Goldman faces fiery questions
By Steve Ederand Dan Margolies |
April 28, 2010, Wednesday
|
Print Edition
Print Edition
THE conduct of Goldman Sachs Group during the financial meltdown was assailed yesterday by a United States Senate panel, which accused the Wall Street firm of inflating the housing bubble earlier this decade and then profiting from its collapse in 2007.
Goldman Sachs officials - facing accusations that they had hurt clients, lenders and the overall economy - sought to defend themselves in the company's biggest showdown with the US government since it became a public company a decade ago.
Fabrice Tourre, the sole Goldman employee charged in a government fraud lawsuit against the firm, said in testimony in Washington DC he did not hide material information from clients.
Senior managers also said they were not prescient about the housing market, just diligent about limiting its risk.
The subcommittee, examining the causes of the financial crisis, launched a broad fusillade against investment banks.
Goldman helped to package toxic mortgages into bonds for fees from 2004 to 2007, and then repackaged those bonds into complex securities known as collateralized debt obligations, magnifying the risk from the mortgages, the subcommittee said.
Data withheld
Goldman Sachs then shorted the mortgage market, betting on its decline throughout 2007. It did not disclose its position to clients, the subcommittee said, and sold securities it wanted to get off its books to clients.
The subcommittee also pointed to a trade in which Goldman failed to disclose key data to a ratings analyst and investors. The Securities and Exchange Commission charged Goldman with civil fraud for the same deal, known as "Abacus 2007-AC1."
"Goldman's actions demonstrate that it often saw its clients not as valuable customers but as objects for profits," said Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations. "Its conduct brings into question the whole function of Wall Street."
In a packed hearing room, the Goldman officials looked impassive as politicians vilified them.
When Senator Claire McCaskill accused Goldman officials of gambling with little oversight, three of the four witnesses briefly looked down into their laps.
There was a vigorous internal debate about the future of the housing market that came to no firm conclusions, but Goldman decided to reduce its exposure given the risk in the market, Chief Financial Officer David Viniar said. As Goldman reduced its exposure, it sold positions to investors.
"As with our own views, their views sometimes proved to be correct and sometimes incorrect," Viniar said.
Goldman Sachs officials - facing accusations that they had hurt clients, lenders and the overall economy - sought to defend themselves in the company's biggest showdown with the US government since it became a public company a decade ago.
Fabrice Tourre, the sole Goldman employee charged in a government fraud lawsuit against the firm, said in testimony in Washington DC he did not hide material information from clients.
Senior managers also said they were not prescient about the housing market, just diligent about limiting its risk.
The subcommittee, examining the causes of the financial crisis, launched a broad fusillade against investment banks.
Goldman helped to package toxic mortgages into bonds for fees from 2004 to 2007, and then repackaged those bonds into complex securities known as collateralized debt obligations, magnifying the risk from the mortgages, the subcommittee said.
Data withheld
Goldman Sachs then shorted the mortgage market, betting on its decline throughout 2007. It did not disclose its position to clients, the subcommittee said, and sold securities it wanted to get off its books to clients.
The subcommittee also pointed to a trade in which Goldman failed to disclose key data to a ratings analyst and investors. The Securities and Exchange Commission charged Goldman with civil fraud for the same deal, known as "Abacus 2007-AC1."
"Goldman's actions demonstrate that it often saw its clients not as valuable customers but as objects for profits," said Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations. "Its conduct brings into question the whole function of Wall Street."
In a packed hearing room, the Goldman officials looked impassive as politicians vilified them.
When Senator Claire McCaskill accused Goldman officials of gambling with little oversight, three of the four witnesses briefly looked down into their laps.
There was a vigorous internal debate about the future of the housing market that came to no firm conclusions, but Goldman decided to reduce its exposure given the risk in the market, Chief Financial Officer David Viniar said. As Goldman reduced its exposure, it sold positions to investors.
"As with our own views, their views sometimes proved to be correct and sometimes incorrect," Viniar said.
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