April 28, 2010 -- Professionals on Wall Street reacted to senators' dramatic grilling of Goldman Sachs executives with mild annoyance, although Tuesday's hearing may have scored some points with voters on Main Street.
"Grandstanding of the highest order," said Sean Gambino, a veteran Wall Street trader, referring to politicians' aggressive, nearly 11-hour questioning of execs including Goldman CEO Lloyd Blankfein and 31-year old executive director Fabrice Tourre. Gambino added that Sen. Carl Levin, who as chairman of the Permanent Subcommittee on Investigations led the hearings, "has zero fundamental understanding about how markets work."
Goldman Sachs Just Doing Its Job?
Similar reactions came from others involved in the finance industry, annoyed that politicians were trying to blame Goldman Sachs for simply performing its role as a market-making investment bank.
Kevin McPartland, senior analyst at TABB Group, a New York-based financial services research and advisory firm, said he didn't learn much new in the hearings.
"Congress and Wall Street don't see eye to eye," he said. "Institutional traders are smart, well-informed people, yet someone is on each side of every trade with an opposing view. If not then we wouldn't have capital markets."
Behind the Curtain at Goldman Money-Making Machine
In a few corners of the financial world, however, some dissenting opinions could be heard.
Keith McCullough, former hedge fund manager and owner of securities research firm Hedgeye in New Haven, Conn., says the scrutiny on Goldman Sachs may reveal some ugly truths.
"Goldman's conflicted and compromised money machine of an opaque past is finally going to be held accountable to one question: What is it that you do to make all that money?"
Senators in Washington seemed intent to find an answer to the same question with their examination, directed at seven former and current Goldman employees, including Blankfein, "Fabulous Fab" Tourre and C.F.O. David Vinair. Throughout, the men defended themselves against unyielding criticism that they exploited the U.S. housing bubble at the expense of unwitting clients.
A Sh**ty Deal By Any Other Name?
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.
However, when pressed by senators, Blankfein voiced some support for more regulation of financial products. He said that "synthetic" financial products -- those that allow investors to make bets on the performance of certain securities without actually owning them -- "may be something that should not be permitted."
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.
Bob Pozen, chairman of Boston-based mutual fund giant MFS noted that Blankfein and Levin largely talked past each other during the hearings.
" Good political theater but now let's get down to fixing the problems," he said.
Who's to Blame for Financial Meltdown?
Interestingly, some financial experts argued that Congress was actually trying to pin blame on the wrong party. Gil Leistner, a Swiss financial consultant who is also a member of the Chicago Board of Trade, said senators should be grilling the fund managers who he says didn't perform proper due diligence on the investments they bought.
"Caveat emptor," he says. "If it becomes Goldman's responsibility to tell every buyer that they think a particular debt structure stinks, how do our politicians from D.C. to Main Street expect Wall Street to sell their debt for them?"
Despite all the attention on the Goldman hearings this week, markets seem to be focused on news elsewhere.
U.S. stock markets rose on Wednesday, with traders taking their cues from developments in Greece's debt crisis and expectations for the Federal Reserve to keep interest rates near zero at today's Federal Open Markets Committee meeting. The Dow Jones Industrials Average edged up 0.3 percent to 11,025. The U.S. and other world markets had fallen sharply Tuesday on a downgrading of debt issued by Greece, the financial sick man of Europe.
With reporting from Matthew Jaffe and Alice Gomstyn.