• Goldman Sachs Senate Hearing Concluded
  • May 4, 2010 | Author: Matthew C. Sippel
  • Law Firm: Alston & Bird LLP - New York Office
  • Yesterday, the Senate Permanent Subcommittee on Investigations held a highly publicized, 11-hour hearing entitled "Wall Street and the Financial Crisis: The Role of Investment Banks." This is the fourth in a series of PSI hearings examining some of the causes and consequences of the financial crisis. Prior hearings focused on the role of credit rating agencies in the financial crisis and the roles of bank regulators and high-risk mortgages in the failure of Washington Mutual.  Yesterday's hearing focused mainly on the role of Goldman Sachs, and followed the SEC's recent filing of a civil fraud complaint against Goldman Sachs and one of its employees.

    The following witnesses appeared before the subcommittee:

    Panel 1:

    • Daniel L. Sparks, former Partner, Head of Mortgages Department, The Goldman Sachs Group, Inc.
    • Joshua S. Birnbaum, former Managing Director, Structured Products Group Trading, The Goldman Sachs Group, Inc.
    • Michael J. Swenson, Managing Director, Structured Products Group Trading, The Goldman Sachs Group, Inc.
    • Fabrice P. Tourre, Executive Director, Structured Products Group Trading, The Goldman Sachs Group, Inc.

    Panel 2:

    • David A. Viniar, Executive Vice President and Chief Financial Officer, The Goldman Sachs Group, Inc.
    • Craig W. Broderick, Chief Risk Officer, The Goldman Sachs Group, Inc.

    Panel 3:

    • Lloyd C. Blankfein, Chairman and Chief Executive Officer, The Goldman Sachs Group, Inc.

    Subcommittee chairman Carl Levin (D-MI) opened the hearing with a remark that “Goldman’s actions demonstrate that it often saw its clients not as valuable customers but as objects for its own profit” and that Goldman's "conduct brings into question the whole function of Wall Street." He went on to recount the PSI's investigation into Goldman Sachs' investment and trading activities relating to the securitization of residential mortgage products, and the development, marketing, and trading of residential mortgage related structured financial products, such as collateralized debt obligations (CDOs).  He also described the extensive documentary materials, including internal Goldman emails, reviewed by the PSI, portions of which were publicly released last week in advance of the hearing

    Throughout the hearing, members of the Subcommittee castigated the Goldman witnesses, accusing them of unethical behavior, "intolerable" conflicts of interest, and profiting at the expense of their customers.  The Goldman witnesses consistently refused to acknowledge wrong-doing or inappropriate behavior.  The views expressed by the Goldman witnesses were consistent with the positions laid out in a position paper that Goldman issued late last week, in which it emphasizing that it was always focused on risk management and “did not engage in some type of massive ‘bet’ against our clients.” 

    Many of the questions for the first panel of witnesses focused on internal Goldman emails and other documents that contained unflattering comments about various mortgage investments.  Mr. Tourre, the only Goldman employee individually named in the SEC's complaint, responded to numerous questions about emails and other documentation relating to the transaction at issue in the SEC case.  Although he "categorically" denied any wrongdoing, he did acknowledge that some of his statements could "have been more accurate."

    On the second panel, Mr. Viniar testified that Goldman often has long or short positions and that “[t]his does not mean that we know, or even think, that prices will fall every time we sell or are short, or rise when we buy or are long.”  He also defended the sale of lower-quality investment products.  Mr. Broderick’s prepared testimony walked the committee through Goldman’s risk framework. 

    Goldman Chairman and CEO Lloyd Blankfein was the last witness.  When questioned about Goldman’s role in the financial crisis and the SEC investigation, Mr. Blankfein stated that Goldman “certainly did not bet against our clients” and instead “managed our risk as our shareholders and our regulators would expect.” He also stated that “[t]here’s not a thing that will arise here and elsewhere that won’t be the subject of some big soul search and some tightening up of standards.”