Goldman execs grilled

WASHINGTON – After more than eight hours of tough questioning of Goldman Sachs Group Inc. executives, one senator tried to explain to the firm’s embattled chief executive why lawmakers and their constituents were so angry in the wake of the financial crisis.

“The idea that Wall Street came out of this thing just fine, thank you, is just something that just grates on people,” Sen. Ted Kaufman, D-Del., told Lloyd Blankfein, the last of seven executives to testify. “And I think they think that you didn’t just come out fine because it was luck. They think that you guys just really gamed this thing real, real well.”

In one of the most contentious and high-profile hearings stemming from the financial crisis, Blankfein and the other current and former Goldman employees denied any wrongdoing after a Senate investigation found the firm bet heavily against the housing market in 2007 without telling investors who were buying its mortgage-backed securities.

As the probe focused renewed attention on Wall Street’s role in the financial crisis, further inflaming a partisan debate on enacting tougher regulations, key Goldman executives gave little ground in defending their actions.

Among those testifying was Fabrice P. Tourre, the Goldman Sachs trader at the heart of a federal civil fraud lawsuit against Goldman over one of the securities he helped create. The self-described “fabulous Fab,” according to e-mails released by the government, made his first public appearance since the Securities and Exchange Commission filed its civil suit this month.

“I deny categorically the SEC’s allegation. And I will defend myself in court against this false claim,” Tourre, 31, told the Senate Permanent Subcommittee on Investigations, which conducted a nearly 18-month investigation into Goldman’s actions. With a slight French accent, Tourre argued that the deal was legitimate and not designed to fail, as alleged.

Top Goldman executives also denied that Goldman placed a large bet on the housing market’s collapse – known as shorting the market – saying the firm was only trying to offset the risk from its deep exposure to residential mortgages.

They also said there was no conflict of interest in selling securities to investors as Goldman was betting they would go down in value.

But senators disputed those statements in questioning that became hostile at times.

Sen. Carl Levin, D-Mich., the subcommittee’s chairman, said Goldman was a major player in the subprime market meltdown, a reflection of the “unbridled greed” of Wall Street in the years leading up to the financial crisis.

“I know you’re going to talk about reducing risk,” Levin told David Viniar, Goldman’s chief financial officer. “You made billions of dollars going short.”

Levin aggressively pressed Blankfein about betting against mortgage-backed securities that the firm was selling to investors without informing them.

“Is there not a conflict when you sell something to somebody and then are determined to bet against that same security?” Levin asked.

Blankfein responded, “In the context of market making, that is not a conflict.”

After several minutes of hostile questioning, an exasperated Levin said, “And you want people to trust you?”

The criticism of Goldman was bipartisan, as some Republicans joined Democrats in slamming Goldman for its behavior and in accusing several executives at the hearing of stalling to avoid answering tough questions.

Sen. Susan Collins, R-Maine, described as “unseemly” Goldman’s bets against the market while it was selling mortgage-backed securities and said it was “unsettling” to read internal e-mails, released by the committee, of Goldman Sachs celebrating the collapse of the market.

The hearing took place as Senate Democrats and the Obama administration push for passage of sweeping legislation that would dramatically tighten financial regulations.

Levin criticized Wall Street firms for lobbying against the legislation.

“Wall Street is on the wrong side of this fight,” Levin said. “It insists that reining in its excesses would unduly restrict a free market that is the engine of American progress.

“But this market isn’t free of self-dealing or conflict of interest. It is not free of gambling debts that taxpayers end up paying.”