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Goldman Sachs attacked at hearing Senate panel skewers Goldman boss
(about 2 hours later)
Past and present executives at Goldman Sachs have faced hours of hostile questioning during a hearing into the causes of America's financial meltdown. Goldman Sachs' chief executive has denied his bank contributed to the US financial crisis by betting some of its own investment products would fail.
Goldman was accused of putting its own interests before those of clients as it marketed some investments that the bank's own staff dismissed as "junk". Lloyd Blankfein and other executives at the Wall Street giant were accused by a US Senate panel of acting unethically, while Americans lost jobs and homes.
Senator Carl Levin, chairman of the hearing, spoke of the reckless greed that had infected Wall Street. Mr Blankfein said clients came looking for risk "and that's what they got".
But Goldman executives defended their actions and denied any wrongdoing. The hearing comes as the US Congress considers the most sweeping reform of the financial industry since the 1930s.
In his opening address to the hearing in Washington, Mr Levin said Goldman executives had caused widespread harm to their fellow citizens.
Toxic mortgages
He and the other members of the Senate Permanent Subcommittee on Investigations then grilled the men over their actions and attitudes - and whether Goldman contributed to the financial crisis.
MARDELL'S AMERICA The men from Wall Street spend their time rifling through folders of documents in front of them, looking tense and uncomfortable Mark Mardell BBC North America editor Read Mark's blog in fullMARDELL'S AMERICA The men from Wall Street spend their time rifling through folders of documents in front of them, looking tense and uncomfortable Mark Mardell BBC North America editor Read Mark's blog in full
At heart of the questioning was how Goldman packaged complex mortgage-backed securities and then sold them to investors, knowing that the housing market was about to collapse. During hours of hostile questioning on Tuesday, Goldman executives were accused of marketing some investments that the bank's own staff dismissed as "junk".
The hearing room was full of protesters, some wearing striped prison outfits, waving signs reading "shame" and "Goldman banksters".
Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, spoke of the reckless greed that had infected Wall Street.
He said Goldman had caused widespread harm to American society and contributed to the financial crisis through its practices and investment strategies.
At the heart of the questioning was how Goldman packaged complex mortgage-backed securities, marketed them to investors - but then bet - or shorted - that these securities would fall in value.
LLOYD BLANKFEIN Chairman and chief executive of world's biggest investment bank, Goldman SachsEarned more than $70m in 2007 - a record for a Wall Street boss. Took home less than $1m in 2009Told magazine interviewer last year "I'm doing God's work". Profile: Lloyd Blankfein Goldman's 150-year reputation on the line
"They're buying something from you, and you are betting against it. And you want people to trust you? I wouldn't trust you," Mr Levin told Mr Blankfein.
The firm's "misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system," said Sen Levin.The firm's "misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system," said Sen Levin.
"And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse," he added."And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse," he added.
Goldman executives at the hearing included Fabrice Tourre, Daniel Sparks, Joshua Birnbaum, Michael Swenson, David Viniar and Craig Broderick. Mr Blankfein - who often squinted as if puzzled by the questions and was frequently interrupted - strongly denied any wrong-doing.
LLOYD BLANKFEIN Chairman and chief executive of world's biggest investment bank, Goldman SachsEarned more than $70m in 2007 - a record for a Wall Street boss. Took home less than $1m in 2009Told magazine interviewer last year "I'm doing God's work". class="" href="/2/hi/business/8646146.stm">Profile: Lloyd Blankfein class="" href="/2/hi/business/8646264.stm">Goldman's 150-year reputation on the line The chief executive said clients had wanted an investment that would give them exposure to the housing market.
Lloyd Blankfein, the firm's chief executive, was the final witness to be called by the panel on Tuesday. "Unfortunately, the housing market went south very quickly... so people lost money in it", he said.
He said clients had wanted an investment that would give them exposure to the housing market, adding "unfortunately, the housing market went south very quickly... so people lost money in it". But that did not mean Goldman had acted improperly, he insisted.
Mr Levin and other committee members challenged the Goldman executives about their duty to clients and the amount of money the firm made in the housing market. FABRICE TOURRE 31-year-old executive director of Goldman Sachs InternationalCharged with securities fraud for misleading investorsRan Abacus 2007-ACI, a complex product at heart of regulator's probe. Denies chargesReferred to himself as "the fabulous Fab" in an e-mail class="" href="/2/hi/business/8646487.stm">Goldman: 'Fab' Tourre's emails class="" href="/2/hi/business/8646728.stm">Was what they did really wrong?
Clearly frustrated at some of their answers, Mr Levin accused the executives of evading the questions and of having "a strategy" to waste time. "Our clients' trust is not only important to us, it's essential to us. That's why we are a successful firm," he said.
"We're going to stay here as long as it takes to get this information," Mr Levin warned the executives. Mr Blankfein - who said late last year he was "doing God's work" - was the last of seven past and present Goldman executives to testify.
In a series of tense exchanges, Mr Levin quizzed Mr Sparks, former head of mortgages, about whether he felt obliged to tell clients when Goldman was betting against investments that he sold. Former mortgage chief Daniel Sparks came closest to an apology, telling the panel that the bank had "made some poor decisions in hindsight."
FABRICE TOURRE 31-year-old executive director of Goldman Sachs InternationalCharged with securities fraud for making misleading statements to investorsResponsible for Abacus 2007-ACI, the complex financial product at the centre of the financial regulator's investigation. Denies charges Referred to himself as "the fabulous Fab" in an e-mail class="" href="/2/hi/business/8646487.stm">Goldman: 'Fab' Tourre's emails class="" href="/2/hi/business/8646728.stm">Was what they did really wrong? London-based bond trader Fabrice Tourre robustly defended himself in his first public appearance since the Securities and Exchange Commission filed civil fraud charges against him and Goldman for allegedly withholding details of a deal from investors.
The senator highlighted one particular investment portfolio that Mr Sparks' own bosses had described in highly derogatory terms.
Mr Sparks did not respond directly, repeating that the description of the investment product used by his bosses was not his own.
Although he firmly resisted Mr Levin's allegations of wrong-doing, Mr Sparks came closest to an apology, admitting that the bank "made some poor decisions in hindsight."
Interest in the hearing was heightened by news earlier this month that the Securities and Exchange Commission has filed civil fraud charges against Goldman and Mr Tourre.
The SEC alleges that Goldman defrauded investors by not telling them that one of its financial products was designed by a firm that was betting it would fail.
Goldman says the SEC allegations are wrong in "fact and law".Goldman says the SEC allegations are wrong in "fact and law".
Mr Levin said it was not his committee's role to judge the legality of the SEC's claims, adding that the hearing was concerned with "ethics and policy". And Mr Tourre told the Senate panel: "I deny - categorically - the SEC's allegations. And I will defend myself in court against this false claim."
Fabrice Tourre: "The transaction was not designed to fail... we lost money too" But neither the hearing, nor Tuesday's market turmoil triggered by downgrades in Greek and Portuguese debt harmed Goldman's share price.
But he said that Goldman's actions had reverberated around America and helped fuel the financial crash. The bank's shares were up 0.7% at $153.04 (£100) by close of trading.
The executives rejected this. "We did not cause the financial crisis... I do not think that we did anything wrong," said Mr Swenson, who runs Goldman's structured products division.
Mr Tourre said: "I am saddened and humbled by what happened in the market in 2007 and 2008... But I believe my conduct was proper."
Mr Tourre, the only individual to be charged by the SEC, said: "I deny - categorically - the SEC's allegations. And I will defend myself in court against this false claim."
Tuesday's hearing is the fourth in a series that is focusing on what lay behind the financial crisis and the collapse of the housing market.
This latest hearing focuses on the role of investment banks, and specifically that played by Goldman.