By the time Carl Levin – who has not passed up a chance to swear today – had the opportunity to tussle with Lloyd Blankfein, he had spent hours belaboring his central gripe with Goldman. Namely: that the Wall Street behemoth sold consumers products Goldman believed were close to worthless while shorting those assets themselves. “To go out and sell these securities to people, and then to bet against these securities, is a fundamental conflict of interest and raises a real ethical question,” Levin told the Goldman boss. David Viniar, Goldman’s CFO, had already disputed this, as had the first panel. But Blankfein took a far more combative tone.
The first panel stammered and stalled. The second, comprised of Viniar and chief risk officer Craig Broderick, breezed through questioning relatively smoothly, deferring to the committee at times. Blankfein, by contrast, launched an aggressive defense of the firm. “In the context of market-making, that is not a conflict…they are coming to us to give them the risk they want,” he said, noting that market making and fiduciary duties are separate. When Levin countered that people didn’t realize Goldman wasn’t endorsing the assets it was selling, Blankfein—squinting up at Levin, and almost visibly boiling–insisted the firm was neither legally nor morally obligated to reveal when it had taken the short side of a trade.
Aside from the obvious disconnect between legislators focused on policy (and politics) and financiers who deal in numbers, Levin’s fixation on this question underscores one of the problems with these hearings. Senators are all over the map with their lines of inquiry, sometimes betray a tenuous grasp of the facts, and posture reflexively. Was Blankfein summoned to Capitol Hill so that he could explain to Sen. John McCain what a synthetic CDO is or acknowledge that Arizonans are suffering?
Answers improve with the quality of questions. When Sen. Ted Kaufman inquired about the shift in Wall Street’s focus from income allocation to trading, Blankfein gave a more substantive answer. Noting the repeal of the Glass-Steagall Act, he said, “Somewhere along the line they started asking us to be the other side…To be effective for clients, you not only had to give them advice but have the financial wherewithal to provide them with their objectives.” Often, that meant making a market. Levin would argue this capacity is immoral, given Goldman’s other activities; Blankfein will not. No amount of questioning is going to bridge that gulf. Asked whether anything during the hearing triggered remorse, the Goldman Sachs boss said he was sorry for the plight of others. But, Blankfein said, “I haven’t heard anything today that makes me think we did something wrong.”