After more than six hours of grilling Goldman Sachs executives, the top dog of the investment banking firm -- Chairman and CEO Lloyd Blankfein -- sat at the table across from an frustrated Sen. Carl Levin (D-Mich.) and others members of the Senate Subcommittee on Investigations.
Levin had spent most of the day trying to get a confession from the previous six Goldman Sachs execs, who managed maintain their calm amidst questions about the company's ethical standards and an alleged conflict of interest in selling what the firm appeared to consider dubious securities to customers, and then betting against them via short positions.
After, Levin highlighted several CDO and in which clients lost money but Goldman Sachs profited by betting against specific securities. "When Goldman is selling a security when its own people believe are bad items, as described in emails...and to go out and sell those securities to people and then bet against those securities is a fundamental conflict of interest and a real ethical issue. Do you think that deserves your trust?," he asked the CEO.
Blankfein responded, "Senator, there is a lot in your question...and I am sure we will spend a lot of time on different parts of it," and then went on to outline how the client base knows what "market-making" is.
Levin continued to push Blankfein to answer his question about a conflict of interest. "In the context of market- making that is not a conflict," Blankfein said. "Clients shouldn't care what our views are."
Blankfein continues, "In a human context, the market works on transparency with respect with what the item is.... you are not even supposed to know who is on the other side. Liquidity in the market demands transparency...the people coming to us for risk in the housing market wanted exposure to the housing market and that's what they got. Unfortunately, the housing market went south so people lost money but the security itself delivered the exposure the client wanted to have."
Levin asked again whether Goldman Sachs should have any responsibility to disclose what it knows about a specific security, as in the case of shorting securities that it is selling.
In sum, Blankfein's ultimate position was" don't ask, don't tell." He said that the company is not obligated to disclose its positions.
"As a market maker, we are buying from sellers and selling to buyers," he said. "I'm not sure how a market would work if the other side of the market cared what your opinion is on the other side of the market."
Levin continued his push to get Blankfein to admit that Goldman Sachs was unethical in the instances discussed throughout the hearing, but no luck.
This round was a draw, but the Goldman Sachs CEO didn't make a convincing argument for why, based on the e-mails and documents presented at the hearing, his company wouldwithout disclosing that the company is heavily betting against them. It doesn't sound like a way to win the trust of customers.