Wednesday, April 28, 2010

Senate Panel is 'Short' on Info

NyPo gets it:
It was designed to be a scolding of Goldman Sachs' brass in search of assigning blame for the mortgage crisis -- but it ended up revealing how little Congress understands about the gold-plated firm's business.
Some of Goldman's best and brightest minds yesterday faced a withering verbal assault from lawmakers who often betrayed their lack of understanding of Goldman's role in many of the transactions now drawing fire.

At one point, Michigan Sen. Carl Levin, chairman of the Senate Subcommittee on Permanent Investigations, accused Goldman of being "rife with conflicts of interest," and declared the firm wasn't worthy of trust.

While the senators repeatedly argued that Goldman created securities solely for the purpose of betting against them, Goldman CEO Lloyd Blankfein and others fended off those charges by trying to explain that investors, all of whoMany of the issues that were sticking points for members of the panel, appeared to be rooted in different interpretations of Goldman's role as a so-called "market maker," or an entity that links buyers and sellers.
m are savvy enough to understand the bank's role, weren't interested in whether Goldman was betting for or against a security it created.

"You keep using the word betting 'against,'" Blankfein exclaimed at one point to Levin. "We are principals."
"The nature of the principal business and market making is that we are the other side of what our client wants to do," he said. "And in the context of market making, that is not a conflict. I don't think our clients care or should care [if Goldman is taking a short position]," he added.

"I don't view it as [a conflict of interest]," CFO David Viniar told Sen. Ted Kaufman in explaining Goldman's dual role.

Earlier in the day, several members of the subcommittee tussled with former mortgage-trading desk boss Dan Sparks, who argued Goldman was under no obligation to disclose its position with a security it was selling because that position might change day to day.

"Should you have told that client you were going short, if you were?" Levin demanded of Sparks.

"Currently, that is not an obligation," Sparks said. "I think it would create a number of issues because those positions change a lot [and] you don't know what those positions are [at any given moment]."

But the misunderstandings didn't stop there. At one point, a number of senators declared that Goldman had a fiduciary responsibility to be completely transparent about its activities with each security, even though that responsibility doesn't exist with market makers.
WSJ's Deputy Managing Editor Alan Murray amazingly doesn't get it:

Goldman hearing highlighted conflict between client service and proprietary trading. Is that fraud? Unclear. But still disturbing.

1 comment:

  1. The exchange itself is evidence that fraud continues unabated. The politicians and the crony capitalists participate hoping this show will deceive people into believeing they are doing something about the financial crisis and won't notice they are doing nothing about the moral hazard that actually caused the financial crisis. In particular the bailouts that looted taxpayers and saved GS from bankruptcy, not to mention the harm caused by the FDIC, Fannie Mae and Freddie Mac. Its enough to make Victor Hugo weep.