Levin argued that banks backed by the Federal Deposit Insurance Corp.should not be engaged in risky trading.
"No risky trading if you're going to go to the federal reserve and have access to federal funds or if there's going to be a federal guarantee, one or the other," he said.
The Senate Permanent Subcommittee on Investigations said Monday that its 18-month investigation found that Goldman helped create the housing bubble by selling securities backed by risky subprime mortgage loans and then profited off that bubble's bursting by secretly betting against the market.
Levin's committee forced Goldman to turn over 2 million pages of documents that Levin said proves his case and shows that Goldman overall made $3.7 billion from the financial crisis.
At a testy hearing Tuesday that lasted 10 hours and 41 minutes, senators grilled Blankfein and and six others, including now-infamous Goldman trader Fabrice "Fabulous Fab" Tourre.
Tourre made headlines earlier this month after the SEC's lawsuit revealed an e-mail from him that seemed to indicate he didn't fully understand the complex deals he was making.
"More and more leverage in the system, The whole building is about to collapse anytime now ... Only potential survivor, the fabulous Fab (rice Tourre) ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities (sic)!!!" Tourre wrote to a friend in January 2007, according to the SEC's complaint.
Tourre strongly asserted his innocence, insisting repeatedly to a Senate panel that he didn't mislead clients in a controversial mortgage derivative product the SEC claims was designed to fail.
"I deny -- categorically -- the SEC's allegation," Tourre said. "And I will defend myself in court against this false claim."
Levin on Tuesday also confronted a former Goldman trader with an e-mail in which another former Goldman executive described a mortgage-backed deal as "sh**ty."
The transaction in question was Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other such instruments. In an e-mail to Daniel Sparks, then head of Goldman's mortgage desk, Thomas Montag, Goldman's former head of sales and trading, called a set of mortgage-linked investments sold by the firm as "one shi**y deal," according to an e-mail that Sen. Levin quoted. Within five months, Timberwolf lost 80 percent of its value.
"Do you think it was a sh**ty deal?" Levin asked Sparks, one of seven Goldman executives who testified Tuesday. Sparks said he did not recall the e-mail, and did not directly answer the question.
"If you can't give a clear answer to that one Mr. Sparks then we're not going to get any clear answers from you today," Levin said.
Goldman's profits rose considerably after the financial collapse in 2007, just as other investment banks saw a drop.
Blankfein and other Goldman executives defended the firm even as senators accused them of deceiving their own clients.
"Our clients' trust is not only important to us, it's essential to us," Blankfein told senators Tuesday. "It's why we're a successful firm."
None of the executives present at the hearing ever said they were sorry or regretful for the deals that senators charge tanked the market. But Blankfein said that wasn't coordinated.