CBSNews.com's live coverage of Tuesday's Senate Permanent Subcommittee on Investigation hearing on the role of investment banks in the crisis on Wall Street:
Watch Blankfein's and other Goldman officials' testimony online at CBSNews.com.
8:42 p.m. ET: Levin promotes financial reform legislation in closing statement, saying "There needs to be a cop on the beat."
Total hearing duration: 10 hours, 42 minutes.
8:37 p.m. ET: Levin corrects himself, saying he mistakenly said "I" asked a question in a deposition that had in fact been taken by Senate staffers.
Blankfein: "I was taking it as the royal 'We'"
8:31 p.m. ET: Blankfein: "The one immutable fact here, that's in the past, that's ascertainable, that's audited is that the net of all these positions in the market," only netted half a billion dollars in 2007.
8:26 p.m. ET: Levin, again: "You want to be trusted. ... There's a lot of folks who have some real doubts, when you don't acknowledge the big short. You try to hedge that - tamp that down. ... You were selling securities to your clients at the same time that you were betting against those same securities. ... That's what we have shown."
"It's not the fact that you made a profit. It's not the fact even that you went short. You have a right to go short. It's the conflict."
8:13 p.m. ET: Levin: "You bet, in 2007, against the housing market."
Blankfein: "No we did not."
Levin: "You went big and short."
Blankfein (with emphasis): "No we did not."
8:05 p.m. ET: Levin on Goldman betting against the same products it was selling: "It troubles me that you don't see that. It troubles me that you don't see that complication. ... Goldman Sachs has turned itself into its own client and taken advantage of that relationship, took stuff from your own inventory in massive amounts ... sold it -- that's okay -- but then bet against your own sale."
He seems to be making what amounts to a final argument, but, well, don't count on that.
7:55 p.m. ET: Blankfein on collateralized debt obligations (or CDOs): "At the end the day if they are too complicated and too risky and they generate the kind of risk that apparently they did ... they may be something that should not be permitted I am not making a spirited defense that anything be done." He said he favors regulation.
7:46 p.m. ET: Asked by Sen. Jon Tester, D-Mont., whether he is embarrassed that Goldman needed to receive $10 billion in taxpayer money, Blankfein said, "It's an embarrassing situation then and it's embarrassing now."
7:34 p.m. ET: Pryor also asked Blankfei if ratings firms were accurate in their assessments of Goldman's CDOs and other mortgage-related investments.
"In retrospect, they were inaccurate," Blankfein said. "I think they never anticipated market would fall as far as it did ... never worked into their models the kind of moves that occurred in the market."
Asked how the ratings may have been influenced, Blankfein said, I don't know. .. The first panel included people who executed deals and obtained ratings. In my entire career I have never dealt with a rating agency except for rating Goldman Sachs."
7:31 p.m. ET: Sen. Mark Pryor, D.-Ark., has been pressing Blankfein on both the particular SEC allegations against Goldman (which Blankfein has been mostly unable to address) and, more broadly, what the company has learned from the recent turmoil.
:"There is not a thing that will arise here and elsewhere that will not be the subject of some big soul search and some tightening up of standards," Blankfein said, adding that a "have a high level committee in our firm" is going over business practices. "Everything that's been the subject of criticism will be tightened up."
"With the benefit of hindsight, yes, we were too leveraged," he said. and the crisis "is going to "reverberate with me for the rest of my career and life."
7:11 p.m. ET: CBSNews.com editor-in-chief Dan Farber wrote an analysis of the Goldman hearings. Farber focuses on Blankfein's repeated assertion that betting against the products it sells is just an aspect of "market making" and his assertion that the company has no obligation to disclose its investments, even in such cases. Give it a look:
6:51 p.m. ET: Sen. McCaskill calls the exclusive focus on Goldman Sachs at the hearing "tremendously unfair" - not because Goldman acted rightly, but because at least half a dozen other firms engaged in the exact same kinds of transactions and obfuscations. Blankfein says he would "welcome" the company of his CEO counterparts on the stand.
6:40 p.m. ET: Coburn continues to press for Blankfein's input on possible regulatory reform.
The most important thing, Blankfein says, is "To recognize that despite every good intention ... you just will miss stuff, and to make sure that the system is better able to absorb the consequence of missing something."
A reasonable response would be "More capital levels and liquidity. ... You might limit our leverage ratio," he says, adding that "no institution should be too big to fail."
6:34 p.m. ET: The hearing is now coming up on nine hours duration, having started at 10 a.m. with precious few breaks. As the New York Times live blog points out, even the "Code Pink" protesters recently walked out.
6:28 p.m. ET: In a rare moment of self-reflection for members of either party, Ranking Member Coburn points out that Congress - struggling even now to enact financial regulatory reform - only cleans up messes after everything goes wrong, anyway.
"We don't do oversight in advance to see whether things are working," he said.
6:23 p.m. ET: Sen. Kaufman is pressing Blankfein on when the company knew -- in a general sense -- that the housing market was tanking. They are frequently characterized as the smartest of the smart cashing in on the best available paydays, after all.
"I think we're not that smart," Blankfein responded. "For my own self, at 20 percent down in the housing market, I didn't know whether it would go down 30 percent or rebound by 10 percent."
6:11 p.m. ET: In related news this evening,
6:05 p.m. ET: Blankfein essentially agrees with Sen. Kaufman that Goldman has shifted more and more from a client-focused business (giving financial advice, facilitating transactions) to trading on its own book. He says this is because the company needs the "financial wherewithal" to finance client needs rather than just advice and facilitate.
5:54 p.m. ET: A bit late, but here's how the market wrapped up today. The Dow fell 213 points or nearly 2 percent. The Nasdaq and S&P were both down more than 2 percent on the day. Goldman Sachs stock was up $1.01 to $153.04 -- a gain of two-thirds of a percent.
5:50 p.m. ET: Sen. John McCain, R-Ariz., tells Blankfein "You recovered rather nicely" with $13 billion in profits after receiving $10 billion in TARP money from the government and asks Blankfein to state his 2009 bonus ("about $9 million").
5:45 p.m. ET: Blankfein says he "can't endorse" Levin's characterization of Goldman Sachs problematically selling the same securities it's betting against. Blankfein says that the company always buys to seller and sells to buyers and that he's not troubled by it.
5:25 p.m. ET: Read Mr. Blankfein's prepared testimony (PDF).
5:08 p.m. ET: When Sen Levin returned to the hearing several minutes ago, Viniar asked to speak and again apologized for his earlier comment ("I think that's very unfortunate to have on e-mail"), saying Levin was "100 percent right."
5:04 p.m. ET: Sen. Coburn asks Viniar if the company's compensation system compromised the ethical behavior of employees: "What is the ethical creed of Goldman Sachs? ... Do they have an ethics department?"
Viniar's reply: "We care very much about ethics at Goldman Sachs. ... We don't believe in any way shape or form that our compensation is not consistent with people having good ethical standards."
4:55 p.m. ET: Goldman Chief Risk Officer Craig W. Broderick has just gotten his first questions since this panel convened nearly 90 minutes ago.
4:53 p.m. ET: The hearing has reconvened after a short recess. Before the recess Sen. Levin once again made repeated references to "crap" investments and the "sh**ty deal" Goldman was giving to customers by selling them the same securities the company was betting against.
Levin asked Viniar if it the e-mail evidence of this was unfortunate and Viniar raised a murmur by saying, "I think that's very unfortunate to have on e-mail."
He then corrected his statement, saying, "I think it's very unfortunate for anyone to have said that."
4:36 p.m. ET: Sen. John Ensign, R-Nev. just finished questioning Viniar. Ensign, of course, is under FBI investigation for funneling hush money to his mistress's husband and his family in chunks meant not to be noticed by the IRS, which may or may not be a qualification for probing financial fraud.
4:24 p.m. ET: Sen. Ted Kaufman, D-Del., asks Viniar why Goldman didn't simply sell positions it was unhappy with (specifically in mortgage-backed securities) but instead took short positions to "offset" the original investments. Viniar calls it a "very good question" and says it was a case-by-case judgment.
"There's a clear conflict of interest," Kaufman says, having clients in long positions sold by the company while the company is simultaneously is betting against them.
4:12 p.m. ET: CBSNews.com's Dan Carty is providing lots more coverage of the hearings, including videos, links and accounts of key exchanges over at our EconWatch blog:
4:06 p.m. ET: Ranking member Coburn, saying he disagrees with Levin, is giving Mr. Viniar the opportunity to expound on the virtues of short-selling.
Viniar says that "Shareholders could be quite disappointed in us if we didn't use the right tools to manage our risk appropriately."
3:56 p.m. ET: Watch video of CBSNews.com's Washington Unplugged featuring Politico senior editor David Mark and CBS' Sharyl Attkisson discussing the Goldman hearings.3:44 p.m. ET: Asked if Goldman was short on (or betting against) the residential mortgage market in 2007, Viniar says, "We were primarily although not consistently short and it was not a large short."
3:33 p.m. ET: The second panel has convened. Read the prepared testimony of the current panel members:
3:28 p.m. ET: Coming up in the next panel are Goldman Executive Vice President and Chief Financial Officer David A. Viniar and Chief Risk Officer Craig W. Broderick. Broderick is known partly for admitting at a company presentation that Goldman bet against the mortgage market, saying, "Early in '07 our mortgage trading desk started putting on big short positions ... and made money ... as the subprime market weakened." Read more.
3:16 p.m. ET: Chairman Levin has just adjourned the first panel. The meeting is in recess for 10 minutes.3:02 p.m. ET: Under questioning by Coburn, Birnbaum denied that there was a connection in Goldman's shorting of Bear Stearns after their competitor had purchased approximately $300 million of the Timber Wolf mortgage-backed securities in March 2007, representing a change in Goldman's position in mortgages.
2:53 p.m. ET: When asked if an e-mail in which he'd said a portfolio was mutually agreed upon by ACA and Goldman was accurate, Tourre did not say it was inaccurate, but that "It could have been more accurate," as the portfolio had been agreed upon by ACA, Goldman, and Paulson.
2:38 p.m.: By mid-afternoon, although Dow Jones is dipping (down about 127 points), Goldman Sachs stock is actually up, about 1 percent. The Wall Street Journal suggests that despite the public thrashing of several Goldman executives in today's hearing, and perhaps because of the sparse details revealed during the first four hours, Wall Street may be viewing the executives as "winning," with the firm's stocks reaping a benefit.
2:24 p.m. ET: Coburn: "Have you ever been instructed on what you can or cannot communicate via e-mail?" [i.e., raising ethical questions about what they were selling]. The panelists said they were not aware of a policy like that. Sparks said there is a policy about what should not be communicated on e-mail going outside of the firm, but not internally.
2:12 p.m. ET: Levin is inquiring about Hudson Mezzanine, of which one Goldman salesperson in an e-mail said a client was "too smart to buy this junk."
Sparks: "I didn't believe it was junk. We didn't believe it was a junk. A sales person said that."Levin: "Yes, if a sales person believed it was junk, you were selling junk."
Levin pointed to a Jan. 31, 2007 e-mail in which Sparks complimented Goldman employees on "what a great job they did. They structured like mad and travelled the world, and worked their tails off to make some lemonade from some big old lemons."
Levin accused Sparks of not admitting his actions were a problem. "You don't have no regrets. You ought to have plenty of regrets. I don't think you're going to acknowledge them - that's why we have to do some regulations."
1:58 p.m. ET: In speaking to reform, Sen. Tester asked what Sparks would change on Wall Street (if he felt anything needed to be changed)?
Sparks: Some things clearly need to be changed. ... I feel like we worked really hard to manage our risk. I think it's a very hard question. When you look at what gradually became too much credit available in the system and there were many people who participated in that system and actually so long as it was going, it was good for those people ... there wasn't a regulator to monitor that."
1:52 p.m. ET:
Sen. Jon Tester: Who do you consider yourself working for: the client or the firm? You have to work for one or the other, if push comes to shove - there are certain times you can't be for both. Correct me if I'm wrong.
Sparks: If you don't prudently manage your risks you won't be around for your clients. I think you're looking for a broad response to that, and I say clients are extremely important to Goldman Sachs. But that doesn't mean you should be imprudent with respect to risk."
1:44 p.m. ET: Sen. Jon Tester, D-Mont.: "Do you think Goldman Sachs did anything wrong in this whole process of synthetic CDOs?
Sparks: "I don't think Goldman did something wrong. That doesn't mean we didn't do deals that were bad decisions or didn't perform as we wanted them to." He said the term "wrong" implied "inappropriate," and didn't believe that applied.
1:36 p.m. ET: Ensign noted how it doesn't make sense to a lot of Americans that Wall Street firms pay out huge bonuses even when the market drops and their investors lose everything. He asked if those present thought Goldman's pay and bonus incentives promote ethical behavior.
Birnbaum said if an employee did not display ethical behavior they would be fired, not promoted or paid bonuses.
1:23 p.m. ET: Sen. John Ensign of Nevada suggested that Las Vegas might take offense at comparisons made earlier between gambling on the Strip with what Goldman Sachs was doing. Ensign noted that people who bet in Las Vegas know the odds are stacked against them, whereas Goldman employed deception. He also questioned Goldman's self-description as being "market makers," preferring "market manipulators."1:18 p.m. ET: When asked if he believed Goldman's actions contributed to the economic crisis, Sparks said, "We had clients who lost money and that's not good, it's not good for us not good for our clients. But when you look at the overall economy there were a lot of individuals who were harmed because of the financial crisis and while we didn't deal with them, we have sympathy for them.
"With respect to regrets, regret to me means something like you feel you did wrong, and I don't have that. What I do have is we made mistakes in our business and we made poor business decisions in hindsight."
Pryor: "Do you feel your actions contributed to the financial crisis?"
Sparks: "My persona actions?"
Pryor: "Goldman Sachs'."
Sparks: "I don't know, I haven't thought about that specifically." Shortly after, Sparks then interjected to say he did take responsibility for his personal actions: "We were participating in an industry that got loose."
Birnbaum said it was important to distinguish their role in specific products versus editorializing about the broader financial system. He acknowledged "a lot of human pain and suffering that came from the bursting of the housing bubble," and said it was possible too much credit was extended.
1:04 p.m. ET: Sen. Pryor asked if it were the responsibility of market makers to tell all parties involved what their company's position is. Sparks said that it was not.
Pryor: Should there be more transparency?
Sparks: Is that a perspective question or a current question? Currently there is not obligation.
Pryor: Should there be?
Sparks: I think it would create a number of issues because those positions change a lot . . . functionally, it would be very difficult. If we sold something and you are long and we told you that we were long and then we go short...do you need to call them if you go short?"
He said a market maker's position "isn't going to affect how the instrument performs."
Pryor also asked "Is there is a set of established ethics in your industry on what to do or not to do?"
Sparks: "I'm not in that industry any more."
12:58 p.m. ET: McCaskill asked, "Typically when you make an instrument for a client who wants to bet, do you let them help pick the assets that go into the instruments, typically? Tourre said the buyer has to be involved in some way shape or form, or else there is no transaction. Even though the protection selection agent always selects the securities there are always suggestions [about what goes into it]. McCaskill: You understand this doesn't make common sense - that someone who wants to go long would let someone who wants to go short pick the contents. Without a protection buyer there is no deal, Tourre said.
12:47 p.m. ET: McCaskill slamming Fabrice P. Tourre, Executive Director, Structured Products Group Trading, on the role of hedge fund company Paulson & Co., and Tourre's use of the investor ACA as a "fig leaf" to provide cover for the fact that Paulson was deciding the content of securities on which he was selling short.
"I need someone to acknowledge that seems weird: That the people Goldman sells transactions to never get to know that Paulson is in the room picking this stuff," she said.
12:40 p.m. ET: When asked by Sen. McCaskill how Goldman may have been selling CDOs as a bookie places a line on football wagering, Sparks begged off the gambling analogy, saying, "I'm a believer in markets. Price can affect both your risk and it can help people know where to go to acquire risk."
12:33 p.m. ET: Coburn: asked Swenson, "Even if it's the worst possible combination of securities, there's a price at which the risk is worth taking [for clients to purchase]?"
Swenson: "That's correct."
12:28 p.m. ET: Coburn questioned Michael J. Swenson, Managing Director of Structured Products Group Trading: "Was there any concern that you were continuing to market [housing securities] in a market that was continually declining?"
Swenson: At that time, there was a great deal of demand for securities and there weren't many players that had a negative view of the housing market in 2006, that were buying a lot of those securities." He said as prices went down, there were buyers who came in to take advantage of depressed prices.
12:18 p.m. ET:Sen. Tom Coburn, R-Okla., ranking member of the subcommittee, said what was needed most was "Truth, trust and transparency. Without them the cost of doing business is too high and markets cannot function."
12:08 p.m. ET: Sen. Ted Kaufman, D-Del., expressed his frustration by saying, "Don't do the hindsight thing with me, come on."
11:54 a.m. ET: Levin Questions Sparks on Why Goldman Was Selling Deal Called "Sh*tty"
Levin questioned Daniel Sparks, former partner and head of Goldman Sachs' Mortgages Department, about sales of Timber Wolf securities which had been described to Sparks in June 22, 2007 e-mail from another Goldman exec which read,
Sparks could not answer, and questioned the context of the message.
Levin: And you sold Timber Wolf after as well.
Sparks: We did trades after that . . . Some context might be helpful.
Levin: Let me tell you, the context is mighty clear. June 22, the date of this e-mail: . . . How much of that "sh**ty" deal did you sell to your clients after June 22, 2007?
Sparks: Mr. Chairman I don't know the answer to that, but the price would have reflected the levels that they wanted to invest . . .
10:54 a.m. ET: Links to Prepared Opening Statements by Goldman Sachs Executives Testifying Today:
10:54 a.m. ET: McCaskill: You Were More Worried About a Bad WSJ Article Than Regulators"It's gambling: pure and simple, raw gambling, " said Sen. Claire McCaskill, D-Mo., in the first heated tongue-lashing of Goldman Sachs executives.
She described their situation as: "You are the bookie, you are the house. You have less oversight and less regulation as you all began this wild, wild west of tranches, waterfalls, equity tranches, residentials, warehousing, as you began all that, you have less oversight than a pit boss in Las Vegas.
"And I gotta tell you, and it's not just you ... all of you were lemming-like. You were chasing each other. What you were worried about most was a bad article in the Wall Street Journal, not a regulator. You were chasing compensation, you were chasing your colleagues at other investment banks, and you were trying to make a killing. Let me just tell ya': You think it's so complicated and you think you're so smart? Any street gambler would never place a bet with a bookie or a house with the record that is revealed in the documents this committee has gathered."
10:40 a.m. ET: Collins: Wall Street Must Be Reformed
Speaking as the acting Ranking Member, Sen. Susan Collins, R-Me., said, "There is something unseemly about Goldman betting against the housing market at the same time it was selling mortgage-backed securities."
She said that because financial dealings can "produce pain rather than prosperity," updated and effective regulations are required for financial markets.
"Clearly this system must be reformed so that Wall Street banks are not seen and do not act as unscrupulous operators who seek to profit from the public's misfortune even as they are pitching toxic investments and even as hard-working, struggling taxpayers are left to pick up the tab."
10:12 a.m. ET: Levin: Goldman's Conduct Brings Into Question Whole Function of Wall Street
Opening today's hearing the Subcommittee Chairman, Sen. Carl Levin, D-Mich., said:
"Goldman Sachs and other investment banks, when acting properly, play an important role in our economy. They help channel the nation's wealth into productive activities that create jobs and make economic growth possible, bringing together investors and businesses and helping Americans save for retirement or a child's education.
"That's when investment banks act properly. But in looking at this crisis, it's hard not to echo the conclusion of another congressional committee, which found, "The results of the unregulated activities of the investment bankers ... were disastrous." That conclusion came in 1934, as the Senate looked into the reasons for the Great Depression. The parallels today are unmistakable.
"Goldman Sachs proclaims 'a responsibility to our clients, our shareholders, our employees and our communities to support and fund ideas and facilitate growth.' Yet the evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities. Its misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse. The evidence also shows that repeated public statements by the firm and its executives provide an inaccurate portrayal of Goldman's actions during 2007, the critical year when the housing bubble burst and the financial crisis took hold. The firm's own documents show that while it was marketing risky mortgage-related securities, it was placing large bets against the U.S. mortgage market. The firm has repeatedly denied making those large bets, despite overwhelming evidence.
"Why does this matter? Surely there is no law, ethical guideline or moral injunction against profit. But Goldman Sachs didn't just make money. It profited by taking advantage of its clients' reasonable expectation that it would not sell products that it didn't want to succeed, and that there was no conflict of economic interest between the firm and the customers it had pledged to serve. Goldman's actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit. This matters because instead of doing well when its clients did well, Goldman Sachs did well when its clients lost money. Its conduct brings into question the whole function of Wall Street, which traditionally has been seen as an engine of growth, betting on America's successes and not its failures."
9:54 a.m. ET: Scheduled to appear in Panel I of today's hearing:
Daniel L. Sparks, former partner, head of Mortgages Department at Goldman Sachs Group; Joshua S. Birnbaum, former Managing Director, Structured Products Group Trading at Goldman Sachs; Michael J. Swenson, Managing Director, Structured Products Group Trading at Goldman Sachs; and Fabrice P. Tourre, Executive Director, Structured Products Group Trading, Goldman Sachs.
Panel II will feature David A. Viniar, Executive Vice President and Chief Financial Officer of Goldman Sachs; and Craig W. Broderick, Goldman's Chief Risk Officer.
Panel III will feature the Chairman and Chief Executive Officer of Goldman Sachs, Lloyd C. Blankfein.
9:40 a.m. ET: As a prelude to today's hearing, in which executives from the leading investment firm will be in the hot seat facing Senators' grilling over the actions of Goldman Sachs (the object of an SEC investigation into fraudulent trading), Wall Street opened this morning with one ear on Washington and stocks down slightly from the opening bell, the Dow dipping about 13 points.
9:20 a.m. ET: In prepared remarks released prior to his appearance today, Fabrice Tourre, the Goldman Sachs employee at the center of the SEC's fraud case against the bank,.
Among his points: Abacaus 07 AC-1 "was not designed to fail. . . . Moreover, the securities referenced in the transaction did not underperform the other securities of that ratings class and vintage. All of the securities of that ratings class and vintage performed poorly because the subprime mortgage market suffered a broad collapse.
"Goldman Sachs also had no economic motive to design the AC-1 transaction to fail. Quite the contrary, we held long exposure in the transaction just like [investors] ACA and IKB. When the securities referenced in AC-1 declined in value, we lost money too. Goldman Sachs' overall losses in connection with the transaction exceeded $100 million, including $83 million with respect to the retained long position."