April 27th, 2010
05:38 PM GMT
I am sitting here watching the much anticipated Goldman Sachs hearing and four of the executives who were in charge of running the mortgage unit during 2006-2008 have just given their opening statements.
They were smooth, confident and proved why Goldman employees are known as the best on Wall Street. They explained complex mortgage products, their role in them and said that any short positions taken at that time was at the request of the firm’s risk management team. It was all very impressive.
That is until the Q&A started. At that point the polished bankers quickly deteriorated into witnesses bumbling through the massive tome of evidence and emails.
As expected the U.S. senators asked pointed, aggressive questions about why Goldman peddled these crummy deals, if they disclosed information properly to clients, about the conflicts of interest.
The Goldman guys were vague, confused and kept asking, “What page was that?” “What email are you referring to?” At one point Senator Collins said she was beginning to suspect the confusion was a strategy the bankers were using to eat up time!
It is shocking to think these superstars of banking seemed so ambushed by what was clearly going to be a hostile audience. Maybe they did decide on a "Forrest Gump"-type strategy ahead of time. Or maybe they naively thought they were actually going to be talking about structured finance and their area of expertise and that the ethical questions about Goldman’s role in the crisis were going to be reserved for CEO Lloyd Blankfein. Not so.
Goldman executives seem to think that if they can just explain these markets well enough they will be vindicated. Everyone will understand that they did exactly what they were supposed to: recognized risk and acted on that when no one else did. Their job is to make money and they did that well.
What Goldman executives have failed to understand to date is the moral question that people want answered: Did Goldman Sachs sell matches to passengers getting on a wooden boat? Did the firm have a moral obligation to sound the alarm bell when they saw the housing fire eventually break out? Instead of rallying regulators or industry leaders they focused on self-preservation, found a life boat and then drifted along and watched as competitors, clients and eventually the economy sank. Not only did they watch, they may have even profited from it.
Lloyd Blankfein needs to deal with those larger issues of responsibility and ethics if he hopes to try and quell the anger and repair Goldman’s reputation.
Some in financial circles feel they are unfairly being made a scapegoat. Others insist they are a villain in this tale. What do you think?
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