Goldman Sachs Executives Blasted for 'Sh**ty Deal'

April 27, 2010 — -- Goldman Sachs CEO Lloyd Blankfein defended his firm against unyielding criticism that it exploited the U.S. housing bubble during a hearing before a Senate panel today.

Blankfein stressed that he did not feel the firm had a responsibility to tell clients when it took "short positions" on -- what some refer to as betting against -- the products it was selling them, at least one of which was described as "sh**ty" in an internal company e-mail.

"What do you think about selling securities that your own people think are crap?" asked panel chairman Sen. Carl Levin, D-Mich.

"I think there are a lot of opinions about how a security will perform against the market it is in," Blankfein answered.

Blankfein, responding to a series of questions by a clearly furstrated Levin, said that while maintaining clients' trust was "essential" to the firm, he also argued that clients came to Goldman to buy certain products. It would be unusual, he said, to tell them exactly who was shorting that product, including Goldman itself.

"I don't believe there's a disclosure obligation," Blankfein said, "but as a market maker, I'm not sure how a market would work if it was premised on the assumption that the other side of the market cared about what your opinion was about the position you were taking."

Blankfein's responses failed to satisfy the panel chairman.

"You are taking a position against the very security you are selling and you're not troubled?" Levin later said. "And you want people to trust you? ... I wouldn't trust you."

Levin, who couched his concerns on "moral" grounds, eventually stopped that line of questioning, concluding that "we're going round and round on this."

Blankfein was the last of seven witnesses, all current or former Goldman executives, to testify today at a more than 10-hour-long Senate hearing marked by testy exchanges as well as a few notable declarations.

Under questioning from the panel, both Blankfein and Goldman Chief Financial Officer David Vinair accepted some responsibility on behalf of the firm for the financial crisis.

"I believe that we share responsibility because we were a major player in those markets," Vinair said.

Blankfein also voiced some support for more regulation of financial products. He said that "synthetic" financial products -- products that allow investors to make bets on the performance of certain securities without actually owning them -- "may be something that should not be permitted."

A synthetic product is at the heart of a recent Securities and Exchange Commission lawsuit against Goldman Sachs alleging investor fraud.

"Clearly, the world needs more regulation," Blankfein said.

The hearing was held by the Senate Permanent Subcommittee on Investigations, which announced Monday that it had conducted an 18-month investigation that found Wall Street powerhouse Goldman Sachs 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.

Blankfein countered that the firm did not significantly "short the market" and that it lost some $1.2 billion from "activities in the residential housing market."

In his prepared remarks, with protesters holding up signs behind him, Blankfein thanked American taxpayers for the bank's $10 billion bailout from the federal Troubled Asset Relief Program that began at the height of the financial crisis in 2008. Blankfein acknowledged that many people are "understandably angry about how Wall Street contributed to the financial crisis."

Later, under questioning from Sen. John Tester, D-Mont., Blankfein conceded that Goldman was "embarrassed" by the bailout.

"We got funds from the government and it's an embarrassing situation then and it's embarrassing now," he said.

Blankfein also specifically addressed the SEC's lawsuit, reiterating his firm's rebuttal of the complaint.

He called the day the SEC announced the charges "one of the worst days" of his professional life and said the bank has to do "a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky."