Little Drama as Goldman Execs Deflect Charges

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For more than five hours, Senators laid into the four current and former Goldman execs sitting on the first of three panels today. The inquisitors took markedly different approaches. Democratic Sens. John Tester of Montana and Mark Pryor of Arkansas adopted a softer tone, and at times Tom Coburn, the ranking minority member of the subcommittee, did the same. With ample prodding, the Goldman witnesses — Tourre and Sparks in particularly – expressed contrition; but not culpability; they maintained they had done right by their clients. “We made mistakes in our business, like I think any business does, and we made some poor business decisions in hindsight,” Sparks said, in a typically cautious appraisal. Tourre defended his actions as “proper,” which Swenson said Goldman had done “nothing wrong.”

Levin asserted himself as the day’s chief prosecutor, and he was withering throughout, capping the session by arguing Goldman’s actions were “intolerable” and constitute a “fundamental conflict of interest” for its clients. As he did yesterday in a briefing for reporters, Levin cycled through a variety of different deals from 2007 – beyond the Abacus deal at the center of the SEC charges – to show that Goldman had a pattern of profiting by shorting assets they were simultaneously peddling to clients. He also scored points by forcing Tourre to disavow his own emails – such as one that stated Abacus was selected by “ACA/Paulson.” In its response to the SEC charges, of course, Goldman has said ACA “selected” the assets in that synthetic CDO. (Tourre attributed the discrepancy to hurried typing.)

Levin has underlined the discrepancy between Goldman’s private emails and public statements — I’m guessing few suspect Goldman is being totally forthright anyway — and proven that Goldman “shifted direction” from its long position when it became clear the housing market was tanking. As Sen. Coburn noted, the latter move is good business, and Goldman can cloak it in terms like “risk mitigation,” so it’s not clear what the line of argument accomplished. It’s clear Levin and other lawmakers are committed to a confrontation with a firm that he said has “harmed everybody.” I’m not arguing he’s wrong, but it’s worth wondering whether probing the Abacus deal – on which Tourre has been prepped by Goldman’s phalanx of lawyers – is the best use of this enterprise. Instead, the committee might have delved more deeply into how (if at all) Goldman has changed its practices in light of the fact that the financial instruments at issue nearly torpedoed the financial system. As my colleague John Curran notes over at the Curious Capitalist blog, the key takeaway from the first panel may be this: “Don’t call executives to publicly testify while their firm is being sued by the SEC for fraud. The most you’ll get from it is a colorful phrase or two.” Aside from a public shaming on national television, that was basically all we got from the first segment of the day.