took turns in inflating the housing bubble," he said.
© 2010 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report. 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."
Democrats hoped the hearing would build momentum for legislation, now before the Senate, to increase regulation of the nation's financial system. That legislation would crack down on the kind of lightly regulated housing market investments that helped set off the crisis in 2007.
Goldman executives argued they did not place a massive bet against the housing market but conceded in 2007 they made a half a billion dollar profit on their mortgage investments, CBS News correspondent Anthony Mason reports (video).
Live Blog: Goldman Sachs Hearing
Blankfein Uses Don't Ask, Don't Tell Defense
Key Moments from Hearing
Inside the Goldman Sachs Hearing Room
Levin Repeatedly Cites "Sh**ty Deal" at Goldman Hearing
Levin's Expletive-Laden Prosecution of Goldman
Goldman Sachs Defends "Sh**ty Deal"
"Sh**ty Deal": The T-Shirt
CBSNews.com Special Section: Wall Street Under Fire
Elsewhere at the Capitol, Republicans succeeded for a second day in blocking efforts to move toward debate and a vote on that bill. At the same time, they floated a partial alternative that they said could lead to election-year compromise on an issue that commands strong public support.
Both sides are trying to harness voter anger toward Wall Street. Unlike with the health care debate, both Democrats and Republicans say they want tighter regulations passed - but they disagree on timing and significant details.
At the hearing, there was hour upon hour - nearly 11 hours in all, winding up just before 9 p.m. EDT - 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 head to toe 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, a 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 the hearing with its reputation intact, something its stock performance for the day 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.
Sen. Carl Levin, D-Mich., the 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 s----y deal."
"Your top priority is to sell that s----y deal," Levin said. "Should Goldman Sachs be trying to sell a s----y deal?"
I didn't use that term, the executive responded.
Other senators repeated the language in their questioning.
Watch CBS News Videos Online
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.
Testimony of CEO Lloyd Blankfein
Testimony of Fabrice Tourre
Testimony of Michael Swenson
Testimony of Josh Birnbaum
Testimony of Daniel Sparks
Testimony of Craig Broderick
Testimony of David Viniar
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.
Whether Tuesday's hearing would help Democrats win Republican converts on the legislation remained an open question. "It's too soon to tell," Levin said in a brief interview outside the hearing. "We'll have to wait until the dust settles."
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.
Sen. John McCain, R-Ariz., said that while there may not be proof that Goldman did anything illegal, "there's no doubt their behavior was unethical and the people will render a judgment as well as courts."
Sen. Tom Coburn, R-Okla., said the blame doesn't fall on Goldman alone. "There's numerous causes to the financial crisis, not just one." He said the blame must be shared by federal regulatory agencies who didn't use the powers they already have and by Congress. "In truth, we all took turns in inflating the housing bubble," he said.
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Corporations buying government equals fascism.
As far as I know, Freddie and Fanny are slated to also be regulated. They have not gone far enough in my mind. Freddie and Fanny should not be psuedo-government entities. And Glass Stegal should be put back into place since it functioned just fine through the peak of our economic might and growth. For that matter, the Corporate Tax rate was 50 percent (yeah, said that right), during the era of the single wage earner (late 1950's-late 60's)
If you want to grasp the broader picture; economy hegemony and empire requires cheap energy, period. The era "cheap energy" is over until new forms of cheap energy are discovered and utilized efficiently given the every shrinking nature of our finite globe. Is there an ideology buried in this my world view, perhaps, but I ask you this, can you fill a cup with more than it can hold? Infinite Growth based economies are a farce.
"GM did not create the financial sector/housing bubble, nor did it pop it and profit from the resultant entropy. Outrage toward this corporation would be misdirected and frankly, an attempt to scapegoat them stinks of obfuscation."
GM has not repaid its TARP loan. I don't see why the US tax payer has to support a car factory that can't turn a profit. I don't see why the US government has to support GM on borrowed money. They should fail, they deserve to fail. The market has determined that they should fail. Their customers have regulated GM out of existence already. They make expensive scrap metal. Why are they still in business?
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Look, Nellie, we should not have to support GM. Saving GM on the surface appears to be an attempt to benefit some on Main Street at the cost of others on Main Street. And pandering to Union interests.
Are we talking about Goldman Sachs or are you going to use this thread as a means to rant against "liberals?" Goldman knows no Party loyalty except to those who would support their idea of an Unfettered Market. The only Party that seems willing to spit in the face of Popular opinion that Unfettered Markets instigate a severe cyclical nature that result in wide spread economic strife, is the GOP. There were plenty of participants from both Parties, but GOP has, since its inception support Deregulated, Laisses-Faire economics in spite of its historical record of failure.
[SNIP]
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.
Federal Reserve Board data show that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and
Where is the public outrage against GM and all the other TARP recipients who have not returned their loans and never will? Are we green with envy because Goldman succeeded and these other losers are still losing money? Tax payer money, I might add. Honestly, I am more outraged with GM than with Goldman. Profits are the purest form of fiscal stimulus.
=====================
GM did not create the financial sector/housing bubble, nor did it pop it and profit from the resultant entropy. Outrage toward this corporation would be misdirected and frankly, an attempt to scapegoat them stinks of obfuscation.
Your financial stupidity is only matched by that of your senators. It is the liberals in your government who were pushing mortgage lenders to make mortgage loans to deadbeats and minorities so everyone could achieve the American dream of owning a home. Don't blame the banks, blame the likes of Freddie and Fannie, AIG and Government Motors who still have not repaid the TARP money. It scares me to death to think that the idiots in the government want to regulate something they know nothing about.
[][][][][][][][][][][[][]
The facts state otherwise, Nelster, so I believe that it is you who is suffering from a knowledge deficit.
[SNIP]
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.
Federal Reserve Board data show that:
* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and
But even without that data, it should be obvious. Think back to 2006. Could you click on a website without getting a pop up ad urging you to refinance? Could you open your mailbox without half a dozen junk mail "refinance now" flyers falling on the floor? Could you listen to AM radio for more than 5 minutes without hearing that annoying Countrywide Financial advertisement?
Does anyone really think that this relentless push by financial firms to get people to refinance back in 2005 and 2006 was a result of some evil government law? Of course not!
Financial firms were pushing mortgage refinances because they knew they could repackage them, make them stink less by getting ratings firms (which were either themselves or companies that they were paying) to give them a good rating, and sell them to suckers.
No one was making them give loans to unqualified people. In fact the exact opposite was true--borrowers were encouraged to fudge and even lie on financial qualification forms because they were told it wouldn't matter---as long as housing prices continued to rise, they would be fine.
This claim of excessive regulation being responsible (along with the claim Freddy Mac and Fannie Mae play a significant part in the crisis) is just talking points to distract us from the real cause of the financial meltdown.
It was obvious to all of us at that point in history, that the housing market could not continue on the path it was on. Real Estate prices were getting way out of hand and Realors and investors continued to ride that wave as though the skyrocketing upward trend would continue endlessly. The cost of the average home had risen to the point where an average salary could no longer support it. It was clear that it would have to crash soon.
I think GS did the right thing here. The sad part is that they are the only ones that did and now people want to punish them for it.
If I were producing the "Jackass" movies, it would be pretty clear that there was huge risk of my stars being killed during filming. If I was smart enough to recognize this fact, I would probably take out a huge life insurance policy on them. That way if they lived through the filming, I would see my return on investment through the ticket sales, if they died during filming, I would get my return via insurance payout. To me that seems like a reasonable risk management strategy.
That is essentially what the GS administration did. But, in this case WE, the home buyers and those investing in the real estate market, were the "Jackasses".