Goldman Sachs executives denied reaping vast profits from the collapse of the US housing market as its top executive and a star trader faced hostile questions in Congress over the 2008 financial meltdown.
In angry exchanges before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the US economy.
Democratic Senator Carl Levin, the panel’s chairman, assailed Goldman as representative of Wall Street’s “unbridled greed,” drawing them into a raging political battle over financial reform.
The Senate was expected to vote later on Tuesday on whether to proceed with debate about the most sweeping financial reforms in a generation, a day after Republicans successfully blocked a similar move.
Against this caustic backdrop executives battled to salvage the firm’s reputation, rejecting charges – recently filed by a US watchdog – that Goldman sold clients a complex financial product devised by some who bet against it.
Levin demanded to know why Goldman had been “trying to sell a shitty deal” to investors, fuming that “as we speak, lobbyists fill the halls of Congress hoping to weaken or kill reforms that would end these abuses.”
French trader Fabrice Fabulous Fab Tourre, who is at the centre of the Securities and Exchange Commission’s case against the firm, was among the first to be dragged before the committee. He denied any wrongdoing: “I deny – categorically – the SEC’s allegation.
And I will defend myself in court against this false claim,” said Tourre.
“I have been the target of unfounded attacks on my character and motives.”
If Goldman executives hoped to get an easier ride from Republicans, they may have been disappointed.
Former Republican presidential candidate John McCain was scathing.
“I don’t know if Goldman Sachs has done anything illegal,” he said, adding that “from the reading of these emails and the information that this committee has uncovered there is no doubt their behaviour was unethical and the American people will render a judgment as well as the courts.”
Goldman chief executive Lloyd Blankfein was due to appear later in the day, but in prepared testimony said there was nothing wrong with Goldman hedging its bets by holding “short” positions that would benefit the firm if housing prices collapsed.
“(We) didn’t have a massive short (position) against the housing market and we certainly did not bet against our clients,” he said.
“If our clients believe that we don’t deserve their trust, we cannot survive,” he said.
“We believe that we managed our risk as our shareholders and our regulators would expect.”
Blankfein also said that, “while profitable overall,” Goldman lost about $US1.2 billion ($A1.29 billion) from investments tied to the residential housing market. In the hearing, Levin pointed to Goldman email messages he said refuted the firm’s claims.
In one November 2007 message from Blankfein, he says: “Of course we didn’t dodge the mortgage mess.
We lost money, then made more than we lost because of shorts,” which are essentially bets that the market will drop.
Other emails made clear Goldman faced unhappiness from clients over allegedly putting its fortunes before theirs.
In one message to Daniel Sparks, the former head of Goldman’s mortgages department, a Goldman employee cites clients “upset that we are delaying their deal” in favour of a Goldman deal.
In another, a Goldman employee tells Sparks – who also appeared in Congress on Tuesday – of “real bad feeling across European sales about some of the trades we did with clients.
The damage this has done to our franchise is very significant.”